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Los Angeles - Relay Foundation

Los Angeles

Los Angeles

The City of Cities

Overall Trends:

It was hard to work for me in LA. I’m just being honest. The weather was beautiful, the people were beautiful (and remarkably healthy), and, no matter where I went, I always seemed to have access to a beach. But rather than building their dreams in sand, the Impact Community of Los Angeles is lively with social hijinks far less likely to be washed away with the tide.

Quick heads-up: I’m using ‘Impact Community’ to mean all impact organizations, not any one organization. This means all social for-profits, all non-profits with earned revenue, all regular charities, and the service-providers and funders that help them do what they do.

For LA to make sense to an outsider, you need to remember that you have ‘Silicon Beach’ techies (Santa Monica), Hollywood celebrities, students from some of the top universities in California, and the investors from a stellar financial sector all a short trip away from one another. From there you need to pepper on a deep-rooted appreciation of art, health, and anything alternative (music, architecture, sports). Mix everything together vigorously and you’re bound to have an active ecosystem doing things you haven’t seen anywhere else.

Editor’s note: I am now in Uganda and I still have not yet found the mix I experienced in LA anywhere else in the world. Will keep looking.

I’m going to focus on the health piece right now. Health here is disproportionately important when I compare it to any city I have visited (except maybe SF). Every corner store has the packed niche café that grows their organic greens at a local urban farm. Across that corner is a packed gym. I had the faint fear that everyone was seemingly in on the scheme to stay in above-average shape.

The reason this matters is that a good many of the opportunity-based startups that came out of LA recently have been focusing on health. Even Jessica Alba, the Invisible Woman of all people, founded a company offering toxic-free health and cleaning items to families for a subscription fee. It was successful because it tapped into the local norms and pains (and what’s more, had charity partners under the ‘Impact’ section of the site instead of their own impact. Superb).

Another example is Roozt. I think we can both agree that LA is a rather dapper and fashionable spot. Roozt sources and sells online all of the ethically made and organically sourced clothing items that would make someone stop and stare. The link is to a pen that is made from small trees that pressure larger, older trees and in turn cause more harm than good. Roozt has gotten some terrific traction recently (turned down $1mm in 2012) and just goes to show you what tapping into the local ethic can do for a business. Sometimes it’s not about coming up with the greatest gadget or the world-changing tool. Sometimes you just need to make it easy for people to do what they want to do, only social-ier.

So there’s today’s question for you: how can you make everyday tasks social-ier?

Smiling. For Impact.

Question 1: What is Social Enterprise?

Key Handoff: A solid core is good for more than just Pilates.

One of the interesting points that has come up while traveling is that, because every city defines social enterprise differently, service providers that set out to help those organizations usually end up adapting the local definition. That’s why Chicago, with its more conservative view of social entrepreneurship, had Panzanzee, a social co-working space that focused on charities. You often don’t see a private enterprise working to serve nonprofit like that unless the nonprofit sector is developed enough to be able to make enough demand to make offering the space a good idea. The greater demand, the more sway on what it means to be ‘social’, but you adapt to get paid.

The LA example on this trend is The Hub. We’ve talked about The Hub a few times, and that’s why I thought it good to bring up again. The Hub operates kind of like a franchise. You apply to build one and they grant you the right to do so, with some guidelines. The guidelines mention you should look for companies that want to have a positive impact on the world, that want to change the way things are done for the better. That’s kind of it in terms of requirements for ‘social companies’.

Why so general in the wording? Hubs are businesses, that’s why. This necessary ambiguity helps the local Hubs to adapt their branding and community outreach to organizations that fit the local norm so they can bring in more customers. So what you end up finding in the Hub in Boulder is nowhere near what you find in the LA Hub. Boulder has agriculture and artisan empowerment. LA is fashion and health with a heavy focus on tech.

The delightful part of this is that, because the Hub brand and workings on the global level is all about impact, people still associate the local Hub with impact. When I visited the Hub in LA, it was all business. Groups were talking about building their beta sites and iterative testing and all that lovely business. The talks were about building solid companies and, while the social impact may have been built into the model, a passerby might not have noticed they were in a ‘social’ coworking space from the conversations.

Yet when I left and talked to a few hacker friends over in Santa Monica about the Hub, all they had to say was:

“Is that the hippie place with all the companies that want to save the world?”

The reason this matters is that a strong focus on impact on the macro level can offset the local variations that necessarily come about when a new office opens up and has to adapt to the local people to survive. Then, in addition to consistently hiring great people, The Hub has brilliant communication between each location to get the best ideas for staying or becoming more impact-focused after they get to the local sweet spot. Having great people on the ground and clear communication to the top have helped The Hub maintain their brand so well even as they open up offices around the globe.

