“How do you know when it’s time to stop” OPI’s Chief Investment Officer asked as we were heading into a team meeting. His question referred to a technology venture that he’d been trying to kick start with a couple of friends/colleagues over the past three years, rather than our own business model for which we were about to execute our first pivot. The question took me by surprise, however, because I didn’t think this was such a tricky question to answer. It seemed obvious that three years and several failed funding efforts, in the rapidly changing technology space, would suggest that it was time for the partners in this venture to move on. When I talk to my impact investment and impact entrepreneur colleagues, however, I can tell that this question poses a real dilemma — and the correct response may be a function of where we are trying to innovate. Risk taking for product sector entrepreneurs would seem to be a different animal than risk taking for financial sector innovators.
Perhaps the key reason I felt this way is that I am not an entrepreneur. As an emerging markets #impinv manager (intermediary), I try to reduce risks and enhance returns across companies and portfolios. As a responsible adult, I do pretty much the same thing in my personal life. I have enough entrepreneurial spark to make me good at early stage investing, but I also know that my personal risk tolerance profile is much lower than that of the entrepreneurs I work with. My professional sweet spot has always been start-up situations within existing companies/groups, which should tell you something about where I fall on the risk spectrum.
Those caveats in place, when I realized that I wanted to develop and demonstrate a better business model for social impact investment, I knew I would have to step outside of my comfort zone and act as an entrepreneur. I mapped out a work plan, based on available capital, tied to the goals we would need to reach in order to launch, and then pulled together a team that could make OPI a reality. These two elements, a specific work plan for reaching launch and budget, determined OPI’s available run time – or more precisely, how long I could afford to devote myself full-time to the One Planet initiative and also develop the team’s skill sets and participatory roles.
Entrepreneurs are supposed to be flexible, tweak their business plan as often as necessary and charge full steam ahead until the impact of face against wall is too clear to ignore. Michael Porter, the well-known management guru, argues that he believes you give a new venture 100% of your attention and commitment; if it doesn’t work, apply the lessons learned and give it another go…and if it still doesn’t work, STOP and do something else. I’m more aligned with this second philosophy.
Two-thirds of the way through the OPI launch budget and plan, we looked at how the impact investment sector was evolving and did a pivot on the initial business plan. We’re now one month from “D-Day” and new info on Dodd Frank implementation means that one of two possible pivots is necessary for OPI to move forward. Both options are, however, substantively different than the strategy discussed with our potential series A investors – and both imply the need to fund another 6-9 months of development work before we are ready for “institutional investor due diligence”.
At the same time, a third option, representing an entirely different execution strategy, has emerged, representing perhaps a 12 month lag. This option wouldn’t require my full-time efforts and might not be ideally suited to the current skills mix of the OPI team.
What to do? Implementing scalable, responsible models for impact investment intermediation remains of critical importance. The recent US sovereign rating downgrade and ongoing financial markets turmoil, however, represents an acute “check and balance” with respect to successfully raising and deploying capital for investments that improve the quality of life for the working poor and our planet.
Here’s how my thinking boils down. When I put my most entrepreneurial hat on, I have a high degree of confidence that I can execute either OPI pivot, although I might lose some of the current team in the process as a result of the extended time horizon. When I put on my investment manager hat, however, I am horrified when fund and company managers describe behavior to me that exceeds prudent levels of risk-taking. Whether I’m managing my money or yours, it’s my job to take the best available information and then make the tough calls. Fiduciary responsibility would imply that the best investment managers are not necessarily the ones who take the most risk, but those who most thoughtfully manage risk.
I was born at the tail end of the baby boom. Best case scenario, social security won’t go bust until 2-3 years before I’m due to retire. I won’t have a corporate pension and, as a singleton, I won’t have family resources to rely on either. Personally, I feel it is my responsibility as an adult and as a citizen to ensure that I can look after myself in my old age. If I put retirement savings on the line for OPI, am I demonstrating the extent of my commitment, or showing my inability to put my ego aside when a tough call needs to be made? As an investment manager, I’d say that someone willing to put their personal responsibility aside despite unfavorable market signals is more likely to risks with investor money. The ability to step back from an investment – whether your own venture or a potential portfolio company – and re-assess the path forward when investment conditions change, is a critical skill.
My ego wants to keep going because the opportunity is large and worthwhile, and at a strategic level, the signals are all positive. My rational side, however, knows that we’re not going to hit our targets and that furthermore, the best path forward is probably not going to follow the model we’ve been working toward. Accordingly, I think you’ll be reading the OPI swan song soon, but my innovation energy will remain focused on finding and demonstrating better ways to channel investor resources into ventures with social impact (VSIs). When it comes to financial sector innovation, we shouldn’t reward the biggest risk takers, but rather the most responsible risk managers. What do you think? Do you know what would trigger a hard stop for your enterprise? Will you stop when you hit that point, or will you overlook the sunk costs and keep going?