Hunting Stag with Fly Paper: A Hybrid Financial Instrument for Social Enterprise

Abstract

Social entrepreneurs and socially motivated investors share a belief in the power of social enterprise: ventures that pursue a “double bottom line” of profit and social good. Unfortunately, they also share a deep mutual suspicion. Recognizing that social ventures—just like traditional for-profit and nonprofit enterprises—need capital to flourish, this Article offers a financing tool to transform that skepticism into commitment. Unlike the array of new entities that have emerged in recent years—including L3Cs, benefit corporations, and flexible purpose corporations—the hybrid financial instrument this Article describes provides a robust and transparent solution to the puzzle that lies at the heart of every social enterprise: how to blend a profit motive with a social mission. Recognizing their shared dilemma as an example of what economists call a stag hunt, FLY Paper strikes that elusive balance by allowing investors and entrepreneurs to signal credibly a reciprocal commitment to the pursuit of a double bottom line.