Integrated Investing

by Bonnie Foley-Wong

  How to Develop a Resources Mindset

  Developing a resources mindset requires thinking differently about money and the things you need to survive, thrive, and be happy. Reviewing the essential resources mentioned in Chapter 1 is helpful. Here are some things to keep in mind to help you toward a resources mindset:

  Move past money and focus more on the essential resources—on what money can buy.

  Think of money as a means of exchange, not an end unto itself.

  Think about what you need. Start by asking, “What does money buy me that I need?”

  Think about what things or resources you need every day rather than thinking about the money you need to buy them.

  Summary

  In this chapter, we have explored three categories of mindsets, and in each, two groups of mindsets:

  Mindsets that affect your perception about resources and risk: Abundance and scarcity

  Curiosity and fear

  Mindsets that influence your outlook on how to relate to and interact with others: Exchange, self-interest, and serving others

  Relationship and transaction

  Mindsets that affect your frame of mind about results, which includes: Future potential and past performance

  Resources and money

  The mindsets of abundance, curiosity, exchange, relationship, future potential, and resources help integrated investors achieve more impact in their investing.

  * * *

  1 Pete Lunn, Basic Instincts: Human Nature and the New Economics (London, Marshall Cavendish Business, 2010), 104.

  7

  INTEGRATED INVESTING TOOLKIT

  I STARTED DEVELOPING INTEGRATED investing with two big questions in mind. First, how do we make investment decisions differently to move investment dollars in a more purposeful way? Second, why isn’t the investor community more diverse?

  Traditional investment methods and evaluation tools have been around for decades without challenge. These methods and tools are highly quantitative and assume that a number or a ratio can measure everything important. Formulas and models such as net present value, internal rate of return, return on investment, and alpha, beta, and sharpe ratios from traditional investing are rooted in old number and mathematical systems, accounting principles, and investment models that are based on incomplete assumptions about people, their wants in life, and their behaviors. Traditional investment methods and evaluation tools are often based on probabilities, averages, and generalities that don’t always hold true as people, communities, and economies change.

  Few have stopped to question whether these methods and tools are actually effective. Do they really help us achieve all of our investment goals and desires? In my opinion, no—and the credit crunch and financial crisis of 2007-8 should be indication enough that those methods are flawed and outdated.

  I was first exposed to the impact investing space in 2009, and at that time I was already perplexed that colleagues in the industry were talking about striving for both financial and positive social outcomes from their investing, yet the methods they used were basically variations of the same thing my investment banking colleagues in the traditional markets used. Performance measurement models that have been introduced into impact investing, such as social return on investment, attempt to place a number on social impact. Social return on investment relies on the same formula as traditional investing, and it uses outdated benchmarks for the inputs into the formula. How should childcare be valued, what is the cost of educating someone, what is the environmental cost of transportation alternatives? These are used rather than challenging old assumptions. Even more basic still, accounting ratios and traditional measures of profitability and growth are used to evaluate impact investing opportunities.

  We needed to do things differently. With this in mind, I set out to develop a set of investment methods and tools that would reflect our current situation and the blended future outcomes we aspire to.

  In earlier chapters, I talked about mindsets and different investment perspectives that lay the foundation for integrated investing. This chapter will set out the practical tips and tools that you can apply and enact in your investment activities to help you identify and evaluate impactful investment opportunities. Some traditional tools and practices that have been used in some form for decades, such as due diligence and scenario analysis, remain fundamental and useful. Some of what we will discuss are contemporary tools that emerged in the 2000s for entrepreneurs building new ventures, and which I have adapted for use by investors evaluating opportunities because they are just as useful from an investor perspective; understanding how entrepreneurs are thinking and how new businesses are being developed, after all, is critical to your investing activities. Last and most important, I will share impact evaluation tools. These are key to differentiating impactful investment opportunities from traditional ones.

  Start with What You Know

  When you are new to investing in private ventures with impact or are feeling like you need to gain more experience, start with what you know. Knowledge provides you with a starting point for your investment choices.

  For example, if you were to try to invest in a private venture in the renewable energy industry, but you knew nothing about renewable and alternative energy, you would have to expend extra time and energy to learn the key features of that industry. You would be starting at a disadvantage compared to an investor already well versed in the sector.

  You can take one step toward lowering your risk by investing in a field of business or industry you know, in a venture related to a subject area that you’ve learned in formal education or through the school of life, in something you’re interested in and have spent time being involved in, or alongside people you know and trust who are knowledgeable about an industry or business.

