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?"
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