What impact investing has to learn from football

As I was watching the beautiful game get quite ugly for Brazil yesterday, my mind wandered in the second half to the last few months of work, raising an impact investing fund in the US and talking with dozens of mission driven entrepreneurs.  And recently, I and the chance to participate in the US National Advisory Board to the G-8 Committee on Impact Investing at the White House.  

During the messy game, reflecting on the last few months, I concluded that impact investing suffers from a definitional problem.  The root problem stems from the assumption that capital is fungible and that there is a fluid spectrum from the purely commercial to the purely philanthropic where return expectations can be neatly dialed up or dialed down, and where the mission compass can either be turned off or turned on.  And if turned on, one can easily point towards a North Star of one’s choice (environmental stewardship, fair labor practices, economic equality) to guide one's work.

But the assumption around fluidity and fungibility of capital is false.  

To put it back into the context of football and the World Cup, the way we practice “impact investing” today is as if American Football players have suddenly appeared at a football (read soccer, but hereafter, football) match, pads and all, and ask "what down is it?”.  The expectation that you can simply combine the practices of private equity or venture capital and philanthropy into a “meet in the middle” strategy is a category mistake.     

It is as if you took six American football players and five football players, and said, play!  Yes both games have a ball.  Both games have a referee.  And you can be out of bounds or off-sides in both games.  At times it is appropriate to kick in American Football and some people can use their hands in football.  But the differences vastly outweigh the commonalities.  And to assume that you can just play together, borrowing some rules from one game and other rules from the other is wrong.   Without fundamentally rewriting the rules, perhaps heavily derivative of a combination of the games, you will be stuck not in the middle, but in a muddle.  

To extend the metaphor perhaps even further, I would liken American Football to modern capitalism.  It is brutal and violent.  Every play is measured, statistics abound, rules proliferate, pads are required to keep the combatants from hurting themselves.  Fans, owners, commentators expect progress on every play, big returns are not uncommon.  We manage quarter by quarter.  “Winning isn’t everything, winning is the only thing” said football’s patriarch, Vince Lombardi.  This last Super Bowl was the creative destruction of capitalism at its finest: an ascendent Amazon (Seattle) vs. a regional brewer, Coors, that is now owned by the Canadians (Denver).  

Football is philanthropy.  It is fluid, sometimes you pass backwards, sometimes you go forward.  Team play is paramount although individual stars can make a difference.  There is lots of running and lots of runs amount to nothing.  Collaboration matters a lot and there is very little that is measured, until recently, besides the final outcome.  The box score of a soccer game is still pretty thin reading.  Goals are scarce, substitutes are rare, sometimes it takes extra time, who knows, the game is beautiful to watch, so just being there and part of the sport feels gratifying.   

Sure Pele did say “If you are first you are first. If you are second, you are nothing.”  But he also said “Success is no accident. It is hard work, perseverance, learning, studying, sacrifice and most of all, love of what you are doing or learning to do”, which sounds a hell of a lot like what you might read in the Gates Foundation’s annual report about education reform.   

Impact investing today is a game in search of new rules.  Is it American Football with a bunch of soccer players joining the team as kickers?  That might work for the ESG overlay that private equity firms like Blackstone and KKR are now using to save money and improve performance in their portfolios.  But a 64 yard field goal kicker trained in the Dutch development league is still an American football player playing American football.  

Or is impact investing football but with three American Football defensive backs in pads able to use their hands?  That would be quote fun to watch… but it would still be soccer.

Impact investing is currently claiming to be all of the above: modest tweaks at either end of the spectrum to reflect the influences of the other sports.  

But it is also a new game, perhaps as different from American football and football as rugby (or perhaps for the skeptics, Quidditch?) is from either American football or football.  

It would be immensely helpful to investors, fund managers and companies to know which game they are playing, and if indeed a new game, to define these new rules.  Because right now, in impact investing, there’s still too much, “Who’s on First?"  

Hurricane Sandy's Virtual Destruction

Apologies to those few readers of this blog... I was on a nice pace last fall with one to two posts a month on various and sundry topics when we were side-swiped by Hurricane Sandy.  While we were incredibly fortunate in our community to not be flooded and to have had minimal property damage, we did lose power for nine days.  And when you wonder where the next cell phone and laptop charge is going to come from, updating a blog comes pretty low on the list.

I was astonished at the sheer generosity of the community, with neighbors sharing, opening their homes for hot showers, electricians helping families rewire their heating system to get some heat with the help of a generator.  We were definitely not the worst hit, but we still did see the best of community and resilience in the face of the natural disaster.   

Now that I have recovered and re-found my footing, I will try to get back into the swing of things...  

Battleground 2012

With the campaign for the President of the United States in its final, fever stretch, I am proud to have published on iTunes a game that simulates the final eight weeks of a campaign.  I developed the game during the 2008 election cycle, using a map drawn on construction paper, individual cards for each state, and a pair of dice to give the game an element of chance.  My daughters loved playing it, and I made four other copies, for nephews and nieces, children of other friends.

