Team:Arizona State E/CFC

From 2012e.igem.org

Latest revision as of 11:22, 26 October 2012

The Community Focused Corporation Model

ASSET advocates the Community-Focused Corporation model as a solution for not just expanding new markets for distinct technologies in synthetic biology, but also modern business. The structure itself is exactly how it sounds—a public corporation that redirects its primary purpose into developing the community.

What is it?

A CFC by definition is a corporation that is publically committed to social good.

The corporation declares a particular social focus and develops products dedicated towards solving problems within that focus. A majority share of the profits is then reinvested into developing more solutions while the remainder is utilized the same way as other corporations, whether that is returning dividends to investors or marketing and supply chain operations.

In the UK, a 40% reinvestment of profits is necessary under tax code. In the United States and most other countries, there is no formally recognized legal entity for this structure. Thus, the CFC models described here are legal partnerships between a non-profit organization with a mother for-profit company.

The most important concept to note is that in these models, the majority of the profits do not come from the product itself. Since these are projects with primarily a social focus, the real profit comes from the outcomes of applying these products. This may be hard to understand, but bear with us for a second.

Take for example the structure of the company PharmAfri-can:

Since the US and most other countries do not recognize CFCs as a legal entity in tax code, these corporate structures take advantage of legal partnerships to accomplish a similar purpose. PharmAfri-can accomplishes this task by first developing two separate business entities: a nonprofit foundation and a for-profit company.

• The nonprofit foundation teaches herbal medicine farmers in impoverished regions of Africa better farming techniques to improve crop yields. This allows the farmers to generate a surplus of herbal medicines as sellable product, improving overall quality of life.

• The for-profit company of this foundation would then establish a legal partnership for the nonprofit foundation and purchase the surplus of herbal medicines from the farmers. These medicines would then be sold on the global market. Since the company’s profits are derived from social work, the company in turn pushes in more percentage of their profits back into aiding the farmers to maintain their supply chain. This allows their company to remain strongly committed towards social improvements while not requiring a constant stream of investment thanks to their own sustainable infrastructure.

Notice that the social product that possess—sophisticated farming techniques—is not the primary breadwinner for the company. While a company like PharmAfri-can could utilize their knowledge of biotech farming skills to run consultations or grow their own product, it turns out this system is more advantageous because not only do they receive the positive public perception by helping alleviate a social ailment, but they are also granted a consistent, outsourced supply chain to lower overall business costs. That doesn’t mean they can’t sell their knowledge as well—that simply provides the company with another mechanism for generating funds.

How is it set up?

Currently, there are no defined tax brackets for this system in the U.S. However, the CFC business model can still be achieved by a simple partnership.

First, establish the two components of the CFC as separate legal entities.

Second, create a legal partnership between them. That’s it.

Remember, the goal of the nonprofit is not to utilize the product of the company, but rather to solve the social problem the product attempts to remedy. The corporation should also center its business around the potential outcomes of the social alleviation. Just as PharmAfri-can takes advantage of the increased crop yields, a biotech company that has cells that convert waste in blighted lands into electricity could sell contracts to real estate agents for cleanup and sell electricity for cheaper to impoverished communities. The nature of the CFC’s cash flow provides ample room for incomes.

Why does it work?

Let’s take a gander at the Problem tab. The case study described was the Lumen Biosensor. This arsenic biosensor had tremendous social application in providing clean water towards developing countries but could not be economically feasible. In other words, the venture was unable to continue forward due to a lack of effective funding and team composition oriented variables that were not able to be adequately addressed. This study posed a serious question for the synbio industry: is there money and space for less profitable but equally impactful (if not more) products?

Unfortunately, the answer was no. Money was hard to come by, and even today successful and profitable companies are few.

That’s why this system works.

• CFC creates a self-sustaining funding mechanism for socially focused synbio projects and applications.
• CFC decreases dependency on donations and incentivizes investment through multiple revenue mechanisms.
• CFC provides businesses a way to receive public benefits of both nonprofit and for-profit companies.

This system is designed to diminish risk and encourage more ventures in different synbio applications by creating independent companies designed with the people in mind.

So why not just make for-profit companies?

Three reasons:

• CFCs are unique to opening new markets for synthetic biology by diminishing the fear surrounding revenues and returns on investments
  • (The Problems tab) The current for-profit environment has a bottleneck effect
• Limited market share
• Skewed applied research
• Discourages different fields of synthetic biology
• This system has unique advantages that optimizes business performance distinct from current corporate practices.
• Vertical integration laws prevent for-profit adoptions of this strategy
  • Top down product is essentially monopolization—however, this is permissible because it is directed largely towards the community

Furthermore, a for-profit version of a social company requires partnership with another corporation to imitate market sale capture of the outcome of the product. This company runs the risk of diminishing overall cash income because the profits have to be split between two separate entities as opposed to one unified company.