 One of the things I'd actually like to do before we get started is a little bit of a musical warm-up. The panel doesn't know this. But just to get us into an open frame of mind. And some of you might be familiar with this song. So please join in for the chorus if you are. She's serious. There's a bright golden sun over Socap There's a hot golden sun over Socap Here at Fort Mason we're changing the game When we're done we won't think of our money the same Oh what a beautiful morning Oh what a beautiful day I've got a wonderful feeling Everything's going my way Oh what a beautiful morning Oh what a beautiful day I've got a wonderful feeling Everything's going my way Thanks. A little bit of music gets us in the mood. Right? Opens the mind, opens the heart. Thanks so much for joining us. The title of this discussion this morning is Anchors Away. Why and how anchor-limited partners help impact fund managers get started. My name is Marika Spence. I'm the executive director for Impact Capital Managers. We are a network of private capital funds in North America investing for meaningful impact and for market rate return and yes we firmly believe that those two things can go hand in hand. Our mission is very simple. It's to accelerate the performance of our members. We've got 46 members as of this morning collectively representing over 11 billion in impact-focused capital. One of ICM's strategic priorities is research on topics that are salient not just for our members but also for our peers in this impact-investing ecosystem. One of our strategic priorities is we wanted to partner with Sean and with Robert Zakowski and the team at Harvard Business School to understand this topic of impact anchors. Who are they? I think we all come to this critical actor with assumptions and speculations but we kind of want to move more to an evidence-based understanding and an objective understanding of who they are and how they operate. So a couple of months ago we were sitting around a table at Harvard Business School with Brian Trelstad, ICM's co-chair, Sean and some others and just thought this would be a really interesting opportunity to kind of again move beyond the sort of anecdotal and the assumptive and move more to that evidence-based understanding. So we're excited to get an early look at some of those takeaways from that research today but before we do that I just want to quickly introduce our illustrious panel. It's going to be a fun conversation today. Tony Berkeley, Vice President of Impact and Strategy at Prudential Financial. You want to give us one sentence, just the gist of what you're up to at true. Prudential Financial has had a long-term commitment to impact investing that goes back to the early 70s and currently I'm a member of a team that manages a portfolio of one billion in impact assets and the main themes are financial inclusion for underserved communities, education, and transformative development, particularly in urban areas. It's deployed both domestically and in emerging markets and the emerging markets focus is Africa. That's good. Sean Cole. I'm on the faculty at Harvard Business School where I teach along with Vikram Gandhi a class on impact investing and I'm the faculty director of the Co-Impact Laboratory at HBS which is pursuing a research agenda to better understand impact investing. Awesome. Keisha Cash. Hi, I'm Keisha Cash, general partner at Impact America Fund. We are a venture capital firm that's investing to create more economic agency in underserved U.S. communities. We're currently managing two funds and are focused on software and tech-enabled businesses that as these companies scale inherently they also scale that impact. Shweb. Morning. I'm Shweb Siddiqui. I'm the director of impact investing at the Serna Foundation. We are a billion dollar endowment. We allocated a hundred million dollars of our endowment to focus on impact investing and the mission of our organization is to build healthy and just communities in the United States and we do that through a social justice lens. Carl Corey. Good morning. Carl Corey, Arbor View Capital, a DC based private equity, growth equity investment firm. We focus entirely on energy, resource efficiency and sustainability like Keisha were investing out of our second fund. Awesome. So, Sean, at this point, I'd love for you to walk us through some of these. Great. So I'll just stand if that's all right and hopefully the slides will come up. So this, as mentioned, this is work that's done with Rob Zakowski who is the director of our impact collaborator at Harvard Business School. And we're, you know, basically just trying to get some first data points on the role of anchor investing in the impact investing world. And so we define anchor investors as the first investor to make a substantial capital commitment to the fund. We're aimed to understand who they are, how important they are, how do they help the funds. We started off with a very light touch survey from 50 prominent impact funds, including the impact capital manager members. We have managed to collect data from 13 fund managers representing about 28 funds. And I should mention, as much as we feel we don't know, as much as we would like to about impact investing, I think if you talk to the impact investors, both the GPs, LPs, and the portfolio companies, they say they're over-surveyed. And so we're now working with Wharton to try to come up with a coalition of the leading business schools that will coordinate our survey to only hit you once a year or once every two years to make that data accessible, not just to the individuals who collected it, but to the broader academic community in a way that protects the confidentiality of confidentiality needs. So it's a super simple survey. That's how you get people to actually answer it. We asked for the fund name, whether you were market rate or not. This entire data set and presentation focuses only on funds that are non-concessional, aspiring to achieve market rate. We get the year of the first close, the number of investors in the first close, and the same for the last close. And then we gave them one table to fill out, which