  You Know Your Work

  Perhaps you’re an experienced entrepreneur who’s been running your own business for the last ten years. Or maybe you’re a working professional with years of experience that you would love to share with others. Maybe your work experience has been in the same industry throughout your career, or maybe you have moved around and experimented in different fields, adding to your expertise with every move. In the context of figuring out what you know so that you can direct your investing activities in that direction, your work is your starting point.

  Know Where Your Work and Interests Intersect

  I met a man who was a successful business development and sales executive who had launched a technology business in the 1990s in Europe. He later went on to lead sales and marketing for a technology company in the health and wellness industry, and, after that, worked for a technology company focused on the real estate sector. He had tried his hand before in private investing, but his previous angel investments had been unsuccessful. In this second attempt, he began by concentrating on private ventures in a field in which he had worked before: the intersection of technology and health and wellness, as well as real estate related technology startups. He advised a crowdfunding platform that focused on helping people meet the cost of paying for exceptional medical procedures or for medical bills arising from an accident or unexpected illness. He also invested in a technology startup that served the real estate industry and was able to help them make important industry connections (which eventually led to a successful acquisition). In his renewed attempt at angel investing, this investor knew to focus on what he knew.

  To provide you with some direction and a jumping-off point from your current profession, the table on the following page highlights some of the roles in investing you can explore depending upon what industry or career role you have been in. This table is not comprehensive, but hopefully it will give you an idea of what is possible.

  Here are some questions you can ask yourself to help you connect with potential ventures and investment opportunities:

  What changes are happening in my industry and with my work?

  What challenges does my industry face that I would like t
o see addressed?

  What positive changes, solutions, or innovations would I like to see happen in my industry?

  Look for entrepreneurs and ventures that are at the forefront of such changes or are developing the kind of solutions you would like to see.

  Your industry The role that you might occupy in your industry Related industries, ventures, or your role in investing in a new venture

  Medical and health care Doctor, dentist, nurse, paramedic, health care professional (alternative, mental health, physical health and disabilities) Medical technology, ventures focused on health care service delivery (could include how medical information is shared, medical training, and new forms of service delivery and systems)

  Media Publisher, editor, writer, journalist, film producer, music producer, director Digital and new models of publishing, creative content, technology-enabled media platforms, training, distribution, media sharing

  Finance Accountant, finance director, chief financial officer, banker, financial advisor Fintech (financial technology), how financial information is shared and distributed, advising on the finance functions of new ventures (CFO support)

  Marketing, advertising, communications, and community Marketing professional, sales professional, communications professional, publicist, community manager, CSR professional, advertising agent, media buyer New marketing channels, platforms for marketing products and services, advising on marketing and communications functions of new ventures

  Management consulting Management consultant, business consultant or advisor New business models, advising on business strategy, operations, and product strategy for new ventures

  Design, development, and innovation Designer, developer, researcher How design talent is accessed, new models, how design and tech development information is shared and distributed, advising on design and development for new ventures

  You Know Your Interests

  What are you passionate about? What do you invest a lot of your spare time in? Your personal interests are also areas that you will know a lot about. Perhaps you don’t want to mix business and pleasure, but again, investing in an interest area is a good way to manage and mitigate your risk.

  You Know Everything You’ve Learned

  We are constantly learning and applying what we have learned to new situations.

  What you’ve learned encompasses both your academic and experiential learning. By focusing your investing activities on ventures with impact that operate in an industry or focus on a subject matter that you have previous knowledge about, you can take one step toward lowering your risk.

  Furthermore, imparting your knowledge and sharing it with an entrepreneur and their team is a great way to apply what you have learned and help someone else progress their idea. Knowledge is powerful, and it’s what is needed to bring innovations and new business ideas to life.

  What have you learned in the school of life, from your travels, and from life’s adventures?

  Reflect upon what you learned in your formal education. What subjects did you study? What areas of study did you most enjoy or excel at? Consider workshops or short courses that you’ve taken at some time of your life.

  What have you learned from your parents, mentors, teachers, counselors, peers, and friends over the years?

  The accumulated learning from your experiences form a vast body of knowledge to which you can refer in order to identify themes and patterns of things that you’re really inspired by, motivated about, and driven to do more of.

