This is the second installment of a real-time series about what it’s like to be raising a first-time venture fund as an African American fund manager. It’s meant to be a transparent description of the challenges and opportunities as we attempt to grow a fund to support cities like Baltimore and minority and female founders.
Volume 2. March 2019:
Varsity Blues, Impact Investing and the Tyranny of Self Appointed Kings:
When Rick Frazier and I started The Concinnity Group — the first hedge fund to take on the task of identifying “Conscious Capitalists” — we did so because we truly believed there was a new narrative about capitalism being written by some extraordinary and forward looking companies and entrepreneurs. That narrative is about how the way you practice capitalism can be a force for good in society. We all know society is increasingly demanding that our commercial entities move away from a profit at all costs mentality and recognize they are indeed instruments of society. Not just instruments of shareholder value. As early as 2004 we saw this new idea taking shape in our consulting work with organizations of all sizes. And we recognized it’s power as a tool to make capitalism more defendable, and more importantly to make capitalism more inclusive and less extractive to society.
We quickly found that a key to our success was going to reside in our ability to devise a process to separate the “pretenders from the contenders”. Our research began to uncover the fact that many companies were donning the cloak of purpose and profit. And, that a great number of them were doing so not as a sincere effort to change the practice and experience of capitalism, but simply as a veneer that allowed them to check the box of responding to these societal forces.
Want an example? Remember British Petroleum’s (BP) “Beyond Petroleum” campaign? Early on in developing our research, I attended a conference on the future of business in Park City, Utah. During one session I was asked by then President of the University of Miami, Donna Shalala if we would be investing in BP given this new focus. Fortunately for us we were intent on answering the pretenders question. Given the fact that we were new to the investment game — and, we were champions of an idea about business, which was anathema to most of our contemporaries — we felt a huge responsibility to be as studied as we could be about the essence of our investment thesis. We knew that we wouldn’t always get it right. And, we also knew that the powers that be would be aching to discredit this notion about profit and purpose just as soon as one of our portfolio companies blew up in a shareholder value driven scandal.
As such, we were then and remain now, keenly focused on doing the research. We knew from a few years worth of work, that BP had a horrible safety record. Which told us that they weren’t nearly as focused on serving employees, as they should be. Or more accurately, employee safety was important, but when it came up against shareholder value, the company might be willing to take unnecessary chances. In the context of identifying companies that focus on stakeholders, not just shareholders, this gave us a tremendous clue. You can’t be a stakeholder-focused company if you don’t genuinely care for the well being of employees. Of course we didn’t know the Deep Water Horizonaccident would happen. But given our research, we weren’t surprised when it did. I’m hopeful that the company has learned from this disaster, but at the time we saw the “Beyond Petroleum” campaign for what it was: an attempt to “green” the company’s image and not a sincere and concerted effort to change the way the company thought about the practice of capitalism. We obviously did not invest in BP.
More recently my colleagues and I at SHIFT Ventures were approached to invest in the Vatican supported Laudato Si Challenge accelerator. This was an amazing opportunity to align with a community of entrepreneurs and investors who cared deeply about the future of the planet.
We also knew that we couldn’t be involved if the organizers of the accelerator didn’t recognize the importance of training their entrepreneurs on the tenets of Conscious Capitalism. Why did we believe this? Because our experience and work over the last 30 years has shown us that having an “impact” through business is not just about the product or service you build. While entrepreneurs and companies that seek to solve and environmental or social problem through a commercial endeavor are important to us and deserve our praise and support, we know that how you operate your business and live your life, the type of leader and person you are, your level of ‘consciousness” if you will, is just as important if not more so than the product or service you sell.
We were able to convince our partners at the Laudato Si Challenge that the entrepreneurs with whom we engaged need not only have found solutions to problems that were important to the Church and the Holy Father. They also needed to operate their companies, and live their lives, in alignment with the impact they hoped to achieve in their businesses. And in order to do that we gave all the entrepreneurs a deep dive into the tenets of Conscious Capitalism or what it means to run a stakeholder focused business and be an integral leader.
My point here is that, if we want to change the way we practice capitalism. If we want to truly use business as a force for good in society, then it’s not enough to come up with a new “disruption” to a societal problem that can be monetized. We must essentially change who we are as entrepreneurs and executives. We must care! Truly care about the people around us. Not just as fodder for our enrichment, but as ends unto themselves. This requires us to have a deep understanding of our own purpose and to live into that purpose everyday, in everything we do.
