Fortune tellers and investment managers have a lot in common. Both need to read the tea leaves; sorting through bits and pieces of disconnected information to come away with the right message. I generally consider this one of my most useful skills. If, however, you follow the global economy, you won’t need to connect too many dots to understand that the world’s in a bit of a mess. For my #impinv financial services initiative, One Planet Investments (OPI), the congressional shenanigans and US debt downgrade of August led off a series of market signals that screamed out “stop now!”
I set up a conference call with the team to run through the facts and see if we could brainstorm a way to proceed with our planned September Series A round despite the negative signals. Short of counterfeiting, no viable pivots could be found that made sense in terms of our available skills and resources. Kicking my own ego to the curb, I knew that the tea leaves were telling me that it was time to wind up OPI in an orderly fashion and move on.
In normal circumstances, I would prefer to highlight my successes and let the failures slip quietly into the past. We are not, however, living in normal circumstances. Sustainability, social justice and impact investment are attracting increasing mainstream interest, yet the same economic downturn that makes these themes so critically important also makes it hard for them to gain traction. I can name half a dozen smart, experienced and passionate social and environmental innovators who have thrown in the towel in recent weeks and that stings as much as the OPI No-Go decision. I can name another half dozen or so who soldier on, living on fumes and hope. Yet, at the same time, there is a real scarcity of the right kind of senior talent in the sector!
So, why am I formally closing OPI rather than putting it on the shelf and dusting it off in a few months when – perhaps – conditions have changed? Several reasons actually:
1. I work in area of finance in which “fiduciary responsibility” carries a serious moral and ethical burden. I am therefore mindful that timely dotting of “i’s” and crossing of “t’s” is a key driver of meaningful reporting and transparency. Knowing that the OPI biz plan won’t fly in this regulatory environment, I feel it’s my duty to execute an orderly windup, extract as much high level value from the process as possible, and then move on.
2. In my investment career, I’ve found that most people and organizations know that many businesses fail (or fail to meet expectations), but some will become shining stars. You have to tout your star capacity to raise money, but in the process, some of us cease to believe that it’s OK to fail. When you can’t “fail”, you may end up throwing time and good money into what is essentially a sunk cost issue — and missing the next star opportunity elsewhere. Sharing my “fail” is my way of validating that I do indeed believe in the importance of failure for both innovation and investment — and especially in early stage and growth social impact investment! In fact, I have now quite thoroughly “put my money where my mouth is”.
3. I have a lot of cool ideas of what might come next, but I need to do some homework before I can think about making a decision. In the meanwhile, the world of impact investment is evolving rapidly, so might as well make sure people know that I’m open to new ideas these days. Announcing the no-go on OPI means that more people will think of me as opportunities arise. Shameless self promotion? Are you kidding? I’ve just shared my biggest personal failure to date with all of you This is about transparency, sharing knowledge and, yes, about finding the best next use of my skills, talents, interests and passions. Oh, and honestly, I don’t think I failed just because my company didn’t launch! I accomplished a lot, just perhaps not everything. I’m OK with that.
Despite, or perhaps because of, a high degree of awareness with regard to my own strengths and weaknesses, I can’t help worrying that if someone with my skills and track record can’t pull off #impinv financial services innovation in the current environment, the odds are stacked pretty high against most of us. If you are not already sitting on enough capital to field the right team and hit your launch targets, now might be a good time for a rethink. As someone who spends a lot of time thinking about ethics, values clarification and good governance, I know that deciding to stop is often harder than plowing onward, market signals be da**ed – and that’s also part of why I’m sharing my “dirty laundry” with you.
In the spirit of collaboration, you can read the swan song letter I sent to my friends, advisers, colleagues, partners and miscellaneous supporters below. We’ll be releasing a “Lessons Learned” white paper before year-end. Don’t be afraid to “fail” if moving on is the wiser decision to make! We can’t learn and innovate unless we’re willing to make – and correct – mistakes.
Dear Friends of One Planet Investments,
I write this with a bit of a heavy heart, since just as we prepared to issue our Series A, August 2011 turned into a perfect storm of negative signals. Downward market volatility, exacerbated by the US sovereign credit rating downgrade (and the foolish behavior that led to that decision) and the Greek inspired Eurozone crisis had a clear impact on our potential investors. Ongoing implementation of Dodd-Frank led to regulatory issues that we had previously believed would be moot until 2014. Other factors, related to partner organizations, the changing availability of OPI team members and performance-related strategy issues, all combined to force a “no go” decision by the end of September. Knowing when to walk away from a deal (even your own!) is a critical investor skill. As much as I want to be a change agent for impact investment, I don’t believe this can be done under the original OPI business plan.
