Amsterdam and Lille – Worlds Apart?

I just attended two conferences in Europe, in Amsterdam and Lille (Northern France), that were quite different from each other though there was significant overlap in the topics they covered. I first was in Amsterdam taking part in the European Venture Philanthropy Association’s (EVPA) annual conference that can be summarized as a large networking event (over 300 participants this year) and a substantive forum. This year, the emphasis was placed on social enterprise per se and how Venture Philanthropy (VP) actors (those with money in short) can effectively support social enterprises, be they for-profit companies or NGOs. The content was of uneven quality as is often the case. As one of the speakers said, venture philanthropy or EVPA for that matter is a very big church with multiple denominations. I don’t know whether the agnostics or atheists among us will be comfortable with the metaphor but it is true that a) the definition of what venture philanthropy is and how it should be done still varies quite widely, even as the concept has been around for over 10 years in the US and 7-8 years in Europe, and b) a lot of those who attend the event every year are somewhat parochial and seem to think that the way they do things is the only right way.

That slightly (sic) narrow-mindedness led one of the speakers to open a session on the use of equity or debt in venture philanthropy by making ludicrous statements on grant-making, i.e. grants inherently generate laziness and can’t be effective. The result was a discussion on the merits of grant-making, which was not the subject, and it took way too long for the actual topic to be addressed.

In another session, that one on the possible creation of a VP fund focusing on the arts, one moderator had thoroughly thought about the systemic obstacles that explain why no such fund has been created so far while the other one merely presented his organization, which had a good illustrative value but missed the broader point.

However, other sessions, for instance on best ways to scale a social enterprise or on Ireland’s Foundation One’s story since its inception, were filled with interesting lessons.

As always, the best part of that conference is in the networking per se. Over the years, an actual European VP community – though “multi-denominational” – has emerged and thus, catching up with colleagues and enjoying that sense of camaraderie is both pleasant and valuable. Also, everyone is very much focused on meeting others and the conference is structured to allow ample breaks for networking.

Lille was quite a stark departure from the Amsterdam Conference. The so-called World Forum on Sustainable Finance (is there an epidemic of World Forums? What’s up with the name?) revolved around sustainable finance. It was a mish-mash of economists, social sector practitioners, investors, and finance professionals from all horizons, and as much as EVPA folks represent a wide array of understanding of what VP is and/or should be, I can tell you that in contrast they form a very homogenous group compared to the people I heard or ran into in Lille. 

The fundamental difference is that all EVPA folks are business people and bring that mentality to whatever philanthropic activities they have. This impacts their vision of the world, typically “I want to invest my money in order to produce tangible results”, and the way they convey it, i.e. very pragmatically and generally clearly and concisely.

In Lille, there was everything in terms of content, from crystal-clear powerpoint presentations to lengthy boring speeches that – good thing – got me to catch up on sleep (!!). The views of what sustainable finance means and how it should brought about differed also very widely. Thus, there was probably more richness and variety in Lille but the event as a result was a bit all over the place.

It is actually ironic, and probably telling, that everyone I talked to in Amsterdam to whom I said that I was on my way to Lille had not even heard of that World Forum…

Amsterdam and Lille, two worlds apart then? 

God Save Charlie’s – A few lessons Charlie’s teaches us

I had breakfast at Charlie’s in the South End the other day as we wanted to show this legendary diner to a young friend of ours who was in town for a few days. It was a worthy visit because not only did it delight my palate and senses but also it gave me some food for thought…

Charlie’s teaches us a thing or two about business. It is also the last symbolic bastion of the old South End in an ultra-gentrified neighborhood.

Charlie’s has been a staple in the South End for decades – it has found the formula for staying in business all these years: Consistency and Value… Consistency in their staff, quality of the food, and attention of the service. Charlie’s has been staffed and managed by the same 4 folks since the 70’s (two women and two men). Good people, very welcoming – they each have a different personality but just seem happy to be there. Prices are fine given the quality of the food and the huge portion size but the place is not cheap. You’ll order pancakes, or French toasts, or an omelet – order for two and coffee, you are looking at a $20 check. But Charlie’s offers excellent value: they serve the best French toasts I have ever eaten (and I am big and demanding on anything sweet) and thus, the “package” given the quality of the food and of the welcome is very compelling.

So, in short, a few simple lessons: provide consistent quality and value, know who you are and don’t change your personality (or corporate identity / DNA for that matter)…

Charlie’s is also one of the remnants of the old South End, i.e. the neighborhood as it was pre-gentrification. I am not going to romanticize that era – granted, it had a higher crime rate than today and a lot of the sections were just decrepit. There was much less activity all around and there was no such thing as “Restaurant Row” like today.

