Alumni Stories: Double Returns

When Nancy Pfund '82 started a social investment fund in 2004, she had to explain the concept to potential investors. At the time, Pfund was a managing director at JPMorgan, where she’d been for more than 20 years, since it was Hambrecht & Quist. Even after she helped found DBL Investors by spinning it off from JPMorgan in 2008, she discovered that many clients still didn’t get the concept of a venture capital fund that would strive not just for top-tier financial returns but also a meaningful social impact — or they didn’t believe it was possible. "It’s an almost heretical idea in certain circles," she said.

Pfund explained the approach — and illustrated some of DBL’s successes — to a large audience at Yale SOM on December 6 as a guest of the Venture Capital & Private Equity, Energy, and Women in Management clubs. But where some investors still don't quite grasp the double-bottom-line concept, she knew this wouldn’t be an issue at SOM. "In many ways it embodies the SOM ethic. It taps into a lot of themes at SOM."

DBL’s first fund — $75 million to invest in Bay Area companies — has already had an impact. Pfund spoke of two companies in particular where the firm’s influence has been felt. DBL was an early VC investor in Pandora, the internet radio service with more than seven million daily listeners. She said DBL was attracted to Pandora both for its investment potential and the fact it had located its offices in an enterprise zone in downtown Oakland. She and her colleagues found Pandora to be receptive to the double-bottom-line approach, and the two companies worked to figure out a way for Pandora to take an active role in improving its community. They came up with a plan for Pandora employees to teach music in an inner-city school that had abolished its music program. "This is a very meaningful project. It’s been great for the school and kids," she said, adding that now Pandora is looking at expanding the program to a school in New York. Pfund added that the goodwill Pandora has created with the school project has helped its executives work with local politicians to reach key regulatory goals in the digital music arena.

In the same way, DBL worked with electric car pioneer Tesla to recognize the value the company could get through economic development incentives if it moved its manufacturing facility into a lower-income area. This effort eventually led to the company’s move into a closed Toyota plant in a suburb of San Francisco, thus improving a struggling area. DBL also helped the company’s founder, Elon Musk, locate a community center in a part of the Gulf Coast ravaged by Hurricane Katrina and the BP oil spill and worked with local residents to install a free solar and battery storage system in collaboration with another DBL portfolio company, SolarCity. Pfund said that the power of double-bottom-line investing is how it can achieve real returns both on the business and societal sides. "The power of venture capital to create jobs is astounding," she said. "But it’s traditionally never been harnessed as a way to help resolve the inequities of society."

Pfund explained that DBL’s approach requires it to get in early in a company’s history, in order to exercise influence. Once DBL sells its shares, it’s no longer in a position to help a company directly. By getting in when an outfit is still in its infancy, DBL can help shape the corporate culture, so that the company goes on seeing the greater community as a key constituency long after DBL exits the investment. Another key reason to find dynamic companies early is that the greatest returns often come at that stage. And since in many ways, DBL is a traditional venture capital firm, those returns are essential to its success. "Investors wouldn’t be spending a nanosecond of time with us if we weren’t talking about great returns," she said. "If we don’t make money for the investors, they’re not going to invest in our next fund, and we’re not going to create a lot of jobs or reach our goals." In Pfund’s view, "if DBL does its job correctly, tying financial and social returns together enhances them both."