What’s in an exit? Sustainability, Funders, Failures

Adam O'Boyle7 Mar 2015Growing

An ambition for anyone starting a new social venture should be to build an organisation that can be around for decades to come – or more exactly, that’s impact can be. To work out how it can go The Distance when it comes to having made a mark in the world.

And for a good while now, alongside thoughts of our future growth, we have been thinking hard about the overall sustainability of what we’ve built over nearly eight happy years at Hub Ventures. But not just our usual thoughts on sustainability – like do we have enough money or staff to last for a couple more years, whether our meat and veg is sourced well, whether the roof of our Georgian office is actually about to cave in. But how we ourselves can go as far as we are able with our impact.

We believe that when funders help get a new organisation or programme off the ground they should share that aim. So what are they doing to help this process? Not enough we think. Too funders really know where they are trying to ‘get to’ with their investments – what, when they ‘exit’ an investment/grant they hope to have achieved. How can we make funder exit strategies better so that they ultimately lead to more sustainable organisations?


In the fashionable for profit world, of venture capitalist investment, stock markets, and mergers and acquisitions, an exit loosely refers to the point when investors get their capital back or key staff find ways to move on – innocent are a good example here, on both fronts. The founders wanted to leave at some point and given rapid growth and investment the company was clearly running out of cash. Coca Cola stepped in and now owns innocent almost entirely outright. Not perhaps the exit many of us would have wanted (similar examples include The Body Shop, Green and Blacks, Ben and Jerry’s), but it ‘worked’ and there is good literature on what such an exit may mean and the forms they may take – IPO, acquisition, management buyout etc.[1] It sometimes means a new growth pathway for the organisation with an injection of funding, it sometimes largely means business as usual, it sometimes means a steady decline to mediocrity as an organisation loses its soul, purpose and drive – Yahoo and Microsoft are the companies that always make the news in the later regard. Crucially though, the process is designed to engineer the next stage, whatever that may be, of sustainability for the organisation.


I’ve been really pleased to see thinking from Big Society Capital about how holding companies like the extraordinary Groupe SOS could be one mechanism to facilitate exits for social entrepreneurs. However, that’s about it – and I don’t think that liquidity issues in the social investment sector are the sole cause of this. You rarely hear funders shouting about stories of ‘great exits’. Normally when it comes to exits, the only examples going are when a charity merges with another in precarious circumstances. All too common and hardly planned.

There are too many distressed mergers, bankruptcies, zombie-state organisations that limp from grant to grant to imagine that capital is being well allocated within the sector, or sustainability is being properly planned for. We no doubt need more mergers, but planned ones, not ones in desperation. And there is shocking waste when an organisation is unable to sustain its work and disappears without a trace, all that investment with it.

Which leads us to question what funders are sometimes trying to achieve with their grants and investments? What too organisations are planning for with all their grant applications over the years, as no doubt there is as much to challenge investees/grantees as investors/funders in any of this. There are far too few tales of success – which either leads us to conclude that proper exits are impossible, or not enough is being done to facilitate them.


  • There is no reason necessarily for funders to drop their usual rules around 3 year grant periods. Nor for investors to be tied to an organization for ever. But for those funders who do have capital they are happy to deploy to high risk enterprises – and there are a good few – perhaps a much more strategic portfolio approach to investment really is now needed. Perhaps grantees really do need to be taken on a journey towards sustainability, with dedicated support, not just picked up and dropped between successive grant applications. Exits could be planned by funders who take organisations as far as they are able. Why don’t funders take more board positions perhaps too?
  • Funding needs to be sustained and substantive. The private sector has a lot to sort out about itself, but it’s a little better at least at capital allocation, so let’s take some more cues. Picture the scene in Silicon Valley: The team from “Hot New StartUp” is pitching to a panel of Venture Capitalists for their Series A funding round, let’s say £1,000,000 that should last them for a couple of years. Investor A says “sure, I’m in, but if in 2 years time you’re a bit short of cash but seemingly still growing well, then don’t come looking to me for the next round of funding, and I won’t be helping you get Series B.” Ludicrous, of course. But not in our sector.
  • Whilst we’re still locked in a debate about overheads,[2] it seems that a fairly nuanced debate about appropriate capital allocation and sustainability is unlikely to happen quickly. But funders do need to act more like venture capitalists if we are to see innovative solutions get taken up more widely. Perhaps they should be facilitating, demanding even, ‘exits’ which are more wide ranging than just ‘exits’ from one particular funder to be picked up by another. Or maybe they need to do better at ‘holding’ their grantees close so that if a venture does need to close down its knowledge and resources can be fruitfully handed over to others.

What galls me is that so many entrepreneurs and organisations that we admire seem to reach a point where they get trapped by the sectors’ dynamics – they can’t grow, but they want to leave as they have got itchy feet. But nobody is there to help them. And so we’ve seen, we must say, some pretty poor ‘exits’ around us. Exits that we’d quite like to avoid.

We need to find better ways to make organisations sustainable and funders could play a huge role. A lack of decent thinking about this isn’t just holding back the social sector, it’s strangling it at birth. Let’s find a way to thrive, not just survive. There is enough money out there if it can be put to the best use.

Question: How much role do funders have to play in helping nonprofit ventures design their exit strategies?

An internal report from Hub Ventures on this topic and some of the associated challenges is available to those interested on request.

[1] See for a start: http://cpee.tuck.dartmouth.edu/uploads/documents/exits.pdf

[2] http://www.theguardian.com/voluntary-sector-network/2013/may/08/moving-forward-debate-charity-overheads

Author: Adam O'Boyle

Adam O'Boyle is Executive Director of Hub Ventures. Adam co-founded Student Hubs in September 2007 during a sabbatical from his History and Economics degree and rejoined as Executive Director upon graduating in July 2009. During that time Adam also worked as a part-time analyst for New Philanthropy Capital where he co-authored a research report entitled: ‘Critical masses: Social campaigning, a guide for donors and funders’.