Good Capital and Better World Books (A): A Better World for Investing

Abstract

The purpose of this case is to introduce the topic of socially responsible investing from both the investor and investee perspectives. The students will walk away with an understanding of 1) how to evaluate a portfolio company on a social/environmental mission and on traditional financial criteria, and 2) what considerations should be top of mind for a social venture considering accepting an equity investment. Wes Selke is a portfolio manager at Good Capital, an investment fund created to increase the flow of capital to innovative nonprofit and for-profit social ventures that are using market-based solutions to solve problems of poverty, illiteracy, and inequality. In 2007, Good Capital is ready to make its first growth equity investment in a for-profit social enterprise and Selke is considering Better World Books as the firm's primary target. Selke must evaluate whether or not the firm is a financially sound investment and if its social and environmental missions can be preserved upon a liquidation event. If Good Capital proceeds with the investment, Selke must also rework some of Better World Books' current procedures, including fine-tuning the philanthropic giving strategy that is the main component of its social mission.

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

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Resources

Exhibit 1: Good Capital Biographies

Wes Selke, CFA, Investment Manager

Wes Selke led investment management for the Social Enterprise Expansion Fund for Good Capital, which included deal sourcing, due diligence, and transaction execution. Selke had six years of investment management and transaction experience in the financial services industry and was a chartered financial analyst. Prior to Good Capital, he spent two years as an equity research associate at William Blair & Company, where he authored proprietary research on public equities in the advertising, digital media, and marketing industries and provided assistance on public capital markets transactions. Before William Blair, Selke spent four years with Ernst & Young Corporate Finance, where he advised privately held middle-market companies on mergers, acquisitions, and restructuring transactions. Selke earned an MBA from the Haas School of Business at the University of California at Berkeley and a BBA from the University of Michigan with an emphasis in finance and accounting.

Tim Freundlich, Principal

Tim Freundlich, a founding principal of Good Capital, was a highly regarded innovator in new financial instruments in the community development and social investment sector. He served in a number of capacities at Calvert Social Investment Foundation, including as director of strategic development. Freundlich conceived of and launched the Calvert Giving Fund, a socially responsible, donor-advised fund that was instrumental in building the $160 million Calvert Community Investment Note retail registered security (with more than $250 million invested into more than 260 entities globally, all of them nonprofits or social enterprises), and helped launch Calvert Community Investment Partners, an analysis and asset administration group for community development and social enterprise investment (with approximately $75 million under administration). He received a BA from Wesleyan University and an MBA from the University of San Francisco.

Kevin Jones, Principal

As a founding principal of Good Capital, Kevin Jones led market formation activities and advisor and portfolio company engagement. He had extensive private investment experience as both a limited partner and as an angel in a range of technology and social enterprises. Jones's former positions included CEO of Net Market Makers, an $18 million revenue online community and research and events company. Jones built Net Market Makers into the largest brand in business-to-business Internet commerce before it was sold to Jupiter Media Metrix in 2000. Five of his previous six businesses all achieved market dominance before he left or sold them. As a journalist, Jones had been a columnist for the magazines Forbes and Business 2.0. He had been on the boards of Social Enterprise Alliance, the association of nonprofit social enterprises, and Social Venture Partners International, a network of engaged philanthropy circles. Jones also led a malaria project in Swaziland and Mozambique, working with Jeffrey Sachs of The Earth Institute at Columbia University. During his twenty-year business career in Mississippi, he served on the founding board of Parents for Public Schools, a national organization of community-based chapters working to attract all members of the community to public schools.

Joy Anderson, Principal

Joy Anderson brought a depth of relationships that spanned established institutional investors, innovative social investors, and philanthropists to her role as founding principal of Good Capital. In 2001 Anderson founded and served as president of Criterion Ventures, a national firm that incubated and scaled ventures devoted to making a better world. She evolved the firm from a general contract consulting group performing a range of strategic work with nonprofits to a firm that invested time and talent in a few focused social ventures. Criterion worked in many sectors, including education, poverty alleviation, and healthcare. In addition to her work at Good Capital and Criterion Ventures, Anderson sat on the board of directors of the Lutheran Community Foundation. Anderson completed a BA in American Politics at Wesleyan University and a PhD in American History at New York University.

Exhibit 2: Better World Books Management Team Biographies

David Murphy, President and CEO

David Murphy graduated magna cum laude in 1980 from the University of Notre Dame with a degree in economics, and received his MBA in 1984 from the Amos Tuck School of Business at Dartmouth College. Murphy worked for twenty-three years in corporate finance, operations, and mergers and acquisitions with firms such as International Paper Company, The First Boston Corporation, and Hutchinson SA (multibillion-dollar French subsidiary of the Total Energy Group). He had also started several companies as well as served as CFO, COO, CEO for both privately held and publicly traded firms in the manufacturing, healthcare services, and technology sectors. Additionally, he had served on both corporate and nonprofit boards. In 2007 Murphy was president and CEO of Better World Books.

Chris “Kreece” Fuchs, COO

Chris Fuchs graduated cum laude from the University of Notre Dame with a degree in mechanical engineering in 2001. After working briefly in engineering and in education, Fuchs returned to Notre Dame in 2003 to complete the requirements for medical school. Because of the success of Better World Books, of which he was a co-founder, Fuchs postponed his entry into a medical school program. In 2007 Fuchs was chief operating officer of Better World Books.

F. Xavier Helgesen, CIO, Head of Business Development

Xavier Helgesen graduated cum laude from the University of Notre Dame with a degree in management information systems in 2001. Before co-founding Better World Books, Helgesen founded and sold 3bstudios.com, a college community portal company. In 2007 Helgesen was the chief information officer of Better World Books and served as the original software architect of BWB's proprietary software technology, Indaba.

Exhibit 3: Better World Books Organization Chart, September 10, 2007

Figure

Exhibit 4: Better World Books Financial Summary and Pro Forma, 2005–2012 ($ in thousands)

Actual FYE 6/30

Actual YTD

Projections FYE 6/30

2005

2006

2007

Jan 2007

Jan 2008

2008

2009

2010

2011

2012

Revenue

3,869

8,744

16,089

10,423

12,956

20,916

27,190

34,668

43,334

54,168

 % growth

126.0%

84.0%

24.3%

30.0%

30.0%

27.5%

25.0%

25.0%

Cost of goods sold

2,460

5,764

11,264

6,993

8,493

14,223

18,217

22,881

28,167

34,668

Gross profit

1,409

2,980

4,825

3,430

4,462

6,693

8,973

11,787

15,167

19,500

 % margin

36.4%

34.1%

30.0%

32.9%

34.4%

32.0%

33.0%

34.0%

35.0%

36.0%

Operating expenses

1,396

3,283

4,483

2,390

3,384

5,748

7,069

8,663

10,821

13,520

Operating profit

14

(303)

342

1,039

1,079

945

1,903

3,124

4,346

5,980

 % margin

0.4%

−3.5%

2.1%

10.0%

8.3%

4.5%

7.0%

9.0%

10.0%

11.0%

Depreciation

45

74

156

60

107

205

272

343

420

520

EBITDA

59

(229)

498

1,100

1,186

1,150

2,175

3,467

4,767

6,500

 % margin

1.5%

−2.6%

3.1%

10.6%

9.2%

5.5%

8.0%

10.0%

11.0%

12.0%

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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