An interview with Next Billion.
NB Talk about the Good Capital Project: What’s it about and why are you launching it now?
Kevin Jones: To understand why the market is ready for the Good Capital Project now, you have to go back to why SOCAP then. In 2008, SOCAP was built to solve a problem. It was a problem that I had and that all the other early pioneers had, as we tried to launch the first venture capital funds to invest in social enterprise.
Everybody hated our core concept. The idea that you could invest with the goals of philanthropy, but with a rigorous for-profit, early stage, venture fund to help promising social enterprises expand was resisted to the point that three different billionaires ordered us out of their offices; our idea was one they did not want to be around and, they said, it even made them hurt physically.
I’d been successful in business several times before, and in my earlier life, I would have changed my product to one that they liked, that didn’t make them hurt when they thought about it. But I decided I wanted to build a business right there, in the space they said could not exist, between giving and investing. SOCAP was built to overcome two pocket thinking; that I invest and only think about how much money I am putting in my pocket. And then I put some in another pocket and do good with it. We wanted those pockets to open up to each other, to bring in investment into a space that at the time only had philanthropy or aid.
Our hypothesis was, they can’t be around the idea of a market that values meaning, the stuff that matters, when they are thinking abstractly about their asset classes and returns. When they see the companies that we and others want to invest in, they will get out of their heads and want to get involved in the sector. To sell our product, we had to build a market, they had to think differently to buy anything in that market, spit on Milton Friedman’s grave and say fiduciary responsibility is not my only responsibility (this was before B-Corp – they are solving that on a company by company basis, allowing you to work for stakeholders not just shareholders). To be an impact investor you say it’s ok to invest in all of us and for myself at the same time, that is what impact investing is.
And to get SOCAP off the ground we had to have people realize they needed a market. What they had was a series of closed door summits, with the right people in the room and nothing moving then or afterward.
We were disrupting the dominant paradigm that existed around convening; they only wanted the right people in the room. We wanted the barbarian to meet the byzantine and find a way to become unlikely allies. And we thought that the vitality of that market, like an intersection of caravans at an oasis, would be appealing and augment the summit model. We would find a place between the silos and their tents where they met valuable strangers who became unlikely allies. We sold ourselves as the space between where you might find unlikely allies, and hear voices you sometimes don’t hear in your typical meetings, hear new ideas, see experiments.
That part of the plan worked nearly flawlessly; by emphasizing bringing in new groups who needed to be taken seriously. From indigenous entrepreneurs and investors, to African American initiatives focused on using entrepreneurship and innovative financial products to begin erasing the racial wealth gap, to, now, development agencies more than before. We keep SOCAP on the edge of the newest innovations by finding the new valuable strangers who could become unlikely allies.
That has made SOCAP the place where people come to get partnerships done and deals done or advanced, because all the people you need to see are going to be here.
And I think our abundant kind of vibe that people find attractive, the energy at SOCAP, comes from us keeping the heart at the table, continually asking why it is we are doing it, and whether or when we are sacrificing something more than we are comfortable with to make the kinds of returns we came in expecting. We are always bringing in a new group of outsiders into the room with the powerful and trying to build relationships there.
But sometimes you need a bit more order, a way to fit all the pieces together, more like a supply chain or a collaborative system for the capital providers to work together than a Mideast bazaar like SOCAP. That’s what the Good Capital Project is designed to do. Starting with a design session on June 19th, Juneteenth, in New York at a really cool place to do interactive sessions, we will launch a two-year exploration of all the sources of capital that want to connect to impact investing.
We want to be at the intersections to help the traffic flow between the various silos that want to connect to impact investing, to fit it in to what they are already doing. For example, last month we attended a convening in Armenia with the UNDP, US AID, the IFC and the Finnish and Malaysian sovereign funds, among others. On the other side were some impact investors trying to explain a problem to all these development players who want to launch regional impact funds. One of those investors and I have written a piece to explain to the development organizations that they need to figure out when to use subsidies, and when not to, if they want to accepted as good partners. That dialogue is ongoing; they will be in the room where it happens June 19th.
