In the News

It's safe to come into the L3C water...

Thursday, June 10, 2010
by Rick Zwetsch

L3C entrepreneurs also hope for more education and especially more leadership from leading foundations to expand education about L3Cs. Several said that, ultimately, they think foundation support or lack thereof will either make or break the L3C. Some mentioned that if the biggest foundations in the country—the ones truly viewed as “thought leaders”—came out in favor of the L3C, the tide would surely shift behind it. In late 2009, the Bill & Melinda Gates Foundation announced that it would be placing more emphasis on PRI investments in the coming years. By extension, many think this indicates opening a door to L3Cs, but no major foundation has made a truly public and overt endorsement of the L3C model so far:


The foundations need to get behind it. It's up to the foundations to find great projects and start to think differently a little bit. I think that is where the L3C will either win or lose—it will be on the floor of the foundations...It's my hope that foundations begin to realize how it's going to maximize their money and create more social good rather than constant depletion of their resources. What we're talking about is replenishing what they already have, which is a major idea shift.

—Christopher Washington, SOLVE L3C; Washington, D.C.


I think the Gates Foundation stepping forward, the Susan Buffet Foundation stepping forward and other major foundations moving into program-related investments and L3Cs—all of that lets it be known that 'it's safe to come into the water.' When you have thought leaders acting in a visible way, you achieve a tipping point and that is exactly the phenomenon that will be occurring and, in fact, is already starting to occur.

—Marc Lane, Marc J. Lane Advisors, L3C; Chicago


Several others go further to add that it's not just the foundations that should educate themselves and others, it's also the business and nonprofit sectors that need to understand and embrace the concept. The L3C entrepreneurs hope these sectors will realize how the L3C might help them become better social investors and achieve their missions. That said, the entrepreneurs also recognize that such a process may take time and there also may be some very strong levels of resistance:


It's going to take grantmakers stepping up and taking the time to understand what the structure is, what they can get out it, and how it can support their mission. It's going to take some real creativity from the entrepreneur standpoint to get some compelling, very scalable and very successful business models. It's going to take the cooperation of the nonprofit sector who has got to see the L3C as sort of a partner in crime and not a competitor for grant dollars. It's going take everybody to step up to see the benefit of an entity that can operate like this.

—Michael Moreland, SEEDR L3C; Atlanta


Nonprofits are feeling threatened by this because they think it's going to draw foundation money away from them. I think their fear is legitimate, but what they have to do is understand is that it's not a threat, but an opportunity. I am a nonprofit and I see it as an opportunity; another tool. Eco-Cycle is not going to become an L3C; we're going to stay as a nonprofit but we're going to create an L3C as another tool to support our mission.

—Eric Lombardi, Eco-Cycle; Boulder, CO


To me, the key to success in the whole L3C concept rests with the ability to get outside investors into deals that have social missions; where going in, the outside investor understands clearly it may not be as profitable as a straight-up business deal, but knows that hopefully they will get a decent return on investment and know that they will be doing a lot more in terms of having a social impact that's favorable to society.

—John Plunkett, Civic Staffing L3C; Chicago


Several suggested that in order to really improve education on the L3C and change the conversation to something more concrete, there have to be more working, scalable models in place to show that the concept really works. Unfortunately, building models takes longitudinal data, and that takes time:


The concept is good but there aren't any good working models out there right now. There have to be good models put together that are working models. I think it's too early too tell. It's sort of like the LLC was 20 years ago and now we have good models out there.

—Ron Hays, Marion-Polk Food Share; Salem, OR


There is now growing awareness, interest and use of PRIs—even though the tool has already been available and used for two to three decades—in large part due to more examples, practice and familiarity with PRIs in the field and due to recent research, reports, conferences and networks. If the field is interested in expanding awareness by funders of the L3C as an option to achieve social impact then more information about current practices, a clear rationale for the use of this too, and practical resources would be helpful.

—Marty Campbell, Foundation Source; San Francisco

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