Sunday, September 04, 2011

Welcome to Emergence (A Venture Gapitalist's View on #SoCap11)

This is a follow up post to my SoCap zoo post from last year. While it doesn't have anything to do with zoos (that is SO 2010...), it does have to do with Socap. Let's start with a story, shall we?

As with many start ups, it began with two friends who thought they could do something better (well, actually it started with an argument). Of course, they had to finish grad school, so they did the start up on the side. They didn't have any real industry experience. Or money. And there was a lot of competition from well entrenched competitors. But they kept at it, and over time, they gained traction and built a company. They called it "Backrub."

I was a bit shocked to see that this company became a teenager today. Yep, Google is now thirteen years old. On track for $30 billion plus in revenues, and over 28,000 employees. I think we could all agree that is pretty good performance for a start up. Even though I have had my disagreements with Larry and Sergey in the past, I think we should all congratulate them as they leave the Wonder Years and become teens. It happens to everyone, even Harry Potter.

The Social Capital Markets Conference (SoCap) turns four this week. What does this have to do with Google? Maybe not much; maybe a little. SoCap is aimed at the intersection of money and meaning,* so it is very much about impact investing. Which, after four paragraphs, gets me to the title of this post.

The term "impact investing" emerged in 2007, but it has been shaped by earlier movements... socially responsible investment, venture philanthropy and noblesse oblige.** While people are still arguing over definitions of impact investing,*** it seems to come down to the idea that people would like to invest their money in a way that makes the world a better place.# This is, I have found, much more difficult than it sounds (so sorry, Larry and Sergey, for my earlier impertinence).

Which really does get me to the title of this post. Impact investing is new. It is emerging, as SoCap puts it, at "the intersection of money and meaning." But generally speaking, things emergent are small, weak, and hard to predict.## A storm in the south Atlantic can dissipate, or turn into a hurricane. We know how to predict this, but we don't know how to prevent, or invent, hurricanes. A start up can dissipate, or turn into a Google. We don't really know how to predict this, although many try.

The impact investing industry is a start up, as are most of the funds, organizations and social enterprises promoting it. And as Steve Blank says, the right way to view a start up is as an experiment. But I don't think that this has happened with impact investing. Instead, I think many are treating it more as a baby they want to go to Harvard, rather than a cluster of hypotheses that need testing. Just look at my "zoo" post from last year... do we know which of these animals have been most successful? We may be able to measure popularity, but that has little correlation with longevity or impact. How many deals are being done? How much capital is actually being deployed to make a difference? And, is it fair to ask these questions before most aren't old enough to go to kindergarden?

One of the things I got to do this summer is work on a special edition of Innovations Journal for SoCap. It is intended as a "provocative primer" on impact investing, for investors, entrepreneurs and policy makers.### There are a number of excellent essays, cases and analyses which discuss, describe and poke at this emergent creature. Many celebrate its potential, but a few question whether it will turn out well. One of my favorite articles is from Katherine Milligan and Mirjam Schoning of the Schwab Foundation, and I think it summarizes the situation well: "... the hype is obvious. The (social capital) market is not ready to absorb commercial capital on anything close to the order of magnitude being talked about...."

SoCap is a four year old. I just googled this, and found that this means it "walks a straight line" but also "can run in circles... and delights in creating... silly language." Still very much exploring boundaries, still very emergent. If you come with an open mind, and an understanding of how much hard work is required to make something new happen, I think you will find it inspiring and useful. And if you come with an urgency to create, develop and act, you can help shape SoCap and impact investing.

We only have 9 years before SoCap becomes a teenager. By then, impact investing should be more fully formed and easier to predict. These are still the Wonder Years, full of hope and dreams, and the opportunity to shape a movement. Welcome to the awesome responsibility of raising a start up. It is an experiment, full of good intentions, but no history. And like many four year olds, it may just turn out alright despite us.
* VC John Doerr, who knows quite a bit about making money, is credited with the "make meaning" mantra. He is also on the board of Google, but perhaps that is just a coincidence. But probably not.
** I had to google that. Since its French.
*** I think there are two types of people in the world. Those that like to argue over definitions, and the rest of us.
# It is curious that this seems a novel concept. I mean, who wants to invest their money to make the world worse? It seems to be moving in this direction already, and doesn't really need additional help, does it?
## Think babies.
### I think it came out well, and you can see if you agree by picking up a hard copy at Fort Mason this Wednesday, or buying it on Amazon (available NOW). Don't worry, I don't receive a penny of your $3.99. It all supports MIT, an educational institution located in New England that needs all the money it can get. (I just used Google again).

NOTE: Greg, you are right. I should have written more about crowd sourced capital. Kevin, you are right, there is much hybrid vigor in Green 2.0, which I hope to witness this week from a safe distance.

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