Editor’s Note: Stephan Erkelens has 40 years of experience in starting and scaling businesses, including many in Latin America.
Home to nearly 115,000 small businesses, a $281 billion economy, and some of the nation’s foremost social and environmental leaders, Orange County is a hotbed for entrepreneurship.
Southern California is also home to some of the most innovative social impact and environmental leaders in the country, as several of its cities could be showcased among the most environmentally friendly towns in America.
These facts made Orange County the natural first choice for establishing a startup incubator for social enterprises (mission-driven, for-profit companies leveraging profit-generating solutions to address key social and/or environmental challenges).
My interest in social enterprise began many years ago when I became involved in philanthropy and nonprofit leadership. While the organizations I oversaw enjoyed considerable success, the limitations of nonprofits and the public sector in independently scaling impact became abundantly apparent.
I chose to apply social entrepreneurship to the coffee trade, where I had decades of success with traditional business models. I began developing a model which enabled small-holder coffee farmers to gain significantly greater agency in the global import-export markets.
Within six months, the new business structure made the value chain more efficient and transparent, allowing consumers, roasters, and farmers to engage directly, improving the farmers’ quality of life, reducing environmental impact, and delivering a superior product at top market rates. I imagined the impact this approach could generate across all industries, even in the most competitive of markets, which brought us to one of the largest economies in the world, Orange County.
In 2019, leveraging a team of business development experts and key investors, we founded RevHub Orange County, which today has raised over $2.5 million in philanthropic capital to develop mission-aligned incubation and funding programs, with $5 million in additional investment capital on the horizon.
The Nonprofit Problem
About 30% of nonprofits dissolve after 10 years, according to the National Center on Charitable Statistics, primarily due to lack of funding. I realized there was a need for a new paradigm that could blend profitability with mission preservation.
This realization begged the question: What if there existed a model that enabled organizations to maintain their missions while achieving profitability and meaningful impact at scale? This is where the rising demand for social enterprise enters the picture.
Internationally, the social enterprise model has taken hold, generating significant social and economic impact. There are approximately 10 million social enterprises worldwide, accounting for 3% of all businesses worldwide, according to recent research presented by the Schwab Foundation’s Global Alliance for Social Entrepreneurship.
Collectively, social enterprises generate around $2 trillion in annual revenue, creating over 200 million jobs.
These enterprises align their missions with sustainable development goals, notably in climate action and poverty alleviation. What’s striking is that half of the social enterprises are led by women, compared to 20% of conventional businesses, the foundation reported.
We partnered with organizations like UCI Beall Applied Innovation and have successfully incubated 30 impact startups, investing in eight of these ventures to date. Mission-aligned investments have been focused on two major impact themes: health equity and climate action.
Two Irvine-based ventures in health equity stand out:
– Tad Health Inc. is reshaping the mental health infrastructure—particularly in underserved populations—by offering a tailormade, data-informed platform which school districts can leverage to offer 24/7 mental health support to their students. The company, which has about five employees, is generating revenue.
– Prenostik LLC is curving the concerning trend of college dropout rates—40%—by offering students an AI-powered SaaS tool that delivers targeted, personalized, and real-time actionable assistance to improve learning. Prenostik is in pilot phase and has received a Phase I SBIR award.
We determine success based on a combination of metrics, generally based on executing their model and their results in social or environmental ways as well as revenue. We’ve contracted a third-party company, ImpactableX, which provides a platform that measures, tracks and audits impact, and establishes real economic value based on globally accepted standards.
Investments made in our portfolio ventures are returned, adjusted for profits or losses, to the fund once a company experiences a key financial liquidity event. It takes several years for startups to hit “breakeven” or start generating profits. We are looking for exit valuations between 5x and 10x.
A key venture achieving measurable impact along the climate action investment theme is Ecodrive, a venture that allows businesses to embed climate sustainability—tree planting, ocean plastic removals, kelp reforestation—within any platform customers use to interact with their brand, driving measurable ROI and achieving impact goals.
Catalytic Capital
We have learned that by deploying “catalytic capital” —a blended investment strategy that combines public and philanthropic funds with impact-first investments—we strategically mitigate risk in these early-stage social ventures.
This approach, when coupled with intellectual capital from industry veterans, accelerates a business’ capacity to scale while empowering social entrepreneurs to prioritize stakeholder impact over maximizing shareholder value.
We are also seeing growing stakeholder expectations for impact-first ventures in Orange County and beyond. Businesses are being compelled by market forces to look beyond their profit and loss statements and account for a company’s positive and negative impacts on employees, customers, the environment, and society.
We also quickly realized there was a missing piece to the puzzle. In observing one of RevHubOC’s first cohorts, we saw a notable gap in post-incubation funding for underrepresented entrepreneurs. In 2022, Black and Latino founders received only 1% and 1.5%, respectively, of total U.S. venture capital and women-founded teams received only 1.9%, according to McKinsey.
We knew we could not continue to perpetuate this inequality. Not only would this be against our DNA as a social purpose corporation, but ignoring this inequity would be strategically myopic as they well understand their target markets, making them ideal social entrepreneurs.
We then mobilized RevHubOC’s ecosystem to launch NorthSTAR (Systems to Access Resources), a collaborative program dedicated to illuminating pathways and eliminating barriers for underrepresented, underresourced entrepreneurs.
Within a year, our efforts expanded well beyond Orange County as we engaged over 1.4 million aspiring entrepreneurs, supported 5,700+ early-stage entrepreneurs, and facilitated the formation of 144 new businesses in these communities.
We secured $8.5 million in funding for NorthSTAR from the Governor’s Office of Business and Economic Development through the efforts of Sen. Josh Newman (D-29th District). We also raised an additional $1 million from sponsors, including the University of California, Samueli Foundation, the Small Business Administration and others to fund and incubate climate action startups in partnership with UCI and Sustain SoCal.
Orange County is poised to lead the nation in social impact innovation. It stands as an example of how a community can transform into a flourishing, regenerative economy by changing the paradigm that generating profits and achieving social progress are mutually exclusive.
When entrepreneurs have the tools, resources, and funding they need to focus on what matters, everyone wins.