However, a sign that shows that the neighborhood has not only changed for the better is that Charlie’s $20 bill for an omelet and coffee for two seems actually dirt cheap compared to the neighborhood’s funky “eateries” (what a terrible word…) where you’ll have to pay about $15 just to get an order of pancakes or French toasts over brunch.

I also find it quite striking that we live in an actual state of de facto segregation in the South End today.

For those of you who don’t know the neighborhood, the South End has historically been the home of several housing projects. Since Boston is required by law to have at least 15% of its housing stock as social housing, the South End projects are not going anywhere. In the past 10-15 years, the folks who were paying market rate rents were priced out by inflation and moved further out and a lot of those who owned places cashed in and left.

As it was getting more hip and lively, the neighborhood kept attracting a younger, whiter, and wealthier crowd and that trend has not stopped. I’ve been in the South End for 5+ years now and disparities keep growing wider and wider.

I look around me and I sense that in most cases people of color look at white folks with mistrust and unease – and conversely.

Again, I don’t want to romanticize the old times but there is a consensus among the old-timers that the neighborhood had much more of a community feel in the 80’s and 90’s as folks loving the Victorian architecture or all the studio loft spaces that were available for almost nothing moved in.

I don’t sense any of this today. Most residents seem to care more about property values and new “eateries” and lounges than about their fellow neighbors.

How did we get there?

Gentrification of historic neighborhoods in downtown areas is not unique to Boston. The same has happened in a lot of big cities around the world, in the US and in Europe in particular. But this is where urban planning comes into play. It should be an essential goal of every large municipality to preserve the “social fabric” of its neighborhoods and do whatever is possible to maintain a representation of all levels of income.

By encouraging new construction or building conversions that only catered to the high end / luxury segment, the City of Boston has in my opinion failed its constituency and failed to make the downtown area a place that is lively and welcoming to everyone - where people from all walks of life feel equally comfortable.

Nutella: Healthy Breakfast or Guilty Pleasure?

Nutella has been running a TV ad in the last couple of weeks that left me dumb-founded when I saw it recently. It basically said that Nutella is an essential part of a healthy breakfast for kids… In my head, Nutella has always been associated with guilty pleasure – at 541 calories for 100 grams (per the Nutella web site and its section on Nutrition Facts) and knowing that adults need between 2000 and 2500 calories per day to function properly (according to the USDA, the US Department of Agriculture), you’d better not feel guilty too much or too often…

1600 calories being the suggested daily intake for kids, 100 grams of Nutella and their 541 calories, that already 1/3 of what a kid needs in his or her everyday life.

Now, the folks at Nutella are smart, or scared of the outrage they could cause, or overly politically correct, or even health-conscious - or maybe all of the above... The commercial that shows a girl and a boy with their Mom at breakfast enjoying a few slices of bread with Nutella spread on them is cautious to say through the mother’s voice that “I [the mother] spread a little on all kinds of healthy things like multigrain toasts” (I put the italics). The text further adds that Nutella is made of “wholesome quality ingredients”, i.e. you don’t make your kids ingest garbage… The commercial ends with a glorious “breakfast never tasted this good”… Perfect, the “Holy Trinity” of foods, i.e. taste, quality of ingredients, and healthy nature of all. That’s a home run, Nutella – bravo, Signor Ferrero!!

It is interesting however to note that Nutella’s web site does not say anything about the 541 calories upfront – you have to dig up and find the page on Nutrition Facts where a Nutella jar label is displayed. And you are in luck only if you thought of taking your calculator with you or if the one in your cell phone has not been bugged by your GPS or something… You’ll see on the label that you’ll ingest 200 calories for 37 grams of Nutella (including 100 grams of fat…), i.e. 541 calories for 100 grams. Thank you, Mom – “I use Nutella to get my kids to eat healthy foods” says she in the commercial, yeah, right!!

If you genuinely care about nutrition for your kids, Nutella while not running away from the actual nutrition facts that are less glorious than its Holy Trinity commercial would suggest has you work pretty hard. The web site does mention “Food Pyramid and Guidelines” but only briefly. The Nutella folks have preferred to post a convenient external link to USDA’s MyPyramid’s web site, a tool explaining how to have a balanced diet.

So, alright, we get it… Nutella has a bunch of lawyers who told them how not to go overboard on the “kid targeting” craziness and thus avoid having obese young adults sue them for selling those guys breakfast that maybe tasted good but had them gulp down an insane amount of calories throughout their childhoods.

And targeting kids and their parents is a smart, sort of long-term strategy that helps Nutella build its brand equity over time to speak business language.

But if Nutella and Ferrero are as responsible as I am sure they claim to be, they’d better stop targeting our children and rather feel free to tempt us adults to succumb to guilty pleasures from time to time…

Leave our kids alone, Nutella people!!

