“Build it n’ Flip it” is one of the key themes that emerged from the Structure Lab process I experienced in Boston in February. The purpose of the Lab process is to help social enterprises proactively protect their mission and values by teaching them how to think about the optimal legal structures that can be used to further their mission. Knowing how to think about this is very empowering process, which will filter through to the strategies that social entrepreneurs employ in many contexts, including finance.  

Build It
Criterion Ventures, a U.S. based organization that identifies, examines and solves social problems by launching social ventures, held the workshop that I participated in. I did so because I agree with their perspective on the role of legal structure vis-à-vis strategy. Their innovative process to discussing legal structure is, appropriately, one where the social entrepreneur identifies their core mission in the form of their values, relationship, and assets, and then builds their venture “from the Mission Up.” Ultimately, the basis behind the perspective that legal structure is linked to strategy is simple: legal structures manage relationships.

This basis, in my opinion, is a fundamentally true and powerful lens that social entrepreneurs can use to approach the legal structure of their ventures. So, how does this relate to social finance? Well, let’s go back to my “Build it n’ Flip it” metaphor. Once a mission-driven analysis leads to the creation of the legal structure, then the structure will inform the strategies that can be used to achieve mission.

Flip It
Since financing is an integral strategic tool of mission achievement, the legal structure of a social venture will inform how it can be used. Why is that? Because legal structure manages relationships, irrespective of context.

Once the “flip” is done, important factors for consideration in the context of financing include:

• Whether outside financing will be used;
• Whether outside financing is really required;
• Historical financing models (e.g. equity, debt, philanthropy);
• New social finance models; and so on.

The guiding lens is to ensure that core mission needs are aligned with available capital.

Once financing choices have been made, interesting twists and turns down the road can emerge. For example: a celebrity has taken interest in the venture, the big grant didn’t get approved or the chief investor wants their money back. As the twists and turns emerge, the perspective that legal structure manages the relationships in the social venture’s ecosystem will serve as a clear and empowering lens to explore strategic possibilities.

What do you think about the correlation between legal structure and strategy, in the context of finance for social ventures? Is the correlation more, less, or equally as relevant as it is in the context of traditional business?

Photo credit: http://www.flickr.com/photos/uggboy/4807789993/

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