So I met a game developer, the CEO of Secret Builders, and we built the game for the iPhone and iPad.  The game is simple but pretty instructive about the role of money in politics, the difference between the electoral and popular vote, the unpredictable turns of events on the campaign trail, and the central fact that the Presidency often comes down to only a handful of states.  

So while we wait out Hurricane Sandy and the candidates presumably head for Battleground states west of the storm, I encourage you to give the game a try.  A premium version with attack ads and a few other bells and whistles should be released this week.  The free game can be found at: http://bitly.com/TuL8Jf

Reverse Innovation

I've had the opportunity on a few occasions, and again this coming Tuesday in Toronto, to talk about what innovations I have seen in emerging markets from the Acumen Fund portfolio might have relevance in the United States.  Since we largely got rid of malaria in the 60's, have large scale irrigation systems for agriculture, and we have an effective emergency services in most of our major urban areas, investments like A to Z, GEWP and 1298 do not seem so relevant.

Other companies, like Aravind Eye Hospital, with its high volume, high quality, affordable eye services (not to mention its growing telemedicine practice) in India, or Bridge International Academy, with its affordable private education model in Kenya, are certainly examples that we can learn from as we look into new health and education models in the United States.  We even had one company in Acumen Fund portfolio, Voxiva, which has shifted its SMS based health information business from the global to the US, with its rapidly growing Text4Baby and Text2Quit programs.

But as I reflect on the companies that I have seen overseas, there are few replicable models that can port immediately back to the developed world.  Sure, money transfer businesses like mPesa (in Kenya) may inform how mobile payment platforms are built or how remittances flow in the United States, but  where I see the real reverse innovation coming from is in how those models emerged.

Unconstrained thinking about new ways of doing business.  Radical design innovations that place customer need at the center of the product development process.  Capital that is willing to take risks on blended financial and social returns.  Entrepreneurs with the empathy and skills to merge mission and margin, while navigating with a widely unpredictable public sector to build real value.  An impulse to start with a small amount of capital and adapt and build from the early prototypes.  

It is the model of social innovation, rather than the specific business models, that I am eager to adapt  the proliferation of social enterprises outside of the United States.

MDG 2.0?

We are within three years of the deadline the world set to hit the Millennium Development Goals (MDGs).  While it is too early to declare victory or defeat, I fear that it is the 8^th inning, we are down by four runs, and poverty has Mariano Rivera coming in from the bullpen in to shut down the development All-Stars in the 9^th inning.  

While we have admittedly made substantial progress in the last decade in cutting extreme poverty in half, expanding primary school enrollment, particularly for girls, and improving access to clean drinking water, we are far behind where we need to be in other areas like improved childhood nutrition and access to sanitation solutions.  

Optimists believe we can still hit the goals if we try hard enough, pessimists are doubtful given the current economic crisis, and cynics think that we are fiddling while Rome burns.

At the United Nation’s last month, Secretary General Ban Ki-moon convened a “High-Level Panel of Eminent Persons on the Post-2015 Development Agenda” (I am not kidding about the name) to take stock of progress to date and outline options for new development goals. 

So what if rather than another top-down, large aid strategy, the HLPEPP2015DA (um, how about the HLP for short?) flipped development on its head and listened to what the poor want and need.  What if rather than setting out another eight broad, perhaps unachievable goals, they committed to finding the eight highest impact solutions with the strongest evidence linking use at the household level and economic development?

What if the MDG 2.0 had targets for adoption of clean cook-stoves to improve maternal health and enhance local sustainability?  What if another goal were to provide comprehensive affordable eye-care services, which have been proven to increase education and incomes?  Or, what about solar lanterns, drip irrigation, affordable primary schools, secure mobile banking services, etc.  In some cases, the market might take care of these services, and in others, like ARVs, vaccines or anti-malaria bednets, wide-scale subsidies may still be needed to make the products affordable.

And I am not even sure what the right eight products might be, but I am sure that the HLP can learn from the experience of Millennium Promise, the likes of the Poverty Action Lab and the portfolios of Acumen Fund and the Grassroots Business Fund, among others, as to what bundle of goods could make the most difference in the lives of the poor.   

Lets hope that a new development agenda, MGD 2.0, can learn from the experience of MGD 1.0, and that we start to see wide-scale, sustainable and efficient distribution of these high-impact goods and services making a measurable difference in the lives of the poor.    

Principled Leadership for Social Enterprise

At the SoCap conference, one hears the consistent refrains that the challenges that the world faces are daunting and growing, and that impact investing and social enterprise can and must play a role in meeting those challenges.  But there are also words of caution that impact investing and social enterprise don't get caught up in its own hype.  The Monitor and Acumen Fund "Blueprint to Scale" report and Omidyar's "Priming the Pump" blog series reinforce that a serious reflection is now happening in the sector about what is needed to solve sector-wide problems and how investment capital and philanthropy need to co-exist.

To navigate the next stage of growth for the field, I think we need a generation of principled leaders who are committed to not only solving these problems, but ones who are trained to deal with their complexity.  And I as I thought about the challenge of leadership, I reflected on a talk I gave to students at MIT last year where the theme was on "principled leadership". 

So what are principled leaders?