“Subliminal” Messages about Volunteerism?

I read last week about the main TV networks’ concerted efforts to promote volunteerism in their shows and programs vs. through Public Service Announcements (PSAs) as it is usually the case. The USA Today article gives some details about iParticipate, a multi-year campaign that is the brainchild of the Entertainment Industry Foundation and took place all of last week across major TV networks in the US.

The major difference with PSAs (the campaign includes straightforward PSAs as well) is that this time messages promoting volunteerism or community service were included in the shows’ actual story lines. The article points out that it was actually easy to convince show producers to come on board and there was none of the usual battle and nastiness between networks.

We’ll have to see what impact this initiative is going to have. I’d be curious to hear whether anyone noticed the “convergence” of messages with the same tone and content – this is quite unusual, isn’t it? A barrage of goodness… But obviously, if down the road more folks are inspired to get involved in their communities and give back, that will be all nice and good. We’ll be happy.

However, there are a couple of things that do not feel quite right here. First, I do have a slight problem with the fact that this initiative was conducted unbeknownst to most viewers (not everyone had a chance to read the USA Today article or visit the iParticipate web site). Would the message be as effective if viewers knew? Not sure. I feel a bit odd knowing that some message – however valuable – was fed (force-fed?) to viewers without proper warning with a view to influencing them. Who said manipulation?

Also, can’t we keep entertainment and good intentions separate? I understand that working on the story lines per se may be more effective than delivering straight PSAs with viewers. But this is a TV show – it’s entertainment!! Imagine my neighbor next door – it is Thursday night, she wants to watch a comedy show to relax. It is her downtime. She just wants to let her hair down. At that very moment, she may not care that much about saving the world or helping the needy – maybe she just does not want to think about it right then. When I watch Extreme Makeover Home Edition which is about generosity and the trickle down effect that being good to others creates, I want to be moved by these acts of generosity and gratefulness. I have fun watching the show and seeing the awesome houses built for those nice folks!! That is indeed entertainment but it is also my choice to watch Ty and his team bring happiness to others.

So, kudos to the entertainment industry (don’t like this picture on their web site by the way) but maybe we want to keep all the goodness blurb separate from our favorite shows’ story lines.

Where is the consensus on healthcare?

I heard report of what President Obama said about insurance companies in his weekly radio address and what the GOP response was, i.e. we would have access to more limited choices and the government would control (meaning constrain) our access to doctors and quality care if the healthcare bill in preparation were to pass.

That really made me angry to be honest with you…
· Angry at both Republicans and Democrats: why is it that I feel like neither Republicans nor Democrats are trying really hard to reach a consensus and come up with a landmark bill that will improve the way healthcare is provided in the US whereas there is a general consensus that the system in this country is not good enough by a long shot?
· Angry at Republicans: How can Republicans use scare tactics again to demean a bill that as far as I have heard is unlikely to bring about anything that the GOP representative mentioned? Well, they know scare tactics works – it has been very effective historically and it is not necessary to go back to the dark days of McCarthyism to realize this. Anyone who was in the US in the couple of years after September 2001 knows it in his/her guts.
· Angry at Democrats: it is easy and it feels good to bash Republicans but is it fair to hold only Republicans responsible for another mostly partisan bill despite its historic significance? Was Ted Kennedy the only one who could do bipartisan politics among Democrats?
· Angry at Obama: wasn’t he supposed to do politics differently? Yes, he is trying and I certainly give him credit for that. But this is not working so far and even though it is not only his or his administration’s fault, at the end of the day history will only remember the outcome of this, thus he has to try harder.

Ok, that is a lot of “politics bashing” but it does bug me that elected officials continuously discredit themselves and in the process make the general public increasingly cynical and distrustful. Or maybe I am being too negative…

Does Social Investing’s Success Mean Impact? (II)

See Part I below

Overall, the systemic or macro effect of those funds remains limited today, if not marginal. Despite the publicity that an Acumen has benefited from, the fund’s portfolio does not comprise more than about 25 companies. Root Capital that has grown rapidly over the past 5 years and now has a portfolio of 235 borrowers for $120m disbursed has spread its investments over 30 countries (source: Root Capital’s and Acumen’s web sites), i.e. an average of $4m per country since its inception in 1999. And when looking at a company’s environmental impact, how meaningful can it be – even if that enterprise’s area of intervention is a well-delimited territory – if that entity is the only one in that region trying to improve biodiversity health?

I am the first one to recognize the pioneering role that those funds are playing today. If social investing becomes a much larger industry some day, we will all have to be thankful to those entities. They are pathfinders and not only are they showing the way to those interested in creating investment vehicles but also they offer small- and medium-sized enterprises a better alternative to other forms of financing that generally revolve around less suited options such as microfinance (loans are too small for their size) and commercial banking (rates are high and those banks may not want to take a chance on relatively untested enterprises).