  For example, I studied math and accounting in university and learned about finance in my work. Now I use what I learned to help entrepreneurs improve the financial management of their ventures. Ventures that focus on mathematics education or the financial and investment industries often get my attention because that’s an area I have a passion for and knowledge of.

  Training as a Ski Instructor: From One Safe Spot to the Next

  Years ago, I trained as a downhill ski instructor. I never made a career of it, but I did spend a short time teaching, and I continue to be interested in skiing. In my work in impact investing, I’ve found many analogies between skiing and investing.

  As a ski instructor, I taught people who had never been on skis before how to ski in parallel, and then to carve turns down an intermediate run, by building up their skills and confidence in the steps required. My students learned a set of skills, practicing them repeatedly and in different circumstances until they became acquired skills. Sometimes, standing at the top of a more challenging run, there is a lot of uncertainty and risk. You cannot see the bottom or every obstacle that will appear in your path. But you can see what is in front of you. The approach to navigating and skiing such a run, then, is to go from one safe spot to the next, where you can pause and reevaluate. Your set of acquired skills means that you have tools you can call upon as you move down the mountain.

  Investing in private ventures with impact is similar to this approach. You cannot always see what the outcome will be, but equipped with a set of skills, you can move from one safe spot to the next, reevaluating as you go.

  Perhaps by day you are a working professional, but on your weekends you spend your time volunteering for an organization that builds affordable homes for low-income families (like Habitat for Humanity). What you’ve learned on the building site—be it hands-on building and construction knowledge or site management experience—could be the basis for useful advice for a venture tackling affordable housing issues or inclusive construction. Your on-site experience could be invaluable for a young entrepreneur addressing a challenging issue.

  Immigrating to Another Country

  A subtler example of learning is something I gained through experiential learning. My parents arrived in Canada, where I was born, as immigrants. In my adult life, I relocated to another country and became an immigrant to the UK . I found myself frequently entering new communities as the outsider, discovering the lay of the land, and eventually being welcomed into those new communities. This experience, of going from newcomer to welcomed member of a community, taught me something I’ve applied to new ventures that focus on building communities and welcoming new members from the outside. It is evident in a lot of the work that I do in impact investing, and I’m frequently looking for the exceptions to the rule, the outsiders, and wondering how I can create a culture and community that welcomes them. It is even evident in the impact venture fund I founded. When I found that people who were not extremely wealthy (often described as “not high-net-worth individuals”), many of them women, were excluded from opportunities to invest in private ventures, I created a fund designed to be a way to welcome them into the community of impact venture investors.

  The possible examples and situations are vast. The key is to take time and reflect on what you have learned in many different situations, and to look for the themes and patterns in your cumulative learning. You might be surprised by the connections you start to make.

  The next step is to take what you’ve learned and be willing to share it with others—with confidence—to help them progress their ideas. Challenge entrepreneurs and provide them with feedback based on what you have learned and experienced.

  Everything you’ve learned gives you a starting point for identifying areas in which you might be interested in investing.

  Who You Know Matters

  If you are new to investing in private ventures with impact, knowing other investors and people experienced in identifying and evaluating investment opportunities matters too. It can be helpful to invest with other people.

  Investing with experienced investors can expose you to opportunities and help you learn the ropes.

  Investor networks are formal, organized groups that identify and often evaluate opportunities together. They are often not-for-profit organizations and, depending upon their size, may have a full-time staff or a volunteer team that hosts network meetings, attracts entrepreneurs to present to the group of investors, and recruits investors to join the netw
ork.

  Knowing an impact venture fund manager is another approach that can be helpful. If you are a new investor, are limited in the amount of time you can spend on your investing activities, or want to invest in a portfolio of private ventures with impact but do not have enough financial resources to build your own private portfolio, then investing in an impact venture fund may be an option for you.

  If you do not know any experienced investors, then look for other people who are interested in learning about impact investing and form an informal group. Investing as part of an informal club is a great way to learn together.

  Investing Alongside Experienced Investors

  Recall the story about the angel investor from earlier? Not only did he decide to focus on a particular industry in which he had previous work experience, he also sought to invest with others who were more experienced in angel investing. He partnered with another investor who had more than twenty years of private equity and venture capital experience, and was also interested in focusing on the health sector. He also sought to invest through angel networks and other groups that were led by investors more experienced than he.

  The Integrated Investing Toolkit

  In my experience, there are three major questions on investors’ minds when they evaluate an investment opportunity: