It's not easy being a social impact startup. Although there is a strong network of accelerators, angel investors and ambitious founders, it's often difficult for a first-time -- or even second- or third time -- founder to win over venture capitalists with a vision for a yet unproven way to, say, reduce our carbon footprints.
But, on the other hand, people are pretty generous with their cash when they see a real opportunity to help improve the world -- or the local community. And Rick Davis, a former solar power company executive, says that's the niche he hopes to fill. Davis is now the founder and CEO of LOHAS Capital.
The company was formed in 2016 after Regulation A+, the final phase the JOBS Act, went into effect, allowing startups to raise up to $50 million from accredited and unaccredited investors through equity crowdfunding platforms. These are sometimes referred to as mini-IPOs because they require some documentation and public reporting, but not like that of a publicly-traded company. So, it's a massive new set of investors for founders willing to take on the challenge.
For Davis, this is the type of opening that he believes could help provide the funding that many social impact startups need.
"They have particularly difficult challenges raising capital," Davis told me over coffee a few weeks ago. "But, ironically, they're also the most well-positioned for the broad based marketing of a capital raise because they are, by definition, engaging at some sort of emotional or passion level."
That may mean investors have less of an expectation of a big return on their investment. And it's human nature for us to pitch in on the things we care about -- whether it's a donation to a church, a political campaign or a nonprofit. So, if there's a chance of return and you believe in it, there's potential for startups to tap that generosity and, hopefully, return a slice of profit.
But that kind of opportunity also attracts a lot of pop-tent entrepreneurs who may or may not have the chops to make it happen. For LOHAS Capital, this is an opportunity to prove themselves to be a firm that helps envision campaigns, target specific investors and angels and help navigate the legal twists.
"The problem was there were lots of companies sort of running to the siren song of an investment portal. 'Hey if I just show up and put my company there people will magically show up and invest.' And, whether that was something the investment portals allowed them to think or otherwise, it's not accurate," Davis said. "It doesn't work like that. For any real chance of success you have to orchestrate a relatively sophisticated campaign to get the word out and know your target audience to make it plausible."
Since the laws represented a relaxation of Depression Era rules aimed at preventing predatory pitchmen from luring uninformed investors from investing their savings accounts, it's perhaps logical that the new law have plenty of fine points for startups to consider.
Davis said LOHAS Capital focuses on strategy and goals first. Then, it looks at what data the startup has and what is available to supplement it with data LOHAS has already accumulated. Finally, the company helps tap into as many new networks as possible.
One of LOHAS Capital's most successful campaigns is FAFCO, a company offering stand-alone solar panels. It has raised $234,531 on WeFunder. And Davis believes a lot of the value comes after a successful campaign when you can leverage those passionate relationships to find customers.
That's especially important for social impact startups, Davis said.
"This doesn't just open a marketing door for these companies, it actually opens the capital door," he said. "And, at the core of growth for every company, it's customers and capital."
