We at Reinventure Capital spend a lot of time thinking about equity (value) and equity (justice or impartiality), as critical investment considerations. Recently this topic has started gaining some momentum in the form of high-profile discussions regarding the steeply asymmetric challenges facing entrepreneurs of color and women entrepreneurs. Often these discussions are cast in language of ethics or morality (what is wrong and should be set right), prudence (what is bad or good governance, whether ESG or otherwise), or insight (what better options are possible). Or as we have simplified for our title, what is fair (social / political); what does inequity cost (economic / financial); or what is smart (opportunity / competitive advantage).
Ultimately, we believe that while each of these questions is important in its own right, engaging all three questions at once informs a much more sophisticated approach to investing.
In the closing plenary of SOCAP15, Ed participated in a panel on this topic alongside Nikki Silvestri and Ben Jealous, moderated by Decker Ngongang.
The panelists’ definitions of equity include agency, privilege, access to opportunity, and tapping into genius wherever it exists.
On the subject of what is fair, very few would argue that a democratic society and capitalist economy should not practice all of the above, as widely as possible. These precepts are central to the preambles of both the Declaration of Independence and the Constitution of the United States. Yet over the past year in particular, news feeds — including recent Fortune, USAToday, and Boston Globe articles, among others — have been rife with pointed examples of steep and systemic inequities, particularly affecting people of color and women. This is a question of justice, and a matter of policy.
On the subject of what inequity costs, organizations as varied as GreenBiz, Kauffman Foundation, McKinsey, and others have pointed out that there is sizable financial and economic advantage to be gained by expanding equity in all the definitions above — or lost to persistent inequity. McKinsey focuses on economic potential. GreenBiz focuses on sustainability. The Kauffman Foundation summarizes their findings in unmistakably stark terms: “The recommended interventions are not based on charity. The need to dramatically increase investment in minority entrepreneurs is vital to the survival of the U.S. economy.” [emphasis added] Here we are explicitly contemplating prudence, particularly economics and finance.
On the subject of what is smart, Mark Kramer and Michael Porter published their Harvard Business Review article on Creating Shared Value in 2011. Although the idea wasn’t original or new then — even President Reagan touted employee ownership as the future of capitalism, and “a path that befits a free people” — the notion of generating increased returns by expanding equity still remains a contrarian concept. These are differentiated insights regarding business strategy and execution.
Each of these three vectors or axes — justice, prudence, and insight — offers important but partial illumination on the subject of equity. In mathematical terms, each is necessary but not sufficient. Together the three axes define a whole and actionable, three-dimensional solution space. Too often the equity / inequity conversation focuses on just one of the three, which on first examination seems to be more realistic, more pragmatic than attempting to address all three. However a more sophisticated perspective recognizes that focusing on only one axis can only produce limited results at best.
In the same way as ESG combines environmental, social, and governance considerations to form a more complete perspective than one dimension at a time, we suggest taking a three dimensional approach to assessing investments, namely justice, prudence, and value creation. We call it JPV. We’ll revisit that proposition —and perhaps the acronym as well — in future posts.
The bad/good news here is that there is persistent and widespread inequity — that’s the bad news — but that inequity is not a constant; it is a variable and can change — that’s the good news. Like Monique Woodard and 500 Startups, Kathryn Finney of Digital Undivided, and the team at Kapor Capital, among others, investors can choose to change that variable by deploying capital differently.
We believe that expanding equity (value, especially capital) to increase equity (justice and impartiality) is simply an astute investment approach. More to the point, we are convinced there is more than ample evidence that investors who take a disciplined approach to creating and expanding shared value should routinely outperform their conventional peers.* We’re not the first to reach that conclusion, and although it’s still a contrarian view, fortunately we’re not alone in putting it into practice.
Reinventure’s investment thesis revolves around seeking out founders of color and women who are largely overlooked by mainstream capital, supporting them to grow businesses that create meaningful value, and expanding the pool of stakeholders who reap the benefits from those companies’ successes — increasing both equity (value) and equity (justice).
At Reinventure, we’re reinventing investing. We’re in extraordinary company.
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* While there’s no such thing as a guarantee in investing and no one can reliably predict the future, Ed’s record at UNC Ventures provides some historical evidence in support of this hypothesis. To learn more, please contact us.