Better World Books Social Impact

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Social Impact Measurement Amount (2008)

Funding Non Profit Literacy Partners

$ per annum $874,074

Funding Library Literacy Partners

$ per annum $1,106,865

Landfill Reduction Pounds of books 2,130 tons

Carbon Offsets Tons of CO2 offset 3,042 tons

Full-time Jobs # of jobs150 (approx 100 of which employ low-income workers with training & benefits)

Social & Financial Success Metricsfor BetterWorld Books

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Financial Metrics

Revenue Growth

Profit (EBITDA)

Net margin

Internal Rate of Return (IRR)

Normal Financial Measures of Success

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Old social impact model for Campus division:

• Built in “cost of doing good” % of net revenue goes to non profit literacy partners plus potential for 50% of surplus cash flow

• Donations to literacy partners are not tied to profitability of book drives

In the Library division:

• 15% of net sales goes back to the libraries while an additional 5% goes to local literacy groups

Social Impact Model

Old Model

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Good Capital helped create a new model for the Campus division with two parts:

1. Funding to non profit literacy partners based upon 8% of gross profits rather than a % of revenue or cash flow. This improvement links funding directly to the performance of book drives and eliminates payments for unprofitable book sales. A larger number of high quality books collected means more funding for non profit partners and increased profits for BWB, a win-win.

2. Founders set aside 5% of their own equity in a stock option pool to grant to non profit literacy partners on a regular vesting schedule. Vesting and future grants based upon non profits achieving measurable improvements in literacy targets, generating incremental book donations and revenue for BWB, and pursuing innovation in their models.

Social Impact Model

New Model

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• A 5% stock option pool is set aside for non profit literacy partners with regular vesting, based upon performance

• Room to Read, Books for Africa, and other non profit literacy partners will file annual reports on gains in literacy each September , which will be used to make stock grant decisions in October

• Sets a more consistent funding expectation for non profit literacy partners so they can better plan their annual budgets

• Eliminates payments for low quality, unprofitable book sales

Results of New Social Impact Model

Results

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Advantages of New Social Impact Model

Advantages• Makes equity a proxy for social impact on the balance sheet

• Builds a rational “cost of doing good” into the business model that makes sense for both impact and profits

• Retains excess cash flow to fund growth in the business and scale social impact

• Aligns the incentives of BWB and its literacy partners

• Gives literacy partners ownership in a fast growing company based upon successfully achieving their literacy milestones