They need to learn to syndicate and apply a certain kind of capital at the right time for all the other players in the ecosystem. They have not had to think of their impact or the unintended consequences of their capital before. It’s news to some groups how a subsidy might distort a market when the market, for example, cook stoves in India, is one where the market has the answer after subsidies earlier in its evolution established the playing field the market arose to fulfill. Now a new major aid organization has decided to flood the Indian market with a stove it likes, with heavy subsidies. That could destroy a fragile market where risk taking impact investors have taken significant bets.
In similar fashion, a blog series across the taxonomy of funders is in the works. For example, family offices meet impact, CDFI’s meet impact, angel networks meet impact, faith based investors meet impact, anchor institutions meet impact, sovereign funds meet impact, etc… That should help us flesh out the taxonomy, blockages to overcome and bridges needed at each intersection of something meets impact.
People from international development organizations that put out billions in aid will be coming June 19th, meeting with impact investors, but the huge story, of course is that we are bringing in Wall Street. Demand is driving Wall Street to want to figure out how plug in to impact, which requires using syndication to reach scale.
But this big intersection, Wall Street meets impact, is not happening in a vacuum, there will be other stakeholders there, too, development, family offices, local investors, investors from marginalized communities in the United States each of whom needs to be able to plug in to meet the demand coming from the customers of the big Wall Street banks and financial houses.
What needs to happen of course, is that the impact market needs to move into the phase of coordination; the period in a markets maturity when exchanges can start to thrive. This the era in our industrial history when railroads standardized their gauges so that commerce and people could flow. The coordination stage of a market is when you get past one off cooperation partnerships and initiatives and start linking systems.
The Good Capital Project hopes to provide content sessions with other global events in our orbit, Sankalp Africa, Sankalp India and Sankalp Indonesia (we’ve shared content for years and have worked well together). We hope to pop up next year during the Skoll Forum; inside the gate if we make the cut, or at Marmalade if we don’t, so that this dialogue around how to make all the different capital players link up can be carried forward, at other convenings and online.
We think this is the dialogue to be having now. We know what to do, it’s time to figure out how to do it together, to get over ourselves and get it done. We will be developing an online community and content platform as demand and sponsorship intersect.
Right now, I view the funders and potential funders in each sector as often several standalone hydraulic systems. International development organizations don’t syndicate, don’t link the plumbing up, of their hydraulic capital flows, with impact investors. We want that plumbing, knowing when to apply which kind of capital now, to be there without having to do a one-off negotiation and write a paper and get people discussing the idea of development agencies doing a market impact report before they deploying a subsidy. Once the dialogue is over, the subsidy question becomes more like a subsidy valve a development organization would know when to turn on and when to shut off. Sometimes subsidies are great. At other points in a market’s development, subsidies distort the market and put more risk on high risk early stage institutional impact capital than they can bear.
We will replicate that kind of engagement at every intersection. Markets form in conversation, as you learn to trust an unlikely ally and rely on each other. SOCAP provides the basis for that. The Good Capital Project is bringing those market forming conversations to the intersections where each flavor or language of capital meets impact. The development organizations, the IDO’s in Central Asia are really innovative and that region is allowed by the system to be innovative. But they have not had to think as if they were a member of a syndicate, and manage their impact on their partners.
Other sectors have their own issues; Juliana Balandina- Jaquier has just finished a really useful step-by-step handbook for talking to family offices about impact investing, with a lot of understanding about their issues integrating with impact investing. We are focusing on intersections like those, and finding what translations, or handbooks, or new protocols can accelerate the flow of capital across that particular divide; what kind of bridge is needed. We are looking at the racial wealth gap and investment initiatives addressing that, among others.
So that’s why SOCAP then and why the Good Capital Project now. This is a natural phase of a market’s evolution; into coordinating, setting up plumbing, replicating what works, with culturally literate local adaption as a way to scale.