Integrated Investing

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by Bonnie Foley-Wong


  Investment capital can be used to pay salaries and wages (frequently of people in the safety and building stages of life) while a company is starting, building, and growing its customer base and revenues. It can be used for technologies, equipment, and other large assets that business operators do not have the excess resources to acquire. Essentially, an investor is someone an entrepreneur or business owner can partner with to take on whatever risk the owner—along with their employees and suppliers—can’t afford to take on for themselves.

  The Eleven Purposes of Investing and How They Relate to Essential Resources

  As I mentioned earlier in this chapter, there are eleven reasons that people invest. These are status, power, leadership, connection, security, future consumption, preparation for obsolescence, innovation, legacy, making decisions, and exchange. All of these are derivatives of two primary reasons:

  To build businesses that enable people to access essential resources

  To directly access essential resources

  Investing in Businesses to Access Essential Resources

  As I illustrated in Chapter 1, purposeful businesses exist to provide access to essential resources. All businesses start with some form of investment—be it the founder’s own time, resources, and money, or that of an outside investor. Investing is critical for the formation and growth of purposeful businesses and therefore is a key activity to enabling access to essential resources for ourselves and other people.

  Investing to Directly Access Essential Resources

  We invest to build businesses to access essential resources, but there are direct relationships between investing and resources as well. Investing can directly provide the essential resources of sustenance, for example, if you invest in an income-generating asset and create an income stream. The income from your investing activities can then be used to purchase the resources needed to sustain yourself. Investing can also give you essential resources for expression, connection, and managing change. It also requires essential resources of decision making; these help you decide whether to invest, when to do so, in what or whom, with whom, and how much to invest.

  Investing and Essential Resources of Expression

  Three of the most prominent motivations for investment are status, power, and leadership—all three are forms of expression.

  1. STATUS

  Being able to say you were an early investor in a startup that later finds extraordinary success, or being a successful investor in any area, is a way to express status.

  For some people, scouting talent amongst entrepreneurs holds great allure. People derive pleasure and satisfaction from spotting the next big thing, and in a competitive landscape, this is a win. Great enjoyment can come from making that new discovery and being the first investor; it gives you the feeling of having made something happen. People who are able to identify the “next big thing” get an elevated status. Their ability to identify stars gives them their own type of star quality. Exclusive early access to a company can also signify someone’s social status, since they have to be connected to gain access to such excellent investment opportunities. Some people also find gratification in the status earned by investing in a business before it was cool or was adopted by the mainstream, or by investing in an iconic company.

  Simply having the financial wherewithal to place a significant amount of money toward a risky business venture can also lend someone higher status.

  The structure of securities legislation in most countries is such that angel investing in early-stage ventures is accessible only to people with high net worth and financial wealth. Venture investing has become an item of luxury. Recent changes in legislation and a movement known as crowdfunding are making venture investing more accessible, but in the meantime, investing continues to be a status symbol among the wealthy.

  2. POWER

  Power is the ability to do something or act in a particular way. Investors, with their power over their own financial resources, have the ability to create and grow businesses. Controlling businesses and the essential resources they provide can be an expression of that power.

  If you control resources that people need to survive, thrive, and be happy, those people are at your mercy. By strategically investing in infrastructure, assets, and resources that are essential to human need, you gain control over who gets access to them, when, and at what cost. Conversely, lack of investment in some areas also controls resources, like in education, health care, and housing.

  An idealist might say that impact investors are not motivated by power, but realistically, power dynamics are incredibly pervasive in the investment industry, even in impact investing. In my opinion, impact investing should be about shifting power over resources and the access to them so that power and access are more equally distributed, but this is not always the case.

  3. LEADERSHIP

  Investing to enable others to create and fulfill their potential helps an investor express leadership. Investors demonstrate informed risk taking, decisiveness, and a depth and breadth of experience and expertise that allows them to help others achieve their business goals. These qualities are the same qualities we often look for in leaders. In contrast to power, which is about empowering yourself, investing and leadership are about empowering others.

  Developing Investors as Leaders

  In 2013, in collaboration with a leadership development coach, I piloted an investor training program, working with seven professionals in the financial and business advisory industry. Each of our program participants expressed interest in learning how to grow from being a mentor to becoming an investor. They wanted to know how to apply their business expertise to advise startup entrepreneurs and help them realize their ideas and grow their ventures.

  Our investors-in-training had a strong desire to help and empower others and solve problems through innovative new business approaches that featured elements of uncertainty and risk. They had the desire and ability to evaluate and take risks to help entrepreneurs deal with the uncertainty. With the new tools we taught them, our program participants were able to grow personally and professionally, and begin to express leadership in their field.

  Investing and Essential Resources of Connection

  Investing is an activity best done in the company of others. The fourth motivation for investing is for connection.

  4. CONNECTION

  Investing can be a connective and social activity in the form of investment clubs attended by like-minded people, and investors and entrepreneurs networking and connecting with each other at pitch events and other gatherings. Investment clubs have a long history; in fact, they have existed since the 1800s as a way to learn from other investors.

  As an investor, you want to know who you are investing in; similarly, people who receive investments want to know who the money is coming from. Everyone involved in an investment—investors, entrepreneurs, and business owners alike—wants to know that it is in line with their strategies and objectives. This is particularly important for early-stage, angel, and venture investing.

  Connection is an opportunity for investors to learn about what entrepreneurs need and what they have to offer. Likewise, connection enables entrepreneurs to learn what investors are looking for. By connecting, investors and entrepreneurs can start to build common understanding and empathy around each other’s requirements and aims.

  Investing and Essential Resources for Managing Change

  The primary role of investing—given its orientation toward future benefits, outcomes, and returns—is to help us manage change. Unexpected change in the future can cause undue stresses and pressures on your life and others. Being well prepared for change can help reduce this.

  Managing change can take different forms. It can be creating a safety net of resources that can be used in the future in case of emergencies, or it can consist of proactively setting aside reserves of resources to purchase the essential resources you’ll need in the future or to prepare for current essential resources
becoming obsolete. It can mean innovating and developing new forms of essential resources or ways of accessing them. Investing to manage change can also be about setting aside and growing resources for future generations.

  5. SECURITY

  We invest to enable security by accumulating reserves to manage an uncertain future and to compensate for the decline in human capital as we age.

  The words “saving” and “investing” are often used interchangeably. You might save money for a large purchase or expenditure in the future, to buy a home or car, or to pay for a significant travel experience or for something important in the future for your children or dependents. Or you might save for a rainy day to ensure you’ll have access to resources in case of an emergency.

  You might also set aside money for a time in the future when you will be earning less or no money from working. Saving for your retirement may be a familiar purpose of investing. As we age, our ability to generate income—or at least our energy for it—declines. So we invest, setting aside resources now so that they might grow and be available if we need to draw upon them in the uncertain future.

  Those people who are motivated to invest out of a desire for security generally set aside enough for their day-to-day living expenses and then earmark the remainder as money they can save and invest.

  You could stash this money under your mattress, of course (and some people do), but you are more likely to put it to use on an investment product, through your bank account or investment account, that pays you a financial return in the form of interest, dividends, or capital gains.

  6. FUTURE CONSUMPTION

  We invest to enable future consumption by accumulating resources that can grow and multiply, knowing that those augmented resources can be used in the future.

  Investing for future consumption requires the deferral of immediate gratification. We hope and anticipate that investing today will yield more in the future. Investment growth requires a number of factors to work in concert; however, there is a risk involved here. If one or more conditions are not right, the investment might not yield anything, and you may even lose the original investment entirely.

  7. PREPARATION FOR OBSOLESCENCE

  We prepare for obsolescence by investing in replacements or improvements. As things fall into disuse, wear down, or grow out of date, they become obsolete. An asset becomes obsolete when it is no longer economical to keep it in use, even if it is not yet physically worn out.

  Older cars can still transport people from one place to another, but their relative fuel inefficiency, polluting effects, and evolving carbon emissions regulation prompt investments in newer, more fuel-efficient cars. As oil becomes more expensive and scarce, all petroleum-fuel vehicles will eventually become obsolete, paving the way for newer technologies such as electric vehicles, and uses of alternative fuels (all of which require investment).

  Victorian buildings in London, England, sturdily built in the late 1890s and early 1900s, feature rabbit warrens of rooms and corridors. These floor plans don’t work for many businesses today, which demand bigger spaces with fewer walls and partitions (open-plan office spaces). As the needs of businesses changed, those older buildings of brick and concrete were demolished to make room for glass and steel structures that offer more space. This is one example of how we invest in things to create alternatives as things become obsolete.

  8. INNOVATION

  We invest in innovation as we anticipate change. Humans have a high propensity for creativity and planning. We innovate to create things that improve comfort, convenience, and efficiency in our daily lives and activities. Sometimes we innovate to address serious social and environmental issues, or just for novelty. Investing in a new venture may be an investor’s search for the authentic, novel experience.

  As we anticipate things becoming unsuitable for our purposes, we innovate. Perhaps we are running out of a resource or raw material, or maybe we want to be able to do something faster, in greater quantities, or less expensively. Such goals require us to innovate, and by extension, to invest in innovation.

  9. LEGACY

  We invest in legacy by creating wealth for future generations. A legacy is created by investing and accumulating assets that will ultimately be left to someone else. As a purpose of investing, this serves several different objectives: looking after future generations, caring for or serving others, or as a way of being remembered once you have passed.

  Investing and Essential Resources for Making Decisions

  Investing involves a series of decisions—why, how, how much, in what or in whom, when, and for how long. Investing requires information, knowledge, and know-how. These are all essential resources for making decisions, but access to essential resources for making decisions is also a motivation for investing.

  10. MAKING DECISIONS

  One of the outcomes of investing can be new information and tools for making decisions. You learn new things through the activity of investing that can help you make decisions in other areas of your life or you could invest in a purposeful business that creates essential resources for making decisions. Examples of businesses that make information or tools for making decisions include Google (search tools to help you find information), Yelp, and TripAdvisor (directories of places, including user reviews about where to go to shop or where to stay on holiday). B Lab is a business that manages the B Corporation certification system, which sets a standard for social and environmental performance, accountability, and transparency of businesses. The B Corporation certification is information produced by B Lab to help people make decisions about the companies they do business with, shop with, or invest in.

  Investing and Essential Resources for Exchange

  Lastly, a motivation for investing is the essential resources that result from the activity of investing that could be used for exchange. These include the investment asset itself, in the form of shares in a company or some other form, or its financial outcome.

  11. EXCHANGE

  When investing activities produce a return, it can give you access to an essential resource for exchange. Typically, the return is a financial one, but some innovative and alternative investment structures might also pay you a return in-kind, meaning you receive your investment return in the form of a tangible product. If you are able to trade that product for other resources that you want and need, you have still received a resource for exchange as a result of investing.

  Investments themselves take the form of equity shares in a company or a loan, which are collectively referred to as financial instruments. In some situations, financial instruments could also be exchanged for other essential resources.

  As an Integrated Investor

  Use these questions to reflect upon the reasons why you want to invest.

  Are you seeking a return from your investing activities for sustenance?

  Do you require a steady investment income stream to enable you to purchase the essential resources you need?

  Is making money from your investments a primary concern? Why or why not?

  Does the status of being an investor appeal to you?

  What do you wish to express about yourself by being an investor?

  For what do you want to be remembered as an investor?

  What kind of change are you interested in influencing with your investing activities?

  What We’ve Learned

  The motivation to invest is the important first step to investing. Determining why you’re investing is the first decision you make in your journey. In this chapter, you learned about the foundations of investing, including its definition and why we invest in the first place. Investing is not only necessary to the survival of businesses that provide access to essential resources; it also gives you access to essential resources of sustenance, expression, and connection, and for managing change, making decisions, and exchange.

  3

  IMPACT INVESTING: TAKING CARE OF THE VILLAGE

  T H E BURSTING OF a housing bubble. Finan
cial institutions’ significant exposure to sub-prime lending. Complicated financial derivative products. These are just some of the things that led to the great global recession that began in December 2007. In September 2009, the Organization for Economic Co-operation and Development (OECD ) cited improved economic activity in the world’s eleven most significant economies—the United States, United Kingdom, Germany, Italy, France, Canada, Japan, Brazil, Russia, India, and China—and thus announced the end of the global recession. But that was certainly not an end to the socioeconomic challenges the world faces.

  Occurring in parallel with the global recession and continuing well past 2009, many people expressed growing dissatisfaction with the financial system and public investment markets. Alongside this emerged an increasing desire to address those socioeconomic challenges whilst investing, or at least make investment choices that did not cause or worsen those problems. Many of my friends, associates, and colleagues complained of lack of transparency and value in their investment choices. They felt their investments were not impacting their local communities, or their communities of common interest or cause, in a positive way. But most of them did not know where to turn or what to do about this. Many were changing how they shopped when it came to products and services like food, clothing, and other consumer items so that their purchases aligned more closely with their values. Many were also changing their jobs, livelihoods, and career paths to be better aligned with those feelings. But few knew what to do about their savings and investments; those were locked away in the opaque, complex financial system they felt incapable of untangling for themselves.

 

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