Giving Compass’ Take:
• Gwen Cheni shares real-world examples of how to engage in impact investing in new ways.
• Which strategy or strategies listed here could be used to advance your impact investing goals?
• Learn how to get started in impact investing.
1. Be creative with structure. One donor was particularly passionate about the environment and the zero-emission Nissan Leaf. His $300k would have bought 10 Nissan Leaves. By working with a dealership, the same amount of money was able to act as guarantor to 40 car loans, putting 40 Nissan Leaves on the road. Hindsight is 20/20: an even better structure would have been to guarantee low income borrowers that intend to be Uber or Lyft drivers. Forty cars that would have seen the most amount of driving, and generated the most pollution, are now zero emission.
2. Reason from first principles. The example above highlights the importance of reasoning from first principles: the end result is minimizing emissions, not maximizing the number of Nissan Leaves on the road. As operators, we are so busy with the day-to-day that we get lost in the trees. Once in a while, taking a step back to look at the forest helps to course correct, and I find reasoning from first principles to be an effective way to step back for a second.
3. If you can measure it, you can improve it. The data geek in me is revealing herself. I bought my first stock at age eleven, and read about Buffett at age fifteen. The inoculation happened early here. When Buffett announced that he was donating his wealth to the Gates Foundation, I took notice and read as much as I can. What stood out about the Gates Foundation is its quantitative approach to philanthropy. The most effective tools in business are applied to philanthropy. It made immediate sense to me: instead of maximizing profit, the same tools can be used to maximize impact if we define impact and track all the intermediary steps. Data on the intermediary steps allows for iterations and quick course corrections, which minimizes wasted capital.[side note: the quotation “if you can track it, you can improve it” comes from Sami Inkinen of Trulia]
4. Bridge loan between grants. I recognized early in life that I’m not all that smart, but I can help the smart ones make a positive impact.One of my ridiculous smart friends figured out a way to turn biowaste into clean hydrogen … because you know, what else do you do with a Ph.D. in aeronautical engineering and chemical engineering, except work with poop? He was surviving on grants while bringing down the cost to be comparable to solar and wind. In 2015, he had a lapse between grants, and needed working capital to keep his lab open and one part-time lab assistant. I gave him a six-month personal loan because his startup wouldn’t qualify for any bank loans: no bank would take clean-tech IP as collateral, nor look at his track record of successfully getting grants. This is where impact investing should come in, with the tech knowledge to evaluate IP as collateral, and the financial structural flexibility to make working capital loans to these asset-light companies.
5. Buy the first batch of units to lower per unit cost of production. One of the best things about Singularity University is its global reach. The Denmark 2019 cohort, out of 48 founders, only one was born, raised and residing in the U.S.. This global perspective forces us out of our fishbowl, and once out, we can never see the fishbowl in the same way again. One founder from South Africa figured out a way to make a sub-$1 solar lamp, that charges sufficiently in the African sun to last 4 hours in the evening, sufficient for a small family. The ingenuity here is not a new type of lightbulb or energy, but removing extraneous items to bring down the cost sufficiently for the consumers that need it most. He needed an order of 1k units in order to scale manufacturing and bring cost down to sub-$1. This is also where impact investing can come in: taking the inventory risk and making a working capital loan with interest in arrears.
6. Facilitate adoption. The above two examples segue to another view I have on impact investing: sometimes it’s about creatively facilitating the adoption of an existing or developing technology, rather than creating a fancy new technology. E.g. Making clean energy cheaper than gasoline, making autonomous driving safer than human drivers, would both hasten adoption. In the startup world, we call this UI and UX: it’s all about the users. If we make our solutions more attractive and easier to use, we facilitate adoption. In economics terms, it’s called “choice architecture”: if we make our choice the easiest choice for our consumers, they are more likely to make that choice.
Read the full article about creative ways to engage in impact investing by Gwen Cheni at Medium.
Impact Investing is a complex topic, and others found these selections from the Impact Giving archive from Giving Compass to be good resources.
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