Impact investment versus positive investment

Every discussion about impact investment tends to includes somebody asking ‘what do you really mean by impact?’ or it focuses on the potential returns from impact investment compared to ‘conventional’ investment – the assumption being that there is a trade-off when you make social investments.

The first is a live issue for us at the moment because we’re designing something new at BGV and deciding who we should pitch it to and how. So I’ll be having lots of discussions about this in the coming months. I’ll come back to the other one in another post.

At one extreme, impact investment is providing capital to (usually) charities that have a proven track record of delivering social impact and when you put money in, you get social benefit out. The difference to a grant or donation is that you look for a model that means you also get money back, usually because there is some third party who is willing to pay for that social impact.

At the other extreme of the scale you tip into what you might call positive investment where you really just screen out ‘evil’ investments. Something like an SRI fund for example.

The distinction between impact and positive investment is whether you decide upfront what kind of social or environmental impact you are trying to achieve and then set out to measure it. Do you have a specific goal (or small number of goals) in mind? If you do, then that’s impact investment. If you don’t then it’s positive investment.

This matters because it determines who might provide the capital for your fund. There is a spectrum between the two but different investors will have different cut offs as to where they will invest.

For me this is the real debate about the future of impact investment. It’s got nothing to do with the legal form of the organisations you invest in (that’s a red herring) but is about the intention of the investors and the founders of the ventures and then how you measure and improve the realisation of that intention.

Tama the stationmaster cat

We were in Wakayama prefecture in Japan a couple of weeks ago but unfortunately didn’t get to see Tama the stationmaster of Kishi station who has sadly died. She has a full obituary in this week’s Economist.

She kept strict hours: 9am to 5pm on weekdays, with only Sundays off. In exchange she was given a stationmaster’s cap in her own size, always worn at a jaunty starlet angle; a stationmaster’s badge; as much tinned tuna as she could nibble at; and eventually her own office, with basket and litter-tray, in an old ticket booth. The work was not demanding; if it had been, she would have disdained to take the job. But by snoozing most of the day on the ticket barrier, or rubbing against the legs of passengers as they arrived, she increased traffic on the branch line by 10% in her first year. People would travel just to be greeted by her smooth and lucky purr.



The ups and downs of Chinese stock markets

Chinese stock markets are on a roller coaster ride at the moment. There’s been a huge rise in private middle-class investment pumping more money into stocks and plenty of alleged misinformation too. James Surowiecki has a great piece in the New Yorker about some of the billion dollar companies that don’t seem quite right.

I was in Beijing a couple of weeks ago for the first time in three years and you could tell that the economy and wealth had grown and at a local level business was booming. On the train into the city we also saw masses of solar power. The smog was bad but somehow not as bad as it used to be. It felt like a lot of old trucks and cars had been replaced by new models.

Whether the Chinese economy is stable at a macro level I don’t know, but compared to just a few years ago it felt like China was no longer emerging, it had emerged. There was far greater self confidence in the air, and a little less pollution. One thing I’m certain of is that what happens in China will have huge implications for us in the UK.

The optimist, the pessimist and the realist

I’ve started to think that every good impact investment decision needs an optimist, a pessimist and a realist involved.

The optimist instinctively thinks what’s the best that could happen – often imagining the venture developing in ways that even the founders haven’t yet considered. At BGV, unless we can think of an optimist’s case for something becoming huge and having a large positive social impact, it’s not for us.

The pessimist thinks of all the things that could go wrong. If the pessimist’s case is so strong that we would be wasting our money then we won’t make the investment.

The realist immediately imagines what the team will need to do next – thinking of the practical steps. If the realist can’t see how we get from here to there, we have a problem too.

Once all those points of view are out in the open, we have the basis for a discussion about whether a venture is investable or not. This always leads to a bit of drama – or at least a constructive argument – which flushes out all the information and persectives we need to make a decision. Of course the optimist, the pessimist and the realist could all be different people or just one person thinking through each perspective – but I think if you’re pitching for impact investment, it’s worth making sure that you’re appealing to all three character types.

Charles Handy on the way we work

Catching up on podcasts the other day, I found Peter Day had one of his World of Business programmes where he interviews one person for the whole show. This time it was Charles Handy who is one of my favourite management thinkers.
Charles has seen more change in business than most. He started work at Shell back in the 1950s and has watched organisations change ever since, writing 17 books about it. One of the points he makes in the programme is that while we still organise everything (especially policy) around the idea that most people work in full-time jobs in large solid organisations, it’s no longer the reality for the majority of people, and where it is – people don’t like it much either.
I was lucky enough to spend some time with Charles when we were writing Disorganisation at Demos, ten years ago now. He had a very profound impact on me and, looking back, influenced what I do now which is to help people set up new types of organisation that fill the gap that is being left behind by the decline of ‘bureaucratic capitalism’.
His new book The Second Curve is out now. I’ll certainly have a read.

