Impact entrepreneurs could achieve a lot more — in terms of systems change — if investors did more thinking about power and the world they most want themselves and their grand children. My thesis: capital reciprocity can help investors achieve their impact goals. Without a shift from capital supremacy to capital reciprocity, the conventional power dynamics continue to perpetuate the centralization and concentration of wealth and the deepening of our environmental and climate crises.
Investors consistently misunderstand co-op entrepreneurs (and employee ownership, steward ownership and other solidarity economy business enterprises).
Most often, investors and philanthropists find it hard to see and appreciate how entrepreneurs are building in deep social, environmental or racial justice into their business models. The way to ensure and structurally prioritize impact is to restructure the traditional power dynamics in conventional governance, ownership, and management structures.
Most often this has implications for capital providers. However, if as an investor you’re not prepared to see and appreciate and thank the entrepreneur (or fund manager) for doing this hard work, then you’re not going to see the growing number of opportunities you have to prioritize (and de-risk) the impact you’re most looking for.
In our previous Livable Future Investing workshop, we recorded a few interviews with pioneering fund managers. Once you meet a few of these entrepreneurial leaders — you begin to glimpse the kind of just and flourishing future that might be possible. (And also hear about how one of the consistent barriers they face is how impact investors don’t understand or appreciate the way they’ve structured the role of capital partners.)
Our Biggest Barrier to the Impact we Seek
Conventional finance is set up to value what investors are bringing (the money) not what the entrepreneurs are bringing –> the new ideas/structures/business models to ensure deep and transformative impact.
The primary challenge is that because traditional public and private financial markets are set up to maximize capital’s interests (capital supremacy), they consistently see what these pioneering leaders are bringing us as not useful to the dominant paradigms and mindsets of finance and investing.
Here’s the hard work we need to do:
As investors (and advisors), we have to do the hard work to get really clear on the impact (and future) we’re seeking. Then, we need to develop a solid critique of the way things are going — to be able to keep ourselves grounded in the future we want. This solid critique (or alternative framework/mindset) will help us (as investors) avoid the easy allure of slipping back into conventional investing mindsets and thinking about maximizing our financial returns and minimizing the risks to losing capital — and thus sacrificing the impact returns we’re looking for. Instead, we need to first make sure the businesses and funds we invest in are de-risking the impact we’re seeking. Then as a secondary concern attend to how our capital can show up in a reciprocal, mutualistic way so that investors participate in the upside alongside entrepreneurs, workers, communities, and future generations.
As investors (and intermediaries), we need to collaborate to help each other see just how many practitioners are forging new frontiers of impact-first investing. When seen together — these regenerative and reparative investing opportunities add up to something pretty meaningful.
In this Livable Future Investing workshop, we strive to help make intelligible the landscape of emerging intermediaries by highlighting some of the leading funds and investment opportunities. Then we’ll help build frameworks to see the patterns in how these opportunities and entrepreneurs are emerging. Finally, we’ll turn to the translation work of making these patterns, principles, frameworks actionable across asset classes.
- How to have the hard conversations with our managers?
- How to give clear impact guidance/directives to our managers
- How to revise/update our processes/policies/purpose
- How to facilitate conversations with our Board / investment committee
- How to lean into the slow work of internal organizational change.
We’re building a special cohort of investors (and a small group of others) to roll up our sleeves on what we believe might be our most important work.
One piece of this for me is helping investors see Impact Risk as primary and Financial Risks as subordinate. This chart from the Impact Management Project is a helpful step in that direction.
I’ll be there rolling up my sleeves on this and more during our Upcoming workshop.