Bravo.

If you want to start a social company, this building is a sign you’re in the right place. Time for a Treasure Hunt!

Question 2: Getting people involved.

Key Handoff: It helps to have a ‘Go-To’ spot for new entrepreneurs.

The other thing that struck me about LA is that there are co-working spaces everywhere. Everywhere. Some spaces are used for incubation and acceleration of companies. You take a step down in support and there are spaces with business services like filing. Another step down and you get nothing more than an empty desk and a chair. You can find what you want.

Here’s the problem with so many coworking spaces everywhere: they’re everywhere. Remember when I mentioned the density issue a while back? About how without enough density you get a lack of cohesion in values but too much density gives you stagnation? Here’s another downside; if you have competing dense areas, you don’t get the ‘Startup Center’.

Ignore Silicon Valley for a second because the whole damned thing is a Startup Center. Instead, look at New York. New York is getting close to SV in that the entire city is almost a Startup Center, but the focus is around a string of streets starting in the Flatiron District and going down to Tribeca called Silicon Alley. As the community was growing, that’s where you went if you wanted to start a business. People knew that and clustered there. The services offered to startups stayed there. The incubators and accelerators were all there.

LA doesn’t really have that. It has Silicon Beach over in Santa Monica, but that’s web tech. What about Clean Tech? You need to go downtown for that to CleanTech Incubator LA. What about social? You need to go to the arts district for that. And because it doesn’t have the collaboration that concentration offers, it can be hard for a new person to figure out where to get started based on their idea. It also means the ideas might not be mixing as much as they could, as the standard tech guys are a half-hour drive away from the sustainable fashion people with seemingly very little reason to head over.

Just be careful, when you get started here you need to make sure you know you’re heading to the startup hub that’s going to have the most support for your specific startup.

A blurry picture of a branding genius. Classes offered through General Assembly.

Question 3: The finance.

Key Handoff: When impact finance gets low, get creative! (And make friends)

How the people and organizations with capital define ‘social’ is one of the major dictators of what the startup space looks like. That’s why the fight over what really counts as social is so hectic. What kind of companies exist, what their branding components are, even what conflicts the employees have with one another, these are all tied to what obstacles are being placed to obtain funding. For you, that means certain cities can make it harder to start certain kinds of social ventures than others, even if the capital is technically there.

The kinds of finance available to LA social entrepreneurs follow this. All types of financing technically exist, but some of them only in name. You have all the standard company financing like VC and Senior Debt if you have a company that fits that model. As for social funding such as below-market rate investment or loans, that’s more rare but you do have impact investors and groups of angels. Not to hide anything, though, you’re going to have to fight to talk to them, groups like the Community Investments Initiative, and hope they put you in touch with their friends. Grants, on the other hand, grants are everywhere…if you’re a nonprofit or have a tax-exempt organization serving as a fiscal sponsor.

A Fiscal Sponsor is nonprofit that provides its tax-exempt benefit to individuals or groups that are doing work that aligns with the nonprofit’s mission. The reason this matters to social entrepreneurs is that you can use a fiscal partnership to get a cheap Proof of Concept. If you want to prove that your venture can solve the issue at hand, work with a charity to hold an event that links to what the heck you’re doing and get the charity to serve as a fiscal sponsor so other groups can donate funds to the event. This cuts down on your costs, makes the charity some money (they take a cut of the grants), and proves your company knows what it’s doing. Here’s a link to licensed fiscal sponsors and here’s a good FAQ if you want to get your feet wet.

Now, what do you do in LA if you want to get some working capital and you’ve built your Proof of Concept into a small/medium size social enterprise (SMSE) with some cashflow? You will most likely be able to get a loan after you have 6-9 months of good sales, and perhaps you can get it through a Community Development Financial Institution (CDFI) so it will have a discounted rate. CDFIs are government licensed financial organizations that leverage specialized funding to address regionally important economic issues.

Take Telacu as a stand-in. Telacu has a program called Community Capital for businesses that might not be able to get regular loans from banks that are a bit more hesitant to put money into something so risky as a social venture, even with rising revenues. The CDFI’s freedom to look at the social and local impact of the company receiving the loan is massively important here. It allows a social venture that may in the future get up to the scale of VC get immediate access to working finance, without having to hide or sacrifice their social mission. This doesn’t mean Telacu will ignore poor financials or a bad business, so make sure you have everything in order when you give them a call.

I have to say, now that we have this toolkit of alternative finance that can help anyone get going with a social enterprise, I feel like the finance-Batman.

My best,

Bruce…Wayne?