And, let there be no mistake: most businessmen and women in the U.S. don’t believe this or don’t understand how to do it.
Most of the impact investing world is focused on measuring impact. That is, how much carbon has your product eliminated from the atmosphere or how many people have you lifted out of poverty. The problem is that this focus on measurement of impact can be just as myopic as a focus on measurement of dollars. Rick is found of telling the story about how, in his early consulting days, he had the chance to advise some not-for-profit organizations that were doing amazingly beneficial and selfless work. And, the organizations themselves were still miserable places to be! Mainly because those inside were so myopically focused on impact that they either forgot or discounted the importance of building what we call “cultures of caring” in their organizations that fed the souls of those people in their care. The problem with this is it has the potential to breed an incongruity between what you say you believe about the world and how you actually behave in the world. This misalignment can have significant and important consequences, which can undermine any good your product or service can or has done in the world.
This is why one aspect of this recent college recruiting scandal is so troublesome to me and, not at all surprising.
As you probably know by now one of the big names that has been caught up in this scandal is Bill McGlashan, the founder of private equity firm TPG Growth and the co-founder of the social impact focused TPG Rise Fund.
As it has been alleged, while McGlashan was talking about using impact investments to solve some of the worlds most intractable problems and driving “meaningful, measurable and positive change”, he was at the same time, using his wealth and status to tip the scales in a fraudulent manner to get his son into UCLA. The optics of this are I’m sure pretty obvious, so, those of us who care about the path and growth of impact investing are worried about the fallout, while detractors and skeptics (like the brilliant Anand Giridharadas) are riding the “I told you so” train for all it’s worth telling us how this profit and purpose thing is just a bunch of hooey.
Like many in the impact world today, McGlashan found religion after spending his career doing “regular” investing, making a pile of money doing it and then I suppose feeling like he needed to “give back” by launching a billion dollar impact investing fund. That the leader of TPG was rapping himself in the cloak of doing good while doing well, while trying to stack the deck against kids who might be deserving of a UCLA education but didn’t have his resources in many ways points to my own misgivings about the whole impact investing industry. Or at least those who have come to it like McGlashan, after making their “real money” in other endeavors and only then turning their attention to making the world more just. Do people who come to the work in this way truly believe in it? Or are they so blind to their own privilege that they can’t see the distance between their “talk” about social inclusion and their “walk” of power and entitlement?
In his Book “How: Why HOW we do Anything Means Everything”, Dov Siedman talked about the “Era of Behavior” and the “new frontier of conduct”. Purpose, servant leadership and a deeply held desire to elevate humanity through your actions are the foundations of businesses built on a stakeholder model. Amazingly, that book was published in 2007. Seemingly the message is taking longer to take than any of us who care about these things could have imagined.
Being a self-appointed “ethical” or impact investor apparently doesn’t make you an ethical person. Just like being a “social” entrepreneur or solving an environmental or social ill through your business, isn’t the same as being a conscious and integral leader. The way to change capitalism isn’t simply about allocating resources differently to solve environmental problems or make our economic system more inclusive. If you can claim those motives and outcomes while unwittingly living your life in a way that continues to contribute to the problems in the first place, or worse, gaming the system for your own benefit in a way that displays your disdain for those same people you claim to be helping, the system will continue to be unfair, unethical and extractive to society.
Capitalism will only be changed and turned into the real force for good that it is capable of becoming when we change ourselves. When we become leaders who truly believe our purpose in life is to elevate humanity. When we internalize the notion that our purpose on earth is to make a difference in the lives of others, to be stewards of the employees, suppliers, communities customers and planet that is in our care entrepreneurs, executives, investors and human beings.
In the end, I believe the ultimate truth is that impact is not just about what you do, it’s also about who you are.
Apply to the Conscious Venture Lab Accelerator Program
Conscious Venture Lab is currently accepting applications for our next accelerator program. This cohort will start in August 2019 and continue our focus on urban resilience and smart cities technologies. The Conscious Venture Fund will invest $100,000 in each of the companies selected for the program. Businesses that are generating technological and business model advances that address chronic stresses in our cities are invited to apply.
Areas of focus include, but are not limited to: good jobs and economic growth, innovation and infrastructure, intractable violence, poverty, sustainable cities and communities, clean energy, clean water and sanitation, and food and water shortages. Companies who apply must be focused on providing services and/or using technologies to increase economic opportunity and create more livable and equitable urban environments.
The accelerator program application deadline is June 3, 2019.