Last March we wrote a thought piece entitled, “What is fair, what does inequity cost, and what is smart?” In it, we asserted:
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.
We stand by that assertion, and in fact we feel it has proven even more salient one year on.
Don’t just take our word for it.
On the topic of justice, last November Erika Karp planted the Cornerstone Capital flag squarely in the inclusive economy: “We will remain in relentless pursuit of material progress towards a more regenerative and inclusive global economy. And we will continue to leverage the power of positive investing. We will stand by those who seek to accelerate the flow of funds into sustainable investment strategies as they demand competitive financial returns.”
Mitch and Freada Kapor have been consistent thought leaders — and active practitioners — on the topic, pointing out last April, “Genius is evenly distributed throughout the population, but opportunity is not.” In the same post, they drew a direct connection between justice and impact investing, “The truth is that many new businesses… may actually widen the gap between the haves and have-nots, which in our view creates a negative overall social impact… If a company is widening gaps in access and opportunity, or providing a strategic advantage to wealthy people over the poor, it’s not a positive impact investment.”
In January of this year, Aner Ben-Ami stated the Pi Capital perspective this way: “… as a starting point, we should at the very least be asking the question for every investment we make — is this a strategy that helps re-define who wins or loses in our economy?”
For Cornerstone, Kapor, and Pi — among others — an investment that sustains or increases injustice is unworthy of their capital.
On the topic of prudence, Mitch and Freada Kapor wrote in January 2016, “Kapor Capital is building a successful venture capital firm by investing in tech startups that narrow gaps of access, opportunity, and outcome.” They expanded on that thought in February 16, “… those venture firms that recognize the value of prioritizing diversity today will be in the best position to identify and support the great investments of tomorrow.”
Last month Monique Woodard of 500 Startups took a deep dive into this theme: “There is a massive opportunity for products and companies that address the big unsolved problems and unmet needs of Black and Latino consumers… and investors are missing it. This multi-billion-dollar market is almost completely misunderstood by the majority of investors (LPs, VC, and angels, alike), and even sometimes by founders.”
In a post just this month, Jennifer Brandel & Mara Zepeda argued it’s time for investors to focus on a real big-game animal, the zebra, instead of the mythical unicorn. They wrote, “zebra companies are both black and white: they are profitable and improve society. They won’t sacrifice one for the other. [They are] profitable businesses that solve real, meaningful problems and in the process repair existing social systems.”
In other words, building on the findings we shared in our February post, “Recovering from Some Animals Are More Equal than Others,” those investors who invest in more diverse teams and broader social value propositions stand to gain for their own portfolios and for society at large — that is prudence in action.
Finally, on the topic of insight leading to value creation, again Mitch and Freada Kapor made a plain case that, “… diverse founders aren’t just a nice thing to have in your portfolio; they often provide a unique business edge. Founders with diverse lived experience can identify problems that are begging for a tech-driven solution.”
Earlier this week, Community Capital Management commented on CalPERS research, “One U.S. study found that socially responsible investing (SRI) funds performed in-line with non-SRI funds during an economic expansion, significantly outperformed during an economic contraction, and performed better during a crisis.[3] Another study reports that investing in sustainability has usually met and often exceeded the performance of comparable traditional investments on both an absolute and a risk-adjusted basis across asset classes and over time.[4]”
In other words, whether contemplating private markets or public markets, investors practicing social value creation can realize a distinct performance edge over those who don’t incorporate contextual social insights in their investment decisions.
Where do you fit in the emerging ecosystem?
The people and organizations mentioned here are just a few members of the rapidly growing community of investors unwilling to settle for short-sighted, narrowly blinkered choices. The emerging ecosystem is taking shape, and although there is plenty of room for new capital, there is no time to waste.
Our economic stability and our social fabric both depend in very real terms on astute investors choosing justice, prudence, and value-creating insights. And given that it’s possible to strengthen our society and generate superior financial returns in the process, why wait on the sidelines while others go do it?
For our part, Reinventure Capital is working to reinvent access to early growth stage capital for innovative young companies led by women and people of color. Echoing the zebra metaphor, the Reinventure investment thesis is designed to deliver both intentional social impact and competitive financial returns, without compromise to either.* We aim to cultivate a portfolio of profitable, growing companies that matter — to their customers, their employees, their suppliers, their communities, and yes, their investors. Companies that are leading the way out of the old economy and into the new one.
At Reinventure, we’re reinventing investing. We’re proud to be in extraordinary company with others who are also reinventing the world to create a more equitable future for all — the world isn’t waiting, they’re not waiting, and neither are we. Please join us.
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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 historical evidence that it is indeed possible to invest for both financial returns and social value creation. To learn more, please contact us.