A good steak, a good investment, and a good deed

The Dualis Fund’s ‘impact investing’ is a way for investors to make money while doing something positive for society

A youth works in Liliyot's kitchen (Photo credit: Ringelblum/Ilan Spira)
A youth works in Liliyot's kitchen (Photo credit: Ringelblum/Ilan Spira)

At the Liliyot Restaurant in Tel Aviv, considered one of the city’s foremost dining spots, you get more than a good steak for dinner. You get the opportunity to rebuild the life of a former juvenile delinquent.

Liliyot is one of a network of five restaurants in the portfolio of a private social action venture project, directed by the Dualis Fund, a venture capital fund with a difference. “It’s called venture philanthropy,” said Chanoch (Allan) Barkat, director of the fund. After spending many years as Managing Director of Apax Partners Israel, the local office of one of the world’s leading private equity investment groups, Barkat said that he wanted to try something different.

Chanoch (Alan) Barkat (Photo credit: Matan Pe'er)
Chanoch (Alan) Barkat (Photo credit: Matan Pe’er)

“This is like a middle ground between capitalism and socialism,” Barkat told The Times of Israel. “It’s a model to benefit society by providing profit-making opportunities for investors, helping a business succeed, but also ensuring a ‘social return’ for everyone else.”

Barkat’s “venture philanthropy” is a way to upend the usual model of doing good, and a better way, to his way of thinking. “If you raise money for a social project, you appeal to donors and persuade them to contribute and cover your expenses for the year. When the year is up and that money is spent, you have to go back and raise more money – and so on.”

But operating the program as a business – using business tools to determine where the money goes, and trying to develop programs that can make a profit – guarantees an income stream, providing program organizers with the resources they need to accomplish their goals, and saving them the time and effort that would have been put into endless fundraising. “This model won’t work in all, or perhaps even most social projects,” said Barkat – but there are enough social action projects out there that can, with a little imagination and effort, be married to a money-making business operation.

Barkat and Dualis (the name, he said, describes the dual mission of the fund) have done just that with their chain of restaurants and coffee shops, from Beersheba in the south to Zichron Yaakov in northern Israel. The restaurants all employ at-risk youth who have been thrown out of school and other programs – and many of whom have skirted the legal line (sometimes even crossing it) into criminal activity. “We teach them basic life skills – how to dress, present themselves, etc., and provide them with training to become chefs, waiters, etc.,” Barkat said.

They get paid in what is essentially an on-the-job apprenticeship, supervised by professionals (Liliyot’s chef, Noam Dekkers, is a veteran who has worked at some of Israel’s top restaurants). When the 18 month apprenticeship is over, said Barkat, “we help them get into the army or go on to other jobs.” The program has been running for 4 years, and has graduated several hundred youths, the vast majority of whom have become contributing members of society, instead of burdens on it, according to statistics compiled by Dualis.

Naturally, the costs for running a business in this manner are higher, since the tutors and teachers training kids to get themselves together cost money. And the staff at the Dualis restaurants is much larger than needed to run the business: a place the size of Liliyot requires 10 people to function effectively, said Barkat, but the place employs 25. That’s where the Dualis model kicks in. “Most restaurants shoot for a 10%-15% profit margin, setting prices to offset costs. We aim for a 5%-7% return for investors, with the rest of the profits going to fund the social aspects of the program,” said Barkat.

While that might seem to be a “hard sell” for investors, it really isn’t, said Barkat. “Many investors who donate to good causes believe ‘donating’ to businesses that do good – and that let them profit as well – is a good idea.” Besides that, investors don’t really lose out; the money they “lose” in returns is returned many-fold in the lower costs to society, as fewer resources have to be allocated to programs to deal with school dropouts, juvenile delinquency, etc.

Besides restaurants, Dualis also invests in other businesses – including a fashion mall at the Jaffa Port, software quality assurance companies for people with disabilities, and a software company in Nazareth for Israeli Arab programmers.

Barkat did not specify numbers, but over the past three years, he said, the fund has invested in 3 or 4 businesses a year, at an average of about NIS 500,000 ($130,000) each. That’s all been private money, but this year Barkat expects the government to kick in some funding as well, seeing as how the projects are not just businesses, but social businesses. “We expect to raise about NIS 10 million ($2.75 million) this year,” he said.

Venture philanthropy is not Barkat’s invention; it’s based on the vision of Nobel Peace Prize winner Muhammad Yunus, a Bangladeshi banker and economist who is credited with inventing the idea of microfinance, where tiny investments in bootstrap third world businesses help to feed tens of millions in Asia and Africa. Yunus has also written extensively on the idea of social investing. “A dollar donated to a social cause lives once,” Barkat quoted Yunus saying, “but a dollar donated to a social business lives forever.”

Dualis is not the only organization that has seized on the idea of social investing, but it is the only one to have developed a high-tech-style investment fund, like that of Apax Partners. “I ran Apax Israel for 10 years, and trained as an engineer, so I was always attuned to the tech world,” Barkat said. “I got involved in some social projects, but always wondered why they couldn’t be run as a business. Everyone told me this model wouldn’t work. I am glad we were able to prove them wrong.”

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