So what happens now? Impact investment as a “theme” strategy is gaining traction, but for most institutional investors, an increased SRI focus (positive and/or negative screening of listed instruments) will fill the need to support the “greater good”. International social impact investments looks at direct investments in smaller, earlier stage companies in emerging market geographies, operating in sectors that are only now developing viable market-driven business models. This is a high risk, exotic niche within a new investment theme, but one that offers tremendous opportunity to enhance quality of life for the working poor. Overall investor demand for these types of investments, however, will represent only a small percentage of aggregate demand for general impact investments. A great deal of confusion and uncertainty exists, especially as a range of slightly different sectors (venture philanthropy, social capital, impact investment, sustainable investment and so on) face convergence issues.
OPI was not only focused on this exotic impact investment niche, we have been proposing process innovations related to achieving operational excellence; product integrity innovations that offer better risk-return trade-offs for investors and portfolio companies alike; and fee structure innovations to support enhanced alignment of interests across stakeholders. In other words, we’ve been working on a better business model for intermediation of multi-bottom line investments as well as on new products that this intermediary would offer. On aggregate, we have been working toward innovating simultaneously across the majority of innovation trends supported by asset managers and other institutional investors. This major rethink of the status quo is unprecedented. Change doesn’t happen overnight, however, and although we see signs that the market is catching up with our views, regrettably, we do not have the capital to muscle through until market evolution intersects with our strategic vision.
Compounding this situation is that fact that as Dodd Frank implementation moves forward, it has become clear that although OPI could claim exemption under the Advisor Act, the One Planet Growth Social Spectrum fund would need to be regulated as of March 2012. This reality affects the planned budget (on which basis the Series A was structured) and the timing and prioritization of pre-launch activities. In order for potential OPG investors to start writing checks, regulatory filings and compliance must be a done deal, in addition to the investment and reporting readiness requirements that we have been pulling together. An alternative to tackling regulation would be to relocate to Luxembourg or Lichtenstein where requirements for listed impact investment vehicles are more manageable. Physical relocation would be necessary due to the scope of US regulation, which again represents a significant variance from the planned budget and work schedule. These options are feasible, but not within the original business plan and budget shown to prospective investors.
Accordingly, what would have been OPI now moves into wind-up phase. We will be finalizing our original research on human capital and organization development for impact investment, and preparing a short white paper study around lessons learned, both of which will be published and disseminated to appropriate audiences. We hope these documents will help illustrate the obstacles to creating scalable impact investment intermediaries as well as the critical role these intermediaries play in the emerging ecosystem.
Although the OPI team has dispersed in light of economic reality, we still aim to finalize our knowledge building work by the end of 2011. I’d like to extend special thanks and recognition to the brilliant and amazing people who, as team members or advisors, have worked nights, weekends and vacation days to help build the OPI model and the OPG Social Spectrum Fund product, sepecially: Claire LaBrunerie, K.C. Soares, Sherin Gobran, Jyoti Patel, Beezer Clarkson, Fabricio Soares, Mai Yasuhara, Don Terry, Roberto Dañino and Hasan Almedar. The intellectual capital and moral support that these individuals have provided (and will in most cases continue to provide through year-end) is invaluable. In addition, the fact that you are reading this letter suggests that you too have provided intellectual and or moral support to OPI over the past year. Your spontaneous offerings of thoughts, comments and contacts are deeply appreciated.
Needless to say, I personally remain committed to improving the socio-economic well-being of the working poor and the health of our planet. I’m working on a new high level strategy that can be executed within the evolving US regulatory environment and will be doing research and market soundings over the next few months. There is absolutely an interesting private equity play looking at the capital markets environment and impact investment growth needs, but the degree of PE industry interest and my ability to reach interested decision-makers needs to be tested further.
In the interim, I must also return to the reality of earning a living. If you are aware of interesting leadership positions related to social impact, multiple-bottom line or ethical investment, please do let me know. For now, my consulting firm, One Planet Ventures, enables me to engage in interesting and relevant activities on behalf of the “impact investment industry” while I explore options. I will continue to represent the MIF on the Board of microinsurance company Paralife, have agreed to join the Advisory Board of Mission Markets and, of course, will continue to tackle financial intermediation through my blog “The Money in the Middle” (guest posts and interviews welcome!).
Lauren A. Burnhill