Prophet Motives

How two local heirs are changing the face of VC – and the world.

Credit: Paul Joseph

organic food delivery

The story of Renewal Partners and urban food delivery. How two wealthy American-born, Vancouver-based heirs hope to change the face of venture capitalism by changing the world.

The headquarters of Small Potatoes Urban Delivery (SPUD), off an alley near Hastings and Commercial in Vancouver, is a 13,000-square-foot warehouse that smells faintly of celery and green onions.

Milk crates, a compost barrel full of carrot tops and several newly arrived pallets of natural orange-mango soda crowd the receiving bay; at first the warehouse looks like the backroom of an organic grocery store. But instead of a glossy retail floor, the dimly lit interior is a maze of assembly-line tracks, where employees in jeans and T-shirts fill customer bins with grocery items – 1,300 in all, including recycled paper towels, frozen organic burritos, glass bottles of milk, free-range ground buffalo and the eponymous small potatoes (this week, white nuggets from Fraserland Farms). After pickup the bins will be delivered to customer doorsteps from White Rock to Pemberton via the company’s trademark purple vans.

The grey hairs of 10 years of entrepreneurial stress notwithstanding, SPUD’s founder David Van Seters is fresh-faced and laid-back. Before we enter the produce cooler, he points toward the ceiling. “We eliminated 60 per cent of the lights, then we switched out the last 40 per cent to energy-efficient bulbs,” he says. “We’re very tuned in to keeping energy use down. This is not like a supermarket, where you’ve got open freezers just pouring energy out.” Web-based grocery delivery is a tough haul for an entrepreneur: it’s a high-volume, high-overhead business with perishable product, fussy technology and low margins. Van Seters’s appreciation for conservation is typical of so-called “blended values” or triple bottom line entrepreneurs – who place equal value on people, planet and profits – but even in that elect company he has more respect for efficiency than most.
Unlike web-based grocers Webvan, HomeGrocer and Streamline, SPUD survived the dot-com bust of the late ’90s and has since maintained a 20 per cent annual growth rate. New warehouses modelled on its Vancouver operation have sprouted in Calgary and Victoria, as well as in Seattle, Portland, San Francisco and Los Angeles. Between December 2007 and April 2008, the company doubled in size, thanks to recent expansions into the latter three American cities; over 16,000 customers now order from its selection of natural, mostly organic groceries, while annual revenues exceed $24 million.

Though well-oiled and impressive, SPUD’s is not the kind of operation usually associated with paradigm shifts and global economic transformation. But for Carol Newell and Joel Solomon of Renewal, the company is a star case study in their “portfolio of stories,” proof of a theory of social change hatched in the early ’90s – and just possibly proof that social venture capitalism can save the global economy from itself.

In the mainstream venture capital world, an entrepreneur focused on anything but fat profits is a leper. Venture capitalists tend to prowl for high-tech bets they can flip in three to seven years, hopeful of a three-to-one payout for their trouble. They don’t look kindly on ethics or social mission DNA that might temper quick growth. “When you’re in the realm of having to achieve a billion dollars valuation in three to five years, you have to be absolutely single-minded and sacrifice whatever needs to be sacrificed to get there,” agrees Solomon, Renewal’s president and CEO. This has left countless idealistic entrepreneurs such as Van Seters grinding in low gear, stuck in the friends-family-credit-card round of financing. But in the social venture capitalism (SVC) model pioneered by Renewal and a handful of other funds across North America, investors screen for social purpose, taking their time to turn lepers into wealthy apostles. “We’re a long-term investor with an eight-to-12-year frame, which gives social mission DNA time to take root and become profitable,” he says. “Some call it patient capital, but it’s an investment strategy.”

