Simplicity and complexity and the fierce urgency of now

Last week I came across an impassioned essay on The Guardian by Rebecca Solnit, author of Hope in the Dark. A few points there resonate strongly with conversations we have been having with Reinventure thought-partners, friends, and colleagues about simplicity and complexity in impact investing. Please join in the conversation:

First, context.

As Ms. Solnit describes, “This is an extraordinary time full of vital, transformative movements that could not be foreseen. It is also a nightmarish time. Full engagement requires the ability to perceive both.”

Or as Charles Dickens framed it over 250 years ago, “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way – in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.” [A Tale of Two Cities, Chapter 1]

Impact investors are accustomed to adopting a clear-eyed view of both the challenge and the opportunity — or, in Reinventure shorthand, the bad-good-news. And there is no shortage of challenge-opportunity or bad-good-news to consider. At Reinventure we are focused on the bad news that social and gender inequity in the United States have reached catastrophic proportions, with disastrous effects on our economy, civil society, and even our democracy. We are equally focused on the good news that there are more high-potential companies being founded by people of color and women than ever before; these present investment opportunities with the capacity to generate both social and financial returns.

Simplicity or complexity?

For impact investors operating in this bad-good-news context, there is an understandable urge to simplify: to choose one or two key metrics within a chosen field of action, and drive all associated investment decisions to achieve those metrics. On the face of it, this makes perfectly intuitive sense. However, an important word of caution: as extensively observed by Harvard Kennedy School Professor Malcolm Sparrow [see, for example, The Character of Harms and Handcuffed: What Holds Policing Back, and the Keys to Reform], excessive reliance on a too-small set of quantitative metrics will inevitably skew the outcomes. The effect can be so severe that the results can sometimes be directly at odds with the original intentions. In lesser scenarios, the outcomes merely fall short of their original intentions. In either case, an excess of simplicity is a false good.

Impact investors know this from experience: focusing exclusively on financial returns has proven disastrous, and focusing narrowly on one or two social or other impact metrics is unsustainable and often ineffectual. And as Ed mentioned in his most recent Ed Talk, focusing on the financial at the exclusion of the social is also hollow. It misses most of the value.

Conversely, Professor Sparrow also points out that too much complexity induces bewilderment and often leads to inaction. Impact investors know this as well. It is challenging enough to apply effective negative screens to publicly traded stocks. Making public or private investments with the aim of proactively reducing environmental, health, or other societal ills invokes a confoundingly large set of parameters, including benchmarks, scope, timeline, geography, reporting and verification, and many more.

It is easy to get lost in this quandary. Ms. Solnit quotes writer Maria Popova, “Critical thinking without hope is cynicism, but hope without critical thinking is naivety.” Impact investors could easily recast the same quote as, “Financial decision making without social consideration is cynicism, but social consideration without financial decision making is naivety,” or paraphrase it as, “Simplicity without complexity is counterproductive, but complexity without simplicity is inertia.”

Put this way, it becomes clear that the solution lies in finding the optimal balance for each impact investing objective. Some will lean quite naturally to the simple and local to achieve their aims, while others will — by necessity and design — lean to the complex and global. The key, as Professor Sparrow repeatedly remarks, is to find the solution that matches the objective. Impact investors know that this is neither the conventional wisdom nor the prevailing practice. And it’s not easy. It takes thoughtful, disciplined effort, as well as trial and error, to find the right balance. That can be disheartening, particularly to impact investors facing grave ills, understandably impatient to instigate meaningful change. It is even more off-putting to those who have not yet embraced impact investing as a serious practice. It can be tempting to simply give up on the entire impact investing proposition.

Again, quoting Ms. Solnit: “Optimists think it will all be fine without our involvement; pessimists adopt the opposite position; both excuse themselves from acting.” Impact investors firmly grounded in bad-good-news reality recognize that their efforts may not yield fully satisfactory change, or may not do so as quickly as they aspire, but embrace the opportunity and the imperative to employ their financial and social intelligence to work toward the change they want to create.

At Reinventure, we know that a $50M venture fund cannot solve social and gender inequity in the United States. But that is no reason not to pursue our investment thesis. On the contrary, because we know from Ed’s experience at UNC Ventures that the model can work to deliver both social and financial “wins”*, we are compelled to put it into action. And we are likewise compelled to seek active alliances with others pursuing congruent endeavors.

For Reinventure, simplicity looks like focusing on who we invest in, engaging at a consistent point in each company’s development, and applying a five-attribute filter to select companies we believe we can help become successful. Complexity looks like investing across sectors, using a mix of equity and debt appropriate to each company’s particulars, and building collaborative relationships not only with our portfolio companies but with multiple like-minded partners, and with companies we don’t invest in as well. That’s how we begin to shift inequity in access to capital, and participate in reshaping the prevailing wisdom about who is “investable.”

Back to Ms. Solnit: “Activists often speak as though the solutions we need have not yet been launched or invented, as though we are starting from scratch, when often the real goal is to amplify the power and reach of existing options. What we dream of is already present in the world.”

Or as an old Spanish proverb says, “well stolen is halfway done.”

The way forward for most impact investors is less about inventing entirely new ways to invest than it is about adapting methods, models, and approaches that are already demonstrated at smaller scale or in other settings. Like the UNC Ventures model, which Reinventure is repurposing in essentially unchanged form.

Why now?

Ms. Solnit quotes Paul Goodman, “Suppose you had the revolution you are talking and dreaming about. Suppose your side had won, and you had the kind of society that you wanted. How would you live, you personally, in that society? Start living that way now!”

Or, in the eternal words of Dr. Martin Luther King, Jr.: “We are now faced with the fact that tomorrow is today. We are confronted with the fierce urgency of now. In this unfolding conundrum of life and history, there is such a thing as being too late. This is no time for apathy or complacency. This is a time for vigorous and positive action.”

So: repeating the invitation from the top, please add your voice to the conversation [email us at info@reinventurecapital.com]. What bad-good-news have you chosen to address, and how are you balancing simplicity and complexity in your impact investing? What models have you tried and rejected, and which ones have you found worth replicating or expanding? Most importantly, how might we join forces to amplify all of our efforts?

At Reinventure, we’re reinventing investing. We’re proud to be in extraordinary company with others who recognize that today is truly the best of times and the worst of times — and a perfect time to take action to invest in the future you want. 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 some historical evidence that it is indeed possible to invest for both financial returns and social equity. To learn more, please contact us.