So yes, arguably, the systemic impact is there. But the actual macro effect of those enterprises remains minor because overall maybe a couple hundreds companies have received money from social investment funds so far – does that ever get to one tenth of a 1% of those countries’ GDP?

Now, it is not unheard of that an asset class becomes financially popular before it actually proves its value or merit. After all, the bet of those who invested in venture capital in the 80’s and 90’s was that that industry would be able to generate returns that were way above those of other asset categories.

However, the cause of social investing would be greatly helped if a few things were to happen:
· Set up a mechanism among major social funds to share and consolidate their information around impact: it should be relatively easy to find funders interested to pitch in.
· As a prerequisite, those funds should agree on simple metrics around the “straightforward stuff”: investees’ financial success, social indicators such as average / median household in communities affected or number of jobs created.
· Find a “home” to showcase those aggregate results. Maybe the White House’s Office of Social Innovation could be the right place (visibility would be great) - or some prominent foundation interested in the matter.
· Accelerate the pace of strategic investments: this is the way the impact magnitude issue could be addressed. Most funds organize their work by sector but there is a difference between supporting enterprises here and there and having an explicit strategy of - for instance - focusing only on innovative solutions that cover the whole gamut of existing and emerging technologies in energy or sanitation.

Being in the social enterprise trenches (sic), I feel that social investing will be successful, both money and impact wise. But let’s not get ahead of ourselves and let’s make sure we put in place the key ingredients that will bring about success before marveling about the “next big thing”…

Does Social Investing’s Success Mean Impact? (I)

I have been meaning to write a short piece on social investing and impact and since this is going to be a longer text than in other entries, it will come in two installments.

It is interesting to compare the success that social investing has been enjoying, as an asset class and as a career path in particular, and the impact that companies that have received funding from those entities have actually had so far. As a result of last year’s financial meltdown, the creation of appropriate investment vehicles, and an increasing interest among many (young and old) in addressing social issues, the whole gamut of social investment funds have gotten a lot of attention lately. It is commonplace to hear that whatever their business models (returning money to investors or not, and if so, serving below-market, at-market, or above-market returns) funds find it pretty easy to raise capital these days.

Also, social investing in its hybrid form represents a very compelling value proposition for young professionals who want to do good and do well, as it supposedly constitutes the perfect combination of for-profit rigor and efficiency and social impact. I have seen first- hand how so many “Millennials” contemplating careers in business are almost magnetically drawn to that career option. And this is probably true also for a lot of us, even those with grey hair (yes, I know, how did that happen?), who have had hybrid careers and believe that market mechanisms can bring about social change when used appropriately.

However, the magnitude of the impact that those social venture funds have through the enterprises they support remains a question mark. Funds like Acumen, Root Capital, E+Co, or Verde Ventures take impact measurement very seriously. Since they mostly receive grant and/or subsidized money, their “raison d’être” is more about the impact they can show than about attractive returns they can serve. Those funds’ web sites certainly try to be informative on the subject. E+Co measures the impact of its clean tech investees by tracking 34 social, financial, and environmental indicators and has a very straightforward section on its web site showing numbers related to the three sets of indicators. Acumen Fund explains its BACO (for "best available charitable option") methodology on its web site but does not elaborate on its portfolios’ actual impact. In order to quantify its investments’ social impact, Acumen compares them to the universe of existing charitable options for that explicit social issue. Root Capital shows cumulative results on its web site (number of loans and borrowers, repayment rate, but also organic agriculture under cultivation or number of farmers reached).

Today social and environmental monitoring remains expensive and there are no cases that I know of where investees are the ones paying for that cost. Monitoring is expensive because of its frequency and complexity. Most funds have set up declarative monitoring processes whereby portfolio companies report on a series of indicators previously agreed upon with the funds. However, a couple of times a year, those funds have to send their staff or external consultants to check impact for themselves. Also, while social monitoring can be relatively straightforward if such indicators as number of jobs created or variation in income of families impacted are used, environmental evaluation is more complex and time-consuming. Thorough baseline studies presenting biodiversity health status of the area affected have to be carried out before relevant measures of what is expected to improve can be determined. Moreover, it is inherently difficult to isolate the impact on biodiversity health of actual actions undertaken by the companies involved as other factors may come into play.

Thus, social investment funds are up against a double pressure of having to raise grant money to pay for M&E (whatever money they make out of their investments is rarely enough to pay for the whole monitoring cost) and showing those funders and the rest of the world the social and environmental benefits generated by the enterprises they are backing.