Since 1993 Solomon has acted as the public face and central strategist for Renewal. Bankrolled entirely by Carol Newell’s inheritance, Renewal’s mandate is to “fund change,” using business and philanthropy to promote conservation and social justice. Renewal houses several independent entities in three categories: grant making, collaboration and SVC. On the grant-making side is the Endswell Foundation, which since 1991 has funded a long list of non-profits, including Rivers Without Borders, Forest Ethics Canada and the Pivot Legal Society. Collaboration projects run by Renewal include the Social Venture Institute (networking retreats for triple bottom line entrepreneurs such as David Van Seters) and invitational “Play BIG” events that teach wealthy progressives how to get the greatest social bang for their philanthropic buck. The investment arm, meanwhile, comprises Renewal Partners – a seed- to expansion-stage SVC firm that, in addition to SPUD, helped kick-start juice company Happy Planet Foods Inc., Salt Spring Island Coffee Co., Horizon Distributors and socially responsible investments (SRI) screener Jantzi Research Inc. It will also soon include Renewal2, a $30-million to $50-million fund that, for the first time, brings in outside capital for early-stage investments.

This is a lot of social leverage for one foundation. On the SVC side, Renewal’s partners kept quiet about their investments for 15 years, waiting to see if the startups they’d nurtured would achieve profitability. They have, or many have, and, now that the mystery investor has stepped out of the shadows, it appears that the story of SVC in B.C. – if not Canada – is largely the story of Renewal. The Renewal story, in turn, is a tale of two heirs: Carol Newell and Joel Solomon.

Newell, 52, is bright-eyed and high cheekboned, with a few streaks of grey in her brown hair. Sans makeup, she has a healthy, no-additives glow. While Solomon was the public face of Renewal for over a decade, Newell spent nearly the same period living in anonymity on Cortes Island, keeping quiet about her patronage and performing occasionally with a local African drumming troupe. Like Solomon, Newell grew up in the U.S. in a wealthy business family. Her father was head of the Newell Company, a housewares manufacturer in Upstate New York that got its start making curtain rods. He died when she was nine, and her mother took his seat on the board of directors, shifting from homemaker to businesswoman at age 46, just when the family company was about to go public. By the time she was 16, Newell had gotten an oblique education in business from her mother and learned how to track the imposing number of family investments. “She had this huge ledger; assets above purchase price were in black, below they were in red. . . . She would invite me to meetings with the portfolio managers and ask me to help her make decisions.”

At age 21, Newell came into her first inheritance of US$4 million. It made her head spin – but, thanks to her mother’s training, not out of control. “It doesn’t seem like much now, but back in 1977 it was a huge amount of money,” she says. “There I was in my early 20s, thinking of all the possibilities connected with that amount of capital.” Travelling in Egypt on a university archaeology course, she had an epiphany while watching locals grinding grain. “They were using cattle harnessed to a wheel, and I thought, ‘My God, they’ve been doing this for thousands of years. That’s sustainable culture. How long can we actually keep doing what we’re doing back in the States?’ ” Newell’s mother had taken a traditional philanthropy approach by supporting the arts, hospitals and universities, but in the era of Love Canal and Three Mile Island this sort of charity no longer seemed radical enough. “They didn’t really have a focus on creating systemic change in society, and I could see that we were going down a road that was, well, doomed, with an end point. The disposable society, where the GDP booms but leaves destruction behind it and doesn’t account for externalities, that didn’t make sense to me.”

In the late ’80s, shortly after moving to B.C. with her geologist husband, Newell attended a talk by SRI pioneer Amy Domini, founder of Domini Social Investments. “That was probably the first ‘aha’ moment,” she says. “I realized money could be used to leverage us back into connection and regeneration, and away from rampant consumerism.” As she began altering her portfolio to reflect her ethics, she had good instincts for profitable SRIs: she was an early stakeholder in both Whole Foods Market Inc. and the organic baby food manufacturer Earth’s Best.

After her mother passed away in 1992, Newell received two further inheritances totalling $24 million. At that point, she decided she had more than enough for herself and put the first $17 million into the Endswell Foundation. When the next tranche of $7 million came a couple of years later, she earmarked it for an SVC approach to investment activism. “I was dreaming of what to do with it, and by the time I met Joel knew I wanted to invest it in social-change entrepreneurs,” says Newell. “I realized he was a terrific person to handle what I hoped to do with Renewal Partners. I hate paperwork and I didn’t want to do the deals – but I wanted to combine business efficiency and the pragmatic idealism of philanthropy. So he tackled it, investing $7 million in companies that would be part of the solution, rather than part of the problem.”