was who were your LPs? And then you'll notice the last column is do you consider this LP an anchor? So we're basically relying on the judgment of the GP of the funds to say, yes, they were an anchor, no, they were not an anchor. We had an interesting data set. We had a few very large funds, over a billion dollars, that skews the averages, and so we're not including them in these summary statistics, and that leaves us with 28 funds in total, 70 distinct investors, and 23 distinct anchor investors. So this is just what do these funds look like? You can call them small or large, depending on your priors. They're closing at about, the median fund has a $21 million first close with 20 investors, so about a million dollars per investor on average. Last close doubles that size, doubles the number of investors. If you look at just the first funds that the GP has launched, of course the numbers are smaller, a $15 million first close, and a $30 million total investment at the last close. And you may have a sense that the industry is growing, and indeed the data support that hypothesis. The average size of the funds that were closed earlier, 2000 to 2005, is about half of that the average size of the funds that were closed 2015 onwards. And so that, of course, as an academic represents both greater investment and greater interest in the industry, but also presumably funds that survive to have a second or a third close do well and are larger. So there's both a compositional effect and an industry effect going on here. So anchor investors are not always present. I think 48% of the funds reported having an anchor investment in their investor, and so the average for the whole sample is just one anchor, but conditional on having an anchor, the average fund reported having 2.3 anchors. Anchors make larger investments about twice as large as non-anchor investors, $8 million on average, 4.5 by non-anchors. And who are the anchors? I think this is something everybody would like to know. Many of you may like us to have the list of names and phone numbers up here, but we promised everybody confidentiality. So I actually have not spent much time looking at the names of this because I didn't want to accidentally blurt out names. But the number one in terms of count, but these numbers are pretty small numbers. Investment advisors, these are typically representing high net worth individuals who don't yet have a family office. Banks are up there in terms of dollar amount. Foundations, of course, are also quite important, and then we have a few family offices, a few other, a couple endowments, and a development organization. So that's the sort of landscape of what anchor investors look like as considered by general partners. Now, we very much had an early hypothesis that the amount of money you raised from your anchors would be very predictive of your fund size if you raised a large anchor allocation. You would use that as leverage to raise a large first fund. We actually do not find that relationship in the data. So these are the eight funds for which we have complete data about the size of anchor and non-anchor investments, and it's normalized by one just because we don't want to even reveal individual numbers because then you can presumably back that out. So the largest fund had actually a very small share of anchor investment compared to their total investment, and you see that if you ran a regression line on the first five data points, the relationship would actually be the opposite of what you would predict. If you throw in the next three data points, you get what economists typically call mush, which is no real strong correlation or relationship between the size of the impact, the anchor fund, and the fund. Now, I could have shown you a different graph that included these billion-dollar funds as well, and those funds had hundreds of millions of dollars in investment. So in the broad data set, we'd have a strong relationship between the size of the fund and the size of the anchor, but I think that wouldn't have been the most accurate representation of reality. So this is what we chose to show. And we'll produce some sort of working paper or document that gives us all details, footnotes, caveats, et cetera. So to complement these first basic numbers, I think the main thing we have here is the panel, and today in our impact investing class at HBS, we focus a lot on the asset owner and on the GP in terms of investment decisions and performance management and impact management. But right now we don't teach any content on how to raise a fund or those considerations. So this project is, I think, filling an important hole in the curriculum. But since we had the names from the GPs of their anchor investors, we then called up a bunch of the anchor investors and did some qualitative interviews with them and said, what was your motivation to be an anchor investor? Banks were very often saying, well, this helps us fulfill our CRA requirement. And you had a diversity of views with some saying, we liked being an anchor. We could negotiate for better fees. We could get more control over the investment decisions, the types of investments are made. Others said, no, we just want to sit back and let them do their thing. We don't have the time or the energy to manage it. Similar answer insurance, some of the insurance companies had somebody of capital that was really focused on impact and those anchors had a desire to be involved in the investment process of the GP. Others were coming more from the market rate return and just said, we buy the impact story, we're going to give you the capital, you do what you can with it. Perhaps not surprisingly, several foundations saw a catalytic role in being an anchor investor, they can seed this fund and launch this fund. That is some measure of additionality of their investment. And so questions we didn't ask, but I think would be useful to discuss among many others are questions like, how often do anchors ask for or get preferable economics? We didn't ask any questions about fees in the survey. How much do they seek to influence what goes on? And I can tell you the answer in a