Julianne Zimmerman | August 6, 2019

In the 1980s, a movie called Highlander attracted a cult following (and eventually a string of truly unfortunate sequels) despite, or perhaps because of, a fairly silly premise. [Those of you who still love it, don’t @ me. I watched it many times, too. It was the 1980s. Let’s move on.]

For those of you who never saw or have since forgotten the film, here goes: all over the world, and across millennia, seemingly random individuals are born who turn out to be immortal, and who are destined to fight each other to the death — with swords, of course — until only one immortal remains alive.  The victor’s celebratory cry was invariably, “There can be only one!” — which at the time more than a few pop culture nerds found hilariously mixable with the long-running Lay’s potato chips ad campaign, “bet you can’t eat just one.”

[many thanks to Glenn Kubalko for the mouthwatering photo here, from the totally unrelated June 2019 Taste of Somerville]
 

Why only one?

The proposition that only one winner can emerge from a contest with any real value is still very much with us, and although some things from the 1980s have aged quite well, this idea isn’t one of them.  Along with several other things that arguably should have been left behind, it has returned only slightly retailored.

The winer-take-all premise has become so familiar and ubiquitous that it may even seem commonsensical. After all, this is how we think about (most) sports: a single reigning champion at any given time, and all other competitors seeking to dethrone that champion. Isn’t athletic competition the most apt metaphor for human life?

As a former amateur athlete, I have an abiding appreciation for the life lessons, skills, and experiences I gained from competing with joy and abandon. I may return to that theme in a future post, but for now, let’s acknowledge that while competitive sports provide a wealth of applicable models and metaphors, there are many facets of human endeavor for which the specific notion of winner-take-all is patently inappropriate or worse. Childrearing, for example. Even among the most hyper-competitive parents, I would hope the majority recognize that their children need to have healthy, happy playmates, peers, friends, and in some families siblings, and that at least some degree of cooperation and mutual benefit is necessary to their children’s happiness and lasting well-being (as well as the parents’ own sanity).
 

Why NOT only one?

Besides being a flimsy plot device, the Highlander winner-take-all model is preposterously wasteful (not to mention unsatisfying, thus the sequels and television series).

Try viewing this story proposition from your perspective as an impact investor: there are hundreds, perhaps thousands of people with extraordinary gifts, some few dozen of whom are truly spectacular. Would you rather bet on a single individual to win everything, or find a way to bring several of them together, a la X-Men or Avengers (or if you must, the Justice League)?

Before we get too far down the nerd rabbit hole, let’s apply that question more explicitly to impact investing practice. Quite a few LPs have told us some form of, “we invested in [insert fund manager here], so we have that impact theme covered.”  Even if that fund manager is brilliant and outperforms conventional peers — as many in fact are doing — choosing to back just one represents an extremely fragile position. Wouldn’t you prefer to invest behind several, to gain the benefit of a portfolio effect?  Kapor Capital has demonstrated substantially superior returns by taking this approach in their direct impact investing, and it stands to reason that similar benefit would accrue to LPs who diversify their impact GP commitments.

The question becomes even more pointed when you consider the trajectory of a venture-backed company. The majority of social-impact funds are focused on pre-seed, seed, or in some cases Series A investments, and are not structured to follow on to later stages. This leaves a funding gap which renders even the best-performing early-stage investments vulnerable. Unfortunately, conventional VCs have yet to catch on to the opportunities they are missing, and so follow-on investments necessarily must come from impact investors. As highlighted in the Kapor Capital Impact Report, “We need more impact investors to step up, especially at the Series A and B stages.” Absent sufficient capital at Series A and B, those seed-stage investments will suffer inordinately high mortality rates, translating to both severely reduced impact and LP returns far below their market potential. Thus LPs who put capital to work behind one or more early-stage funds but don’t also invest in later-stage funds have again chosen a precariously fragile position.

Simply relying on diversity mandates hasn’t worked, either.
 

Like anything else worth doing, social impact investing takes intentional, persistent willingness to make strategic departures from established practice.

Drawing on these and related insights, as well as her own extensive experience, Katie Rae has observed that particularly for institutions, investing for social and gender equity is not a feel-good or box-checking exercise, but rather an overdue and urgently vital necessity; yet few endowment officers or trustees feel secure recommending course changes alone. As much as we like to think of investing as a purely rational endeavor, human beings are social creatures and we take courage or fright based on signals from others. Acting on that observation, Katie co-founded The Equity Summit to convene endowments, foundations, funds-of-funds, and family offices, to catalyze new and larger investments in women GPs.
 

Go long! (and wide, and deep)

As an investor recognizing the value of incorporating social / racial / gender impact investments in your portfolio, don’t fall into the trap of “there can be only one.”

Instead, bring to bear the same rigor you would bring to bear on any other strategy, and diversify across multiple managers, strategies, asset classes, and stages. There are many excellent candidates to choose from. You don’t even have to figure it out by yourself: beyond The Equity Summit, there’s a varied and proliferating body of resources to draw on.

Here’s a small sampling, in no particular order:

 
No, there is too much. Let me sum up.

So let’s review: there’s advantage to be gained by backing a portfolio of underrepresented managers and overlooked founders; there are many excellent candidates to choose from; there’s a growing body of reports, events, directories, peer groups, and other resources to give you a leg up.

What are you waiting for?
 

Newcomers welcome!  

For our part, Reinventure Capital is investing in overlooked, undervalued founders leading companies that are profitably taking advantage of shifting conditions and solving unmet needs.

Specifically, we are focused on US-based expansion stage (breakeven or so) companies led by people of color and/or women, poised to become the economic engines that will transform sectors, societies, markets, and lives — and generate non-concessionary returns to investors.*  Best of all we aren’t alone. We are proud to be in extraordinary company of many others who are also investing for both social impact and financial return, and who recognize that it isn’t a winner-take-all or zero-sum game. A community of champions is better than just one.

Unlike the conventional venture sphere, there’s plenty of opportunity waiting for you, and new LPs and new allies are always welcome. We would be delighted to help you make your first social impact investment, or maybe even your first ever investment in a first fund. Please contact us!

Are you already pursuing a social impact strategy?  Are you already diversifying your impact investments (and your overall portfolio)?  Congratulations!  Please share, so others can gain courage from your example.

*While there’s no such thing as a guarantee in investing and no one can reliably predict the future, Ed’s prior track record provides direct evidence that it is indeed possible to consistently invest for both financial returns and social value creation. If you are an accredited investor and would like to learn more about investments that can advance social, racial, and gender equity by supporting high-value companies led by women and/or people of color, please contact us to start that conversation.

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