“Carol was in a position that was unique,” says Joel Solomon, who, like David Van Seters, has the fizz of a man with a mission. “She had no heirs and complete clarity about her mission. We felt obliged to go into these investment areas where anyone you talk to would say, ‘I don’t know if that’s such a good idea. I’ve never seen that done before.’ ”

Solomon, 53, was born into a Tennessee family that embodied the SVC notion of blended values. His father, Joel “Jay” Solomon, was chairman of Arlen Shopping Malls – once the largest mall developer in North America – while his photographer mother, Rosalind, starred in the first one-woman photography exhibit at New York’s Museum of Modern Art. “Business is the most powerful influence on the planet, and, growing up, I was surrounded by it,” says Solomon. “At the same time, my family had also been very involved in civil rights issues and liberal Democrat politics in the South, so I got exposed early to the notion of doing the right thing while making a living.” Early on he opted for politics over a financial empire, taking time out from a political science major at Vassar College to act as the national youth co-ordinator for Jimmy Carter’s winning presidential campaign (Solomon Sr. would ultimately end up in Carter’s cabinet). The peanut governor’s bid for the Oval Office was the ultimate long-shot ascent, and it gave Solomon a lasting faith in idealistic underdogs.

A year after the inauguration, doctors told Solomon that he had inherited polycystic kidney disease, an unpredictable and deadly genetic condition, from his father. “I was given, in effect, a death sentence of unknown duration – as, I like to say, everyone is,” he says cheerfully. “I was told I could die soon, or I could live a long life, and there was nothing I could do about it. The beautiful thing was that it was presented to me in such a way that I had to address it.” At the time, Solomon was assisting his father in Washington, D.C.; the diagnosis sent him on a soul-searching journey to an intentional community on Cortes Island. He spent six months on Cortes, followed by three years acting as a caretaker, gardener and lab assistant for OrcaLab, a remote marine research station on Hanson Island near Alert Bay. “I had an epiphany about the absolute importance of living my remaining life with my values and vision aligned with my life work,” says Solomon of the experience. “It meant seeing myself as an ancestor of future generations, accountable to them for every action I take today.”

In 1984 Solomon returned to Tennessee to be with his dying father. The following year, he joined the Threshold Foundation, a San Francisco-based network of wealthy heirs and philanthropists interested in funding social change. Solomon began to see other possibilities for capital besides big-box stores and parking lots. “I went to Threshold because I needed a social network of people who were attempting to do things differently. All the non-profit groups and change-the-world folks I came in contact with had terrible business skills,” he says. “It struck me that business and philanthropy needed to come together, that my best role was to take the legacy I’d been born into and apply it to a set of values.” He was at the founding meeting of the Social Venture Network, a support group for triple bottom line entrepreneurs initiated by Threshold, and through the network he met Ben Cohen of Ben & Jerry’s Homemade Holdings Inc. and Anita Roddick of the Body Shop International PLC. When his father passed away in 1986, Solomon inherited $3 million and, inspired by those entrepreneurs, his experiments with social venture capitalism began – investing in a chain of eclectic coffee houses and restaurants in Nashville’s decayed urban core, as well as a development company focused on infill neighbourhoods. “We tried to start businesses with focused missions, to differentiate them from the pack and create ripples of good.”

Solomon served as president of the Threshold Foundation from 1988 to 1990, and in his last year he received an application for membership from Carol Newell. He jumped at the chance to return to B.C. and flew to Vancouver to interview Newell in the Gastown offices of her Sage Foundation, an early social-change organization. There was quick alchemy. “Carol joined Threshold and loved it. Over the next two years, we talked about B.C. and our mutual interests here. At this point, I had business, implementation and strategy skills. Carol had vision and resources and a direction that she wanted to go.” That direction was putting Newell’s $24 million to work leveraging the economy – primarily in B.C. but also further afield – toward conservation and social justice, using the Endswell Foundation to fund non-profits, and Renewal Partners to capitalize social purpose businesses. It was a chance for Solomon to get his hands dirty on a much bigger scale, and he couldn’t resist. After he and Newell sketched out a 50-year plan and a 500-year “imagination” of the social impact they hoped (in some small part) to have, Solomon began seeking SVC deals for Renewal Partners in late 1992. He tapped into his network of social mission entrepreneurs in B.C. and across North America, sniffing out noteworthy startups. Through Endswell, Renewal’s regional strategy would leverage some fairly large ecological and social gains in B.C., from the Great Bear Rainforest to Vancouver’s Downtown Eastside.

