6 Questions: One-on-One with Steve Newcomb, chairman and CEO, Virgance

Socially-responsible start-ups need cash, too. With Virgance, they get it.

Over the last 16 years, 39-year-old Silicon Valley tycoon Steve Newcomb has set up five companies—including Promptu Mobile, Powerset, and Loudfire—with a combined value of over US$3 billion. Now he’s decided to direct his profits toward a different kind of good. In May 2008, he partnered with activist Brent Schulkin to form Virgance, a for-profit company that acquires socially responsible start-ups and prepares them for first-tier venture capital investment. Described as a “B Corporation” (a designation for businesses that drive positive change on environmental and other issues), Virgance’s other projects include Carrotmob (consumer activism), Go Media (a network of environmental blogs) and Lend Me Some Sugar (corporate philanthropy). Before founding Virgance, Newcomb, the company’s chairman and CEO, started a natural language search engine company Powerset, which he sold to Microsoft in 2008 for US$100 million. Together with co-founder and president Brad Schulkin—who is known for organizing anti-war protests and making docs about prison issues—the duo plan to make activism a profitable enterprise. 

What is the greatest challenge currently facing Virgance, and what are you doing about it?

The biggest thing Virgance is working on is that we are creating social businesses. And social businesses are different from a for-profit, and they’re different than a non-profit. So we are treading in waters that have never been tread before. … Our companies have a different level of transparency than any other company that we’ve seen. Everybody shows their salary openly; equity is shared openly; we have full transparency with the public. The way we raise money is different because we are basically trying to create companies that fit the model of a sustainable world, if you will. So everything is new, everything is a straight-up learning curve, and that is by far our biggest challenge.

What we’re doing about it is we’re just plowing forward, and making sure that we fail fast if we fail, and if we succeed we succeed on legs that have strength. Imagine that there are non-profits and for-profits, and we have classified different types of businesses into seven types, zero through six. A type zero is what we call a non-profit and the type six is what we call a regular for-profit as we know it today. What Virgance creates is only type one through type five companies, wherein a type one company is almost like a non-profit in that its main focus is to maximize social benefit—where it only provides a 1x return for anyone that invests in it. But we also create type two, three, four, and five, where type 5 companies can provide an 8x financial return for an investor, but still have a social mission attached to it.

Who else—person or company—do you feel is doing innovative work and in what way?

Acumen Fund is interesting to me. They are a non-profit venture capital fund that invests in a very different way from normal venture capital funds. A normal venture capital fund—like Kleiner Perkins or Sequoia—tries to invest in things that provide a 10x return. Acumen fund attempts to return something less than 2x but more than 1x return. So, that area of investing in social enterprises is a new area, and I think Acumen Fund is doing some very interesting stuff in terms of measurement of social benefit.

How would you describe your leadership approach/style?

I am the entrepreneur turned activist and [co-founder, Brent Schulkin] is the activist turned entrepreneur. We try to bring those two things to the table in everything that we do, and in terms of the culture that we build. … We try to build a culture of absolute transparency. The rule in house is quite simple with transparency: If someone asks you a question, you have to answer it unless you are breaking the law in some way by answering it. And that culture sort of creates a spirit of trust within the company and allows you to climb the hard hills a little bit easier than in companies where there isn’t that level of transparency.

One of the things that we do in our hiring practice is different than most companies. When we do interviews they have to at least interview well enough to get past the beginning part. And then they work for us for a month or two as a contractor—they get paid in either equity or cash—to see if we like their work product, if we like working with them, and if they’re a cultural match. We then take a vote and the vote must be unanimous for them to become an employee. That voting process really does two big things: No.1, it protects our culture to the nth degree—we really want to make sure that the people who work here really like working together and create a tight cultural bond. And the second thing it does is that when the person comes in on the first day of employment they know that every single person wants them there and that gives people an incredible sense of empowerment and trust in themselves that they deserve the position they got.

How do you think the recession has affected people’s attitude toward sustainable energy such as solar panels?

I think people’s opinion toward solar panels has always been the same. 1 Block Off the Grid is our solar effort and in that company our mission is to dramatically increase the adoption rate of solar, but we don’t do it based on people’s opinions about renewable energy, nor do we do it on people’s opinions about wanting to save the earth necessarily. For most people, when they make energy choices it’s a simple budgetary solution. So if there is any way we can use forms of activism like group purchasing [that] make budgetary sense for people—like it’s basically cheaper to have solar than it is to have energy from your energy company—then people will get solar.

Do you think the 2.8% growth in the U.S. GDP reported last quarter was the result of government stimulus, or do you think the economy is genuinely on its way out of the recession?

I don’t claim to have any crystal ball or knowledge about the future state of the economy other than to say that I think this is going to be a slower growth pattern out of the recession rather than going into another bubble.

On your blog, BlogNewcomb, you say you’ve been playing classical piano for 30 years and that you’re interested in digital music production. How have the various technological developments you’ve experienced changed your relationship to music?

Ten years ago I had two keyboards and a full recording studio I had built over the years that had thousands of knobs and buttons, and wheels and wires galore that would drive my wife insane because I had to have a whole room dedicated to myself. Today, I have a 7-foot grand piano that’s hooked up with fiber-optic links inside of the grand, and that has one USB cable that hooks up to my Mac. My relationship to music has changed in terms of the look and feel of the furniture related to it. So, right now it just appears I have a regular piano in my house but it’s a 128-channel recording studio inside the piano. I’ve actually gone further and further away from technology as I get older, and now I just go home and play the piano.