Train times

We spent a lot of time on trains while we were away, so coming back to news about the lack of progress investing in UK railways was a bit depressing. Lots of people have said this before but the model for all countries should be Japan (despite the horrible news today). The peak being the Shinkansen which we used to travel between Tokyo and Osaka. I’d never been on a Nozomi Superexpress before, which is the fastest of the lot. It’s not just the speed (max 320 km/hr), it’s the pride and level of service – the trains are always clean, the staff know their stuff and want to help and the stations are full of great food.
A good railway system will be one of the most important pieces of infrastructure for mid-sized competitive countries in the 21st century. You just can’s shift enough people or goods by air or road as efficiently as you can by rail over hundreds of kilometres. At peak times the Shinkansen runs up to thirteen trains per hour with sixteen cars (a train has a 1,323-seat capacity) in each direction between Tokyo and Osaka (just over 500km). Even with six Airbus A320 planes an hour you can only shift just over a thousand people so trains can carry an order of magnitude more people for this kind of distance in a great deal more comfort. Apparently the Japanese experience is that if the Shinkansen connects two cities in less than three hours, most passengers choose the Shinkansen, but if it takes more than four hours by Shinkansen, the majority choose air.
I know railways are difficult to build – I read Christian Wolmar’s excellent book ‘To the Edge of the World‘ about the building of the Trans Siberian while we were on it – but with the interest rates that government is able to borrow at at the moment so low, it seems like the perfect time to spend on infrastructure. It’s also going to be an expanding market in developing countries so building an industry able to sell it abroad would be a good idea too.

Formula-e revs up

I went along to my first Formala-e race at the weekend, spending Saturday afternoon in a very different looking Battersea Park which had been kitted out with concrete barriers and steel fences to turn it into a leafy street circuit with narrow twisty turns and a couple of long (fairly bumpy) straights.

It was great fun and there was a pretty big crowd but it did feel like very early days for the organisers. The e-Village was a bit sparse (only BMW seem to have grasped the opportunity to show off their road cars) and the food was a bit meh. They also could have done with some support races as their was not a lot going on between qualifying and the race. I watched the Sunday race on the TV and it’s tricky to say that I got a lot more from actually being there on the Saturday.

Richard Branson is right to say that it’s going to be bigger than Formula One, especially as manufacturers can build their own cars from next year. Competition is hotting up in the electric car world and hopefully the benefits will soon trickle down to road cars and all of us through reduced emissions. Congrats to Nelson Piquet jr on becoming the first electric world champion!


Back and at ’em


Just back from the longest break I’ve had in ten years I think. Anna and I got married in May (yay!) and we’ve spent the last two and a half weeks on a honeymoon adventure taking the very slow way to a very relaxing time in Japan via Russia, Mongolia, China on the Trans Siberian railway. We had an amazing time and learned quite a bit about what’s going on in those countries.
I’ve come back determined to do a bit more blogging so this is just a marker for that. I’ll share a few of the highlights from our travels and a lot more about what’s going on at BGV. You might have noticed that we announced our brilliant new teams whilst I was away!

Droning on

I’ve been going on about getting a drone for ages and yesterday bit the bullet and bought one. I walked into Maplin across the road from our office and came out with a Parrot AR 2.0. I certainly got respect from the shop assistants – they had all tried it out and it gets their thumbs up apparently.

Once you’ve opened the box and charged the battery, it doesn’t really come with any instructions so you quickly find yourself on the Parrot website watching tutorial videos which are very good. You download an app onto your phone (it seems to work very well on a Fairphone – yay!) and there’s just a small button on the screen saying “take off”. It does what it says on the tin and very quickly you have a drone hovering in the middle of the room about a metre from the floor and a crowd of coworkers who’ve all stopped doing any work and come over to see what’s going on.

It’s much more sophisticated than I was expecting. I’ve only mastered the basics so far and I’m not yet onto all the things you can do with video or changing the settings to alter its performance. I’m also still a long way from being able to fly it through the screen rather than by sight. Anyway, first impressions very good – lots of things to try out!

GoodGym on the telly