The Future Of Business Lies In Hybrid Social Finance Partnerships

A simple networking dinner where a business executive met a social entrepreneur with a great idea turned into a long-term, successful partnership in the nascent field of social finance and “impact investing.”

The social entrepreneur was Ashoka Fellow Luke Dowdney, who spent the past 10 years launching and building a social venture called Fight For Peace. Fight for Peace runs boxing academies and youth leadership programs to get young people out of gangs in London and Rio de Janeiro. Through a unique and comprehensive support system called the Five Pillars methodology, it helps young people learn values. The Five Pillars—Boxing and Martial Arts, Education, Employability, Youth Support Services and Youth Leadership— are central to its theory of change.

Since it launched in 2000, Fight for Peace witnessed tremendous growth and success as its boxing gyms and training programs impacted thousands of young people in more than 20 countries. However, in order to continue to grow as a nonprofit organization, it needed to diversify beyond traditional, charity-focused fundraising channels and find new capital and revenue streams.

The business executive that Dowdney met that night was Serge Kremer, the co-founder of the Netherlands-based venture capital firm Penguin Ventures and a member of the Ashoka Support Network (ASN). The ASN is a global network of industry leaders who work together to help Ashoka and its 3,200 leading social entrepreneurs, elected as Ashoka Fellows, drive social change around the world. The guidance, resources and expertise that ASN members provide are often instrumental in transforming and scaling a Fellow’s social enterprise.

Forming a great partnership

In 2010, as a member of ASN, Kremer was hosting a dinner to bring together other ASN members with Ashoka Fellows who were seeking guidance on how to scale their social ventures. That night, Kremer agreed to invest in Dowdney’s venture and a long-term partnership was formed.

Luke and I had an immediate personal connection. I liked his vision, his thoroughly researched and tried-and-tested approach, his entrepreneurial spirit, and his way of doing business.” He says. As a business executive, Kremer strongly believed that it was important for impact investors to work with people and subject matter areas that resonate with them.

Dowdney had come to the dinner fully prepared with a business plan to develop a new social enterprise, which would potentially bring a new revenue stream to Fight for Peace and provide the capital it needed to scale. The conversations he had with Kremer in the following months resulted in the establishment of the LUTA Sportswear company, which would donate half of its profits to further the mission of Fight for Peace. LUTA, a line of Brazilian-inspired high-performance sportswear, was designed to reflect the vibrancy and the rugged character of the favelas where many of the Fight for Peace fighters lived.  It was also much more than a charitable line of clothing. It was founded on a sound business plan that targeted an underserved market segment. It gave customers a choice to purchase sports clothing that was of comparable price and quality while supporting a great cause.

A win-win social finance deal 

Dowdney took on the role of CEO and Kremer became his business partner and CFO. Together, they helped LUTA grow and become very successful. In 2014, the company was bought by Reebok, which agreed to continue directing a portion of LUTA profits to support Fight for Peace. This ensured a solid financial return for its investors, and more importantly, established long-term financial sustainability and growth for Fight for Peace.

When asked how he knew that Kremer was the right partner, Dowdney stated, “He’s a good guy and cares about what Fight for Peace is all about. If he was the richest and best business brain in the world but didn’t care for Fight for Peace, I wouldn’t have been interested. Luckily for me and Fight for Peace, Serge is an extremely successful businessman and he cares.”

The deal was structured with equity investors and debt facilitators like a typical acquisition. However, the key exception was that the investors were not only focused on financial returns but interested in social returns as well. For Kremer and other investors, the deal didn’t make sense unless it first led to the growth and further success of Fight for Peace. So the deal and the management teams of Fight for Peace and LUTA were structured in such a way that would lead to success for the enterprise.

“My partnership with Luke was in no way different from any other business venture. When looking for partners, I look for exactly the same in a traditional business setting as in a social enterprise setting: entrepreneurship, thoroughness, stamina, good way with people, fun to hang out with,” Kremer said, “My investment approach was only different in that the financial return was not the only or the main evaluation parameter. If there had been a choice; Option A, where we achieve our goals with LUTA and not see any of my money back, or Option B, where I make a whopping financial return but not achieve our LUTA goals, I would have chosen Option A.”

The future of social finance

Deals and partnerships like LUTA are becoming common as the social finance market grows with the help of global organizations like Ashoka. For several years, Ashoka has been working to create hybrid social finance models through its ASN Angel Network. The organization brings traditional commercial funders and investors together with philanthropists, grantmakers and donors to support the evolving hybrid social business models that are emerging from its global network of Ashoka Fellows. Ashoka is not alone in its work in shifting the viewpoint from the investor to the social entrepreneur. Today, several funds and organizations are emerging to profoundly transform the financial sector. A few great examples are the CAF Social Impact Fund, Shared Impact, Funding Agency for Social Entrepreneurship and Roots of Impact.

Dowdney states that Ashoka was instrumental in Fight for Peace’s success by “finding an involved investor who didn’t want to just ‘donate to charity,’ but invest and be involved in building success.”

Bernard Coffey is a former business leader and long time volunteer with the Ashoka Support Network (ASN) team.