To me, principled leadership is a recognition that not only the generic traits of leadership such as courage, humility, self-awareness, the ability to listen are needed, but that in a complex world, the specific skills required to succeed in the non-profit, for-profit and public sectors are needed for ventures that increasingly work across domains. 

That principled leaders have the moral imagination of a nonprofit entrepreneur, with the ability to define a compelling mission, to generate resources literally from nothing, and to ask people to join them on a journey to solve problems that no one thought were solvable.    

That principled leaders have the operational excellence, the disciple and focus to manage an efficient and effective “enterprise”, be it social or not-for profit, that they have a keen eye for not only the financial margin, but also the social and environmental metrics of their business. 

That principled leaders understand how to influence policy and deploy resources ethically in the world of power and politics to promote not just their personal financial interests, but to create broader public mandates in the long-term interests of their shareholders, their stakeholders their country and ultimately humanity at large.

And that principled leaders not only consider what they do, but HOW they do it. In a winner take all society, principled leaders not only play by the rules, and not only do they help others onto the playing field, but they continue to refine the rules so that everyone on the field has a chance… not necessarily an equal chance, but a chance… of winning.

So you wanna be an impact investor?

Over the last eight years at Acumen Fund, I have been on the receiving end of roughly one or two requests a week for informational interviews about working for Acumen Fund or "becoming an impact investor".  As someone who has always wanted to be the alumnus that a student could look up in the University directory, or that friend of a friend who actually returns the phone call, I've tried to be responsive (perhaps too responsive).   I have very much enjoyed "meeting" literally hundreds of emerging leaders to hear their stories and to share my perspectives.

Unfortunately, with a shift to a new start up, I have had to curtail these interviews significantly and will for the foreseeable future.  So I thought I would use this forum to share what I often find myself repeating to people interested in becoming an impact investor or getting into the social enterprise field.  Obviously, the generic advice that follows is no substitute for the thirty minute conversation with specific recommendations of who to talk with next, but here are a few thoughts for those looking to get into the field.

Before I begin, an observation: while the opportunities in impact investing and social entrepreneurship are growing, the supply of talent is vastly outpacing the demand for it.  The market dynamics are such that for every open position there are literally dozens (if not hundreds) qualified applicants.  And what was a bit of a Wild West a decade ago, where a portfolio manager could get hired at a place like Acumen Fund with no prior investing or operating experience,  

So, how to navigate a crowded and chaotic marketplace?

First, know your hook.  I often get calls from people who have never been to an emerging market and are interested in problems both home and abroad, care equally about health, education and the environment, and just want to help.  From a prospective hirer's perspective, that's like having a door to door salesman ring the bell and offer "anything you might need".  Slam.  

If you can't convince yourself that you care about renewable energy in sub-Saharan Africa or education reform in Detroit or health innovations looking to expand telemedicine (in Africa or Detroit), you'll never convince me or anyone looking for talent.  Think critically about what moves you, pull out the  threads of your prior experience to weave a personal narrative that excites you and will excite the person you are interviewing with.  The story may not be a perfect fit, it may be incomplete, so if your gut tells you something doesn't fit, try a new version.  But you have to have some story, any story, otherwise, without a hook, it will be hard to find a place to hang your hat.

Second, realize that impact investing is not somehow easier than traditional investing.  It's harder.  Not only do you have to know how to do financial analysis, help businesses operate in tough environments, manage fluid and sometimes conflicting sources of capital and stakeholders, but you also have to understand mission.  Social change is hard to understand and even harder to measure.  People with deep investment banking experience but little to no experience with social change initiatives, or global exposure to different cultures, are usually never going to make the transition.  I have seen people who are stronger on the social change dimension and weaker on the financial skills thrive, in part because it is generally easier to learn excel on the job, while understanding how change happens usually requires more time and reflection.

Third, take the plunge.  Based on your narrative, pursue an opportunity that either builds on your strengths or compliments your weaknesses, but that fits with your hook.  In the case of exploiting your strengths, you may hate your current job, but try to find roles that bring your supply chain experience at IBM or your product marketing experience at P&G to an early stage social enterprise that might need those skills.  Interested in emerging markets but never have been?   Go volunteer in (insert country of that most fits with your personal narrative) for three months with a company that could otherwise never afford someone with your experience.   In fact, we designed the Acumen Fund Fellows program in large part to give people the chance to take this plunge in a structured way.

In my experience at Acumen Fund, roughly half the time that someone took the plunge to work for us or one of our portfolio companies (often for free), within three months a paid opportunity to continue emerges.  And more than half of the Acumen Fund Fellows received offers to stay from the companies that they worked with.   If you dive in and make your indispensable, you'll find new doors opening.  

And if there you don't land someplace where an offer materializes, you are probably better off looking from within an operating social enterprise or impact investor, where news of emerging opportunities often get circulated before they are posted on job boards.

Finally, think of this as a marathon, not a sprint.  The intersection between business, government and non-profits is continuously shifting.  Accumulate a set of experiences that will equip you to navigate this shifting landscape for the decades to come.  Don't sit on the sidelines waiting for the perfect opportunity; get in the game and you'll learn more than conducting the Nth informational interview.