bit, whether anchors are more likely to invest in subsequent funds. But with that, I'll turn it back over to Marieke. Awesome, thanks, Sean. So one of the things that was interesting to me that came out as the motivations piece, especially for the early investment, we've heard terms like building a partnership, building a market, sort of the additionality of that capital coming in. So since we have two fantastic anchor investors here, I would love to throw it to you, Tony Enteschweb, but does that resonate with you? How do you see your role as impacting anchors? What does that role look like? I can say for Prudential that being an anchor investor I think has felt too prudential like a core part of what the work of being an investor is. I don't think probably 20 or 30 years ago there was a sensitivity to playing a qualitatively different role. I think it felt like Prudential was trying to make some markets that it felt needed to be made, and it's done that across a variety of asset classes and strategies, and in many cases those were manager-led strategies. For example, just to mention one, the growth of SBA supported venture capital funds or growth capital funds is a space that Prudential was long active in from the perspective of, hey, we need these managers, we want these strategies to scale, and I think it just felt like the work at Prudential. What's changed I think in the last five years or so under Amid Sathe's leadership who runs the team is bringing a kind of a stronger lens to that, conceptualizing as part of our strategic toolkit and then being really selective about those anchor engagements. Prudential's anchor engagements in our current portfolio are oriented around a big gap that we see in the space which is bringing more diverse talent into that GP role. So we have a strategy called inclusive venture that's meant to support women and people of color in that role in their first or second fund and to help provide whatever added sweat equity brand power we can in addition to that capital to really help those managers get over the hump and accelerate themselves. And now we're kind of reflecting back and the team as a whole, again, being pushed by Amid on this to say, are we doing enough? Coming in early, providing capital, making some phone calls, hopefully being more of a support than a nuisance, Keisha can say whether that's true or not. That's our goal, but are we really doing enough? Prudential has a whole back end, for example, that we could bring to bear here. We have communication channels that go beyond a phone call with another investor. We have marketing muscle. We have other capacities as well. And I think for us as we think about what the next stage of our anchor investing could look like, it'll probably have to remain highly selective, but I think we're looking for even more concrete and specific ways to leverage not just our networks in the impact team, but Prudential as an operating investing platform to really support the kind of talent, diversity, and then thematic commitment that we need an impact. Shweb, what's your take? For us as a foundation, we think this is our role. This is the purpose of our impact capital. If we want to create change and we're a mission-aligned investor, if we don't take these risks on early-stage manager, who's going to do it? And that's one of the core ways that we show up. And as a foundation, one of the things that we're really interested in is how do we support entrepreneurs of color getting access to capital to grow scaling businesses? And our thesis is, well, we need to create more GPs because we understand the dynamics of when you invest in an entrepreneur, part of it is that shared experience and that lived experience. And so when we see a greater diverse set of GPs out there, that you're going to see a greater set of entrepreneurs getting access to capital to grow and scale their businesses. And for us, this is the role of our capital. If we want to create this change, we want to build these GPs, we have to show up and put capital to work. And what I always tell our board and our investment committee, if we don't take these risks, I'm not sure who is. And it's sort of a little manipulative on my part, but I truly believe that as well because if we don't show up and we don't take these risks and put our capital to work, and then also think about the market. And I think that one of the things that we're cognizant of, at least I am, in the way that we support them is we want this to grow and scale. We don't want this to become an extension of Sirdna and an extension of our niche view of the world. We recognize that each of our fund managers have to raise a broad swath of capital. And so we want to play that role of, you're hitting on the areas, but we understand that it's going to be broader than exactly what we're focusing on, but that's because we're trying to build a market, right? In philanthropy and grant making, you can be very, very focused, but when you're trying to raise a $100 million fund, it's a very different conversation in the types of capital that you can bring. And so this is how we think about it, but at its core, this is our job is to take these risks, specifically with our program-related investing capital, right? With our PRI capital, it's part of that 5%. And when I joined Sirdna, I came in and I'm like, why aren't we doing equity? We're doing a lot of debt deals, for example. We have a small $18 million PRI portfolio. And I came in and I'm like, we should be taking all risk with this. If this all disappears, that's okay. And so that's really the role and sort of the thesis that we show up with in terms of taking risk. And so then for Keisha and Carl, sort of how does this sound to you and from your perspective, right, as the fund manager, do you see different sort of terms, responsibilities, roles for the impact anchor players? How does that look to you? Yeah, I mean, I can speak specifically to Prudential and Sirdna. I'm thankful to be in partnership with both of them. Prudential was the largest anchor investor and investor in Impact America Fund 1. And that was critical to us actually launching