Leveraging a profit, however, was a different game. “That was the Renewal Partners experiment: to go into these areas that are under-represented in conventional capital markets – natural foods, green consumer products, new media – and show they can be profitable,” says Solomon. “As it turns out, except when compared to the most aggressive funds, the returns are pretty similar to what you get if you’re making the big bets, the quick hits, and supporting a lot more that tumble.” With over a hundred for-profit SVC deals signed to date, Solomon has averaged a minimum of two times return over the life of each $50,000-plus Renewal investment, with some companies – Horizon Distributors and Seventh Generation, to name two – bringing 15 to 20 times returns. “In all of this, what we wanted was that portfolio of stories to prove it could be done. And because we never pushed for exits, we learned that companies have their own life cycles, and you get them anyway: the entrepreneur gets worn out or was great at startup but not so good long-term. Exits tend to come.”

Entrepreneurs changing the world sounds a bit Pollyanna until you see it working on the ground. In SPUD’s case – setting aside the boost to organic methods and the thousands of car trips saved by purple delivery vans – they act as the anti-Wal-Mart by making local farmers and suppliers a priority. Most SPUD products travel an average of 800 kilometres to reach their warehouse, versus 2,400 kilometres for the average grocery store. A secure distribution chain encourages new local farms and suppliers, and telling these stories – every SPUD product links to a supplier story – in turn increases demand for local goods, creating a positive feedback loop. By spurring local agriculture and supplier chains, every new SPUD warehouse from Calgary to Los Angeles acts as a sort of virtual carbon sink, soaking up more and more regional fuel emissions each year.
After driving us to lunch in his pastel-green Smart car, David Van Seters tells the SPUD and Renewal Partners story over a Cobb salad. In 1994 Van Seters was working as a consultant for KPMG International, making a business case for high social and ecological standards to senior corporate officers and government officials. While completing a study on sustainable food systems for the University of California at Davis, the idea of home organic food delivery grabbed him as a business model that would merge ethics and profit. “Home delivery saves resources and energy, and makes a more direct connection between farmers and consumers,” he says, gesturing with his fork. “I was keen to set up a company like that. And because I had charted the company as a social mission business, I wanted to find investors and lenders who shared that mission.”

Van Seters put $150,000 of his own money into SPUD; the trouble was finding another investor who believed in his vision as much as he did. This was 1998, before the dot-bomb crash, so optimism about web-based businesses such as SPUD may have wooed some conventional investors on board. But Van Seters was as wary of traditional banks and venture capitalists as they were of him. “I was worried they would ask me to water down the company values in order to generate a bigger profit, and all of a sudden we’re selling Coca-Cola.” Friends pointed him toward Renewal Partners, and after some mutual background sniffing they struck a deal. Solomon initially invested $45,500 and provided a $50,000 loan; in subsequent financing rounds, SPUD would receive a total of about half a million dollars.

Money was only part of the Renewal Partners offer. Solomon quickly became a SPUD vizier, connecting Van Seters with dozens of social entrepreneurs, consultants and investors. “Over the past 10 years, Joel has sent me literally thousands of emails with suggestions and referrals, which has been absolutely fabulous,” says Van Seters. “A typical VC might ask for a seat on the board and get involved in management decisions but would not get involved at nearly the level that Renewal Partners did. Most VCs view money as their primary offering, but Renewal offers partnership. One thing I can say for certain is that I wouldn’t have made it, I wouldn’t be in business today, without them. Fortunately, the value of SPUD shares has risen dramatically, so we’re finally in a position to reward them for all the good work they’ve done.”

