Liontrust Sustainable Investment Annual Review 2021 - International - Report - Page 49
Here is what we need to be thinking about to bring systems thinking
into the venturing process:
• Defining your mission is ground zero. As Ann Mei Chang says
in Lean Impact (2): ‘Fall in love with the problem, not the solutions.’
Lots of investors in this space are still simply collecting their impact
investments on an asset-by-asset basis and ending up with what I
call the mishmash of sustainability in their portfolios. Some have
established themes around which to invest but it remains rare to
find those thinking systemically about the impact they can create
in real world systems, and how their portfolio can support this
through the ‘combinatorial effects’ (3) of the enterprises they hold.
• Map your system of interest. Once you have identified your
mission, system mapping will help you understand the actors and
institutions coalescing around the challenge (hint: these are not
always those you expect). This process also identifies the most
impactful leverage points for change in the challenge area, and
these should translate directly into your investment strategy.
• Design an investment strategy that supports your mission and
is informed by the wider system dynamics. This ties back to the
leverage points. A traditional venture-by-venture approach will not
get us very far in this regard. We need ecosystems of ventures,
which act as a set (or indeed, a portfolio) to systemically crack
some of the problems of today. The Transformation Capital Initiative
is an open innovation initiative pioneering this type of approach,
with the idea of creating strategic portfolios where investments
are deliberately composed around a broader system intervention
approach.
• Seek to create network effects. No one venture, or even a portfolio
of ventures, is going to create transformational change on its own.
The critical thing to understand is that you, as a venture investor or
builder, are a node within the wider system, so your impact can
be transformational only if you are able to work with that system.
For example, your mapping might uncover that the greatest impact
opportunity in your area of focus is not commercially ‘investable’
yet, and might mean you need to partner with a grant-making
body to build that market. A systemic approach will likely push the
boundaries of your business model and will almost certainly mean
working collaboratively with other actors in the system.
• Help the ventures you build create impact goals. Support the
impact entrepreneurs you work with to centre their commitment
to a mission, rather than being too attached to the solution.
Metabolic Ventures, for example, structures its ventures in a way
that ensures alignment with the impact mission and creates the
right incentives by creating dual entities: a foundation and a
commercial enterprise with limited liability. The foundation holds
the overarching mission and mandate and has a minimum 51%
stake in the commercial entity. The commercial entity replicates
or scales a particular business model to fill a market gap, but is
guided by the foundation (4).
• Build the ecosystem. Most venture spaces today run counter to this
philosophy: they tend to operate in silos and are characterised
by transactional behaviour where the financial successes of a few
ventures cover the costs of the many failures (5). What is left at
the end of the venturing ‘funnel’ is a few isolated success stories
operating without much of a supportive ecosystem. Yet creating a
sustainable economy absolutely requires such an ecosystem to help
build the right skills and capabilities, help create the networking
effects that will enable tipping points in different sectors to occur,
and generally create a supportive environment for sustainable
business models to thrive (6). We need not just one or two big bets
to succeed, but a whole range of sustainable business models to
emerge and find a supportive network that will shift the conditions
of the system.
System change is complex, slow and messy, and for dominant
practices to become replaced, we need actors across the system
to play an active part in that transformation. Entrepreneurs have
shown time and time again that they are able and willing to rethink
old models; now it is time for investors and venture developers
to rethink the enterprise-building ecosystem to catalyse the
transformative change we need.
Notes
1 Global Entrepreneurship Monitor, 2015: https://www.gemconsortium.org/report
2 Mei Chang, A. Lean Impact: How to Innovate for Radically Greater Social Good. Hoboken, NJ: Wiley
3 Hofstetter, D. Transformation Capital: Systemic Investing for Sustainability, Climate-KIC, 2020: https://transformation.capital/assets/uploads/TransformationCapital-Systemic-Investing-for-Sustainability-1-1_2021-06-25-114435.pdf
4 Monaghan, C. Systemic Venture Building, Metabolic, 2020: https://www.metabolic.nl/publications/systemic-venture-building/
5 The Impact Entrepreneur: Building a New Platform for Economic Security in Work, Rowan Conway, Charles Leadbeater & Jennie Winhall, RSA, 2019.
6 The Impact Entrepreneur.
Liontrust Sustainable Investment: Annual Review 2021 - 49