a new fund as an emerging manager. While I had done some work at a family office, I'd never started Launched Managed in Actual Fund, which is quite different than working inside of an institution. And so with that support of Prudential, and I will add, and I know we'll talk more about power dynamics in these relationships, but with the support of Prudential, it really was a partnership in that at the time of that investment commitment to Impact America Fund, Prudential was also carving out its billion-dollar commitment to impact investing. So there was a lot of knowledge sharing between both of what Impact America Fund was seeing in regards to its own thesis and activity on the ground, as well as, you know, what Prudential obviously has been doing for a very long time. So I sort of emphasize for Impact America Fund, we are grateful that we have true partnerships with our LPs and finding ways to exchange that value is really important. And then for Schwab and Sirdna, I'm just, I'm thankful for all of my LPs, but this guy will go to bat for me. And Sirdna's not a large investor. They're not the largest investor in our Fund 1 or Fund 2, but they have a very loud voice thanks to Schwab. And so we tag team at conferences. I don't have to do as much talking and poking. Schwab's there on my behalf. In addition to that, you know, the risk that he's willing to take, the risk, our belief is the same that we're creating markets. The risk that they take on us allows us to take risk on those entrepreneurs. If you all heard Rod speak yesterday from Conexus, he said he was here in 2012, and it was that early stage impact capital that allowed him to build his business and then attract traditional capital. So the same, you know, the risk that Sirdna's taking to catalyze the ecosystem and fund managers allows us to move quickly and then invest in those entrepreneurs. I just add, I think this is why I'm so particular about everything looking market. Like this is where when we talk about better economics, I'm like, no, no, no. This needs to look market, because if I want Keisha's fund to scale and be a hundred million dollars, if it doesn't look market, then everyone's going to be like, what is this? And it's already like this is a strange investment thesis. I've never seen a black woman running a venture capital fund before. So I'm uncomfortable on all levels. And then it's like, and the structure is funky. Like this is where I get, no, no, no, no, no. This needs to look market. And this is where I push back on a lot of our peer piece and be like, no, no, no, I'm all about market. It needs to look market. It needs to look market because we're building a market and we want to attract capital beyond just impact investors and just philanthropy for us. I think our situation is similar, but it's different in its own ways. Joe and I both came from large institutions. Joe was at the Carlisle Group. I was at Columbia Capital. And when we decided to start our own smaller focused firm, we had to go and articulate to our former LPs what we were doing, and many of them hated it. I mean, we were saying we were going and doing environmental investing in a macro theme where we were all going to spend our dollars differently and it was going to drive businesses where there was a cleaner, more sustainable economy outcome. And people said, well, what about wireless or what about what you did before? And so, you know, very large, well-known investors that we all would love to have in our funds absolutely said that's not what we're doing. Similar to what Keisha experienced, we had a really well-known environmentally focused multi-billion dollar family foundation in DC that saw us at a nature conservancy meeting. They saw us at a land for public trust meeting, Chesapeake Bay Foundation. And they came to us and said, you're experienced GPs. You're doing something different, but it's something that we can believe in. We can't create as much impact as we want with our money unless we seed other things that can then grow beyond our foundation. And it was a sunset foundation. So they signed on to the Giving Pledge. They knew that this was going to be a 10 to 15-year foundation that would shrink over time. And so they were our lead investor in the early days. The first pools of capital, they came out and they said, we don't want preferential economics. We want a preferred return on our carry because we want you to have to generate returns for us. But everything else has to be straight down the fairway or you won't invest my money in a way that's going to make me both good financial returns as well as make a significant economic impact or environmental impact. So like the people that have gone before, we had aligned the first two or three foundations were aligned on the environment. And the fact that our thesis was you could invest in business that were growing because of that. And because they didn't take preferential economics and they just wanted to be on the LP advisory committee to stay close to the firm, it allowed us freedom to build our business because one of the things we didn't get into yet, but we will, is if people start taking money out of your pocket and that's not to say there's anything wrong with that. Fundamentally, they should do what they want. It's their capital. But I didn't go from a $500 million firm fund each time to a $50 million fund to make current income. So if you take the capital out of my management company, I can't go hire the next person into the firm that hopefully will also be driving other things like social issues, diversity, inclusion. I can't do that if it's just Joe, Carl, and a CFO sitting in a room. So I do think it's important that as we're talking about this, you want these aligned investors and you just don't want the quick money or the investor that comes in and says, I will seed you, but this is what I want in exchange. So how do you, I think that like anchor LPs might get this warm and fuzzy feeling thinking about the additionality of that investment. And I'm just kind of curious. I want to ask you, Sean, too, like, you know, does the, is there, that's the feeling we have, right? Does the data bear that out? Or do we not know? Does the study not take us there? Yeah, I would probably say that it's too early to say. I think, you know, the early anchors and the, you know, it's interesting. We know a lot now about the venture capital industry because that's been around for 40 years and academics have studied it kind of to death. So we can sort of look at lessons from there. And there are a lot of the motivation for being an anchor investor. It seems to be initially just the prospect of extremely high returns. And so you might imagine that in this world we're imagining a very high impact of getting in early, but also the option to then reinvest in subsequent funds and to learn about the fund early on because there's a lot of persistence in the venture capital industry and a lot of, and that's almost a puzzle. Why would people invest in poorly performing VC funds if they're highly performing VC funds? And the answer is that they're closed and there's limited access to them. So motivation for being an anchor investor in the VC world is you then have this option to reinvest. And I'm not sure we've seen that yet in the impact investing industry. We've had a few of my case protagonists have said that they're hard closed, no more money, but that's probably more of the exception than the norm to date. Interesting. So we see, just to follow up on that, we do because we've been around since 2008. We have a little bit of evidence now of the three largest early anchors, if you want to call that pool, the anchor pool. One of our three went from $7 million in the last fund to $2 million in our current $50 million fund that we just closed. And I think Kishinaw was talking about it before. You could say that it's a negative and you have to explain that. What you're really trying to do is you're trying to emphasize the other pieces to the story. Our largest anchor has now of the $100 million has given us $12 million. We've returned $19 million and there's a lot more to come. So they're our best advocate. Instead of me going out and talking about returns, we'll have someone get on the phone with one of our anchors and it could be just like these two gentlemen and they can say we've invested $12 million, we've got 19 back and we have 18.5% net IRRs. That's your best message. So even though we lost an anchor and it was pretty frustrating when we got the phone call that they were going from 7 to 2 in the next fund, it's just, it's blocking and tackling. It's tactical. You have to just add to the pool. You have to articulate your message. You have to use the anchors that stand behind you and you'll get through it. But it is frustrating. I mean what I would add there too, I think being, you know, when you are in the first fund, very much when Keisha came to speak to our board, I reminded our board, Keisha is an entrepreneur herself. We have to remember that. I think that this is where, oh, you're a GP. It's like, no, she's actually building a business. She's building. And we think about when venture, you're like, we follow on round. You got to be there to support. There's some signaling that happens, all of those things. Inside CERDA when I joined, it was like, oh, we invested in Impact America fund and we're done. And like, we should go somewhere else. I was like, no, that's not how it works, right? That I was very clear with Keisha. We need to be, you know, it's a three, it's a 10 year fund cycle. She's three years in. She's out there raising the next fund of capital. There's not a huge amount of data and information, but those that are sitting at the front lines of this and seeing everything have to sit there and show up both with dollars and say, yeah, no, we were there. And so we wanted to be part of the first close because we wanted to signal to our peers that this actually is a thing. And we continue to believe in it with the limited data set that we see we're still supportive and we're willing to show up. And that's why even we were so particular about being part of that first close because we're like, we think people are, I mean, I would ask the question of like, why aren't all the other anchor LPs showing up? Is there a concern that they have if I'm coming into fund two and I necessarily wasn't part of fund one? That's a natural question. And I think anchor LPs need to realize and what we finally gain to the place where everyone understood, we're trying to help build a platform. This isn't about one fund. This isn't about the impact of one fund. This is getting to $100 million, right? And how do we show up and support that process? And one day we're going to be like, we aren't going to invest in Keisha's fund because she has that capital and we're going to go find that next fund that's early stage and try to go through that same process to ourselves. And we think that's our impact. And one of my fears here is that the language around anchors when we listen to ourselves talk about anchors, we talk about supporting and believing in the mission wanting that catalytic impact. And those are wonderful things but they're the kinds of motivations that don't always embed themselves deeply in organizations. And so when staff leave and strategies change and priorities morph and the world is different, the drivers of that relationship that kind of caused the anchor or the early seeding to happen can get attenuated. And it leaves managers in a very tricky position. I think a Shweb is basically saying of having to then explain why that anchor who they called an anchor and built up like the anchor is no longer there in fund two and it actually has a real potential negative additionality at that point. And I think one of the tools in our toolkit as impact investors that we can spend more time on building out and develop a little more of a collective or common knowledge approach to is what I have called a learning return. So we got our three basic returns. Those are highly motivational for us. There's financial benefit useful for the investing institution. There's the social benefit going out there to community and society, the environmental benefit going out there even more broadly. But