These days Renewal Partners does about 15 deals a year, roughly two-thirds of which Solomon spots through his social venture networks; of the hundred or so unsolicited pitches he receives each year from entrepreneurs, maybe five make the final cut. Renewal has kept a regional focus in its attempt to preserve B.C. habitat and hold the province up as a model economy. But it makes a point of reaching out beyond B.C. to put down wider roots. “About two-thirds of our deals have been local, one-third have been continental,” explains Solomon. “It’s a globalized world and we need intellectual resources, social networks and allies from other regions. In our new fund, we’ll probably aim for about 50-50.”

SVC funds such as Renewal make up a hair-thin sliver of the roughly $3.5 trillion in North American SRI funds. Woody Tasch, chairman of Investors’ Circle – an SVC network of about 200 angels, professional VCs and foundations such as Renewal Partners – says that 99 per cent of those SRI trillions are in screened portfolios and public companies. “The SVC side is small and relegated to angel investors and a small number of relatively small – and I say that advisedly because we’re talking billions here – of social purpose venture funds.” Experts such as Tasch are reluctant to put a figure on the SVC field because the dollars are usually pooled in exclusive investment funds, available only to foundations and high-net-worth individuals – hard to find, harder to track. “The sector is still in its infancy,” says Solomon. “If you’re talking big clean-tech funding, we’re in the hundreds of billions, but my definition would be ‘investment defined by authentic triple bottom line goals in undercapitalized sectors.’ And my guesstimate for that is we’re still in the sub-$1-billion level.”

This may be small potatoes, but the number of SVC potato farmers is growing sharply, and their roots are spreading into the mainstream. Columbia Business School’s RISE (Research Initiative on Social Entrepreneurship) project lists over 60 funds that now invest in triple bottom line start-ups; larger SRI funds such as Calvert Group Ltd. now direct a small percentage of their money towards social mission entrepreneurs. Of the half-dozen SVC funds whose names tend to come up when discussing Renewal Partners – Underdog Ventures in Vermont; the Rudolf Steiner Foundation Inc., TBL Capital, Investors’ Circle and Good Capital, all from San Francisco; and Investeco Capital Corp. in Toronto – three have launched in the past five years.

The launch of the Renewal2 fund this December will help SVC continue to break out of the philanthropic eggshell and into the world of outside money and limited partners. The rest of the social venture community is watching with interest. For years, says Tasch, Renewal Partners has been looked on by international colleagues in the SVC and SRI worlds, not only as an influential pioneer, but with some amazement. “I can’t think of another group that I know that is doing this work with the vision and proactive intensity that they are. Renewal has moved more creatively and with more mission focus into a kind of community-first, bioregion-first investment methodology than pretty much any other fund I’ve ever seen,” says Tasch. “Joel tends to downplay the money they make, but they’re getting returns on top of supporting these transformative companies. Basically, the whole social investment world wishes it could do what they’re doing. It just doesn’t know how to do it.”

Solomon says he hopes to build a group of 20 to 50 limited partners with Renewal2 – “if we get to $50 million, yahoo; if we hit $30 million, that’s plenty to keep us busy” – and projects a three times return on the new fund. The prospect of Renewal2 breaking SVC out of the boutique world of individual philanthropy is welcome news to colleagues such as Tasch. “In a perfect world, social investing would lead to large numbers of small investors investing in large numbers of small, local-first businesses,” says Tasch. “What we’re all doing is creating a new financial market, one based on a new understanding of the concept of prudence. Investors in the 21st century will consider the health of bio-regions and communities to be integral to fiscal prudence, not something to attend to after you’ve created wealth.”

This past November, Solomon received a no-complications kidney transplant from his friend Shivon Robinsong, one of the founders of Hollyhock on Cortes Island. It’s the sort of ending Newell and Solomon, true to their organization’s name, are plotting for the planet: after decades of an uncertain and gloomy prognosis, lasting renewal. “We’re now in a very dynamic, macro-forces moment in history, and Renewal is just one variant of what is a natural response of humans in stressful times – to seek and tinker with possible solutions,” says Solomon. “We’ve been part of a movement to bring money and social purpose back together, and social ventures are a super-exciting cauldron of the new economy. It’s less evolved, and that makes it interesting. I’m convinced there will be billions of dollars in this in not too many years.”