Sunday, November 22, 2009

Impatience is a Virtue

My bleeps know I am not long on patience, particularly when it comes to metrics. Not so long ago, I ranted a bit about how incredibly bored I am with this topic. Since then, I have been to two conferences, where, unfortunately, it reared its head. The most recent of these, this past Friday, was entitled "Change that Counts" and had a definite metrics and measurement tilt.

Don't worry. I am not going to rant some more about metrics.

Instead, I am going to poke at the issue of "patient capital." This seems to be an emerging thread in a lot of conversations I have with young entrepreneurs. In part, I think, because of the good work of folks at Investors Circle, Acumen Fund and others. But I am a bit worried about the concept.

See, it is the nature of capital to be impatient. It seeks a return, just as salmon swim upstream or birds migrate. To ask it to be patient is to change its nature. Now, if I wanted to fit in, I would start to wax about how this transformation will lead to great environmental and social change. Indeed, to transform capitalism and our world. Cue tweeting birds and global peace. More offers to get me to sit on panels at conferences. Yup, there are many advantages to transforming capitalism.

But no. I don't want to fit in. I want to fix stuff. To get stuff done. And I think that impatient capital is more likely to change the world. I believe that time is of the essence, and I want impatience. When you go to the emergency room, are you a patient patient? No, you want to see things happen, stat! Worried about poverty, environmental degradation, infectious disease, climate change? Want to be a social entrepreneur? Then get going. And hire capital that will help you get going.

And hiring capital is the way you should think about it. Whether human, social or financial capital, look for common purposes, and one of those purposes should be impatience. I want to hire impatient people. I want impatient investors. To be mission focused DOES NOT mean you can't be impatient. In fact, I believe all triple bottom line focused organizations should be MUCH MORE IMPATIENT than their more traditional competitors. Entrepreneurs throughout history have won on hustle, not patience. Persistence, not pondering.

An example of a social enterprise based on respecting the impatience of capital? Kiva. Some believe it's key innovation was connecting microloan borrowers directly to lenders. Important for sure. But they are built on the idea that you get paid back by the person you help. I think that is the core innovation. Kiva scratches my charitable itch, but it also lets me reuse my capital by reinvesting it in another venture. This is harnessing the nature of my capital better than a more traditional non-profit. My capital pushes for better reporting, more transparency, better entrepreneurs. And more capital is coming into this system. I doubt this would be the case if the default rate were 50% and I was really "giving away" 50% of my capital.

To be clear, if an investor wants to advertise that they offer patient capital, that's fine. Let them compete for deal flow. But for the entrepreneurs, be careful. Be sure "patient capital" doesn't make you patient. Don't think that taking patient capital relieves you from the obligation to think about the things that are important to capital: returns, time horizon, exit strategies, milestones. These are the things that will drive your team to think about impact, sustainability and scale... and to get going about changing things.

Don't believe what your parents and teachers told you. For entrepreneurs, impatience is a virtue.

Update 11/23: Yasmina Zaidman from Acumen blogged today on "Patient Capital- A Bridge Over Troubled Waters." I commented that investors need to emphasize that patient capital does not mean complacent capital.
Update 11/27: Yasmina's reply was typically thoughtful: "If there’s one thing we look for in our entrepreneurs and our colleagues it’s impatience. But Patient Capital now stands as an alternative to the “get rich quick” approach that has gutted our economy and our planet, leaving massive inequality in its wake. So, we envision a patience that enables market forces to play a role even when the dividends take longer to materialize, and are as much social as they are financial. And we aim to get there are quickly as possible, but not so fast that we continue to leave two thirds of the world behind. It’s a daily conversation to explain that this approach requires even more rigor, urgency and commitment to sheer excellence than EITHER straight business or straight charity, but it’s a conversation worth having."


Yes We Might said...

Thank you for your thought provoking post, it has given me much to think about. But I would also be very interested in learning a bit more about why you think capital has a fundamental "essence" one that, in all circumstances, determines how it behaves. At the risk of relying on "reification" or other tropes I vaguely remember from a college reading of Marxism, in this post you seem to imply that capital, like birds or crayfish, have an independent, autonomous, predictable set of behaviors and properties. Meaning that different conceptualizations of capital are wrong-minded if they don't acknowledge this "essence," according to impatience. I'm not sure I agree that history has proven capital to be essentially impatient - neither subject to interventions or directed efforts to use, mobilize, and organize it in different ways. In any case, very much forward to continuing the conversation.

Bopreneur said...

Yes We Might-
Thanks for commenting. My point is that if you deny the characteristic of a thing, it is no longer that thing. If it quacks like a duck....
I am not yet ready to assert that patient capital is an oxymoron. It has its place. I am just not as enthusiastic about its emergence as yet another talking point in the social entrepreneurship constellation. As a sound bite, it is an attractive concept- with deeper digging, it is a bit disturbing.

Yes We Might said...

Not to be impolite, but I think you've simply repeated your premise, that capital has an essence, one that leads it to behave in certain. What I'm trying to say is that capital and markets are not autonomous things, but fundamentally the product of human activity. "Capital" itself is only a word used to describe certain process of value accumulation and exchange between human subjects. To compare capital to a quacking duck strikes me as slightly glib on this score. What I'm trying to get at is that your argument rests on a proposition - that capital as such "behaves" impatiently - all you seem to want to do is assert this again.

That said, I think you are completely right that simply asserting the validity and effectivity of something like "patient capital" does nothing to defend or advocate for its usefulness (either as a trope or as a the label for specific types of enterprise).

In short, I think you are right to poke holes at patient capital, I would just like to see you poke holes at it by analyzing its premises rather than asserting that, voila, the transcendental truth of "the market" is in fact impatient capital.

Sorry if the tone is pedantic here, I was just so intrigued by your inclination to poke holes in a fuzzy concept that I wanted to see those holes more forcefully and less rhetorically made.

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Anoj Viswanathan said...

Quite an interesting observation. I am no expert but let me add my 2 cents on why comparing Acumen's "patient capital" with Kiva's "impatient capital" might be a slightly misplaced observation, even though both happen to be non-profit funds with a BoP focus.

The fundamental approach of Acumen's investment - be it equity or debt is institutional capacity building while I would Kiva's scope to be more of a project financing mechanism(for lack of better word).
The question we need to ask ourselves, would Kiva be as efficient as today in generating returns/returning capital from month 1 if not for the capacity building efforts of the field partners.

I come from India, working with one of the largest MFIs there. If you look at the growth trajectory of any Indian MFI today, you can realise that for a long period (3-5 years) they had been close to the trough - this was their period of capacity building and developing operational efficiency . Once that reached a satisfactory stage, the growth skyrocketed.

I am sure this analogous to Acumen's approach too. Building capacity first with patient capital, and then scale it up.

If Kiva's model can work for any microentrepreneur, why doesnt it partner with/provide loans for microfranchises? The answer is simple - mechanisms are still being figured out, capacity building is still in early stage - precisely the reason why Acumen's work is critical.

I am not sure if the likes of Sequoia or Kleiner Perkins would be interested in doing this today. Maybe 3 or 4 years down the line, when they see efficient organisations built with patient capital and poised for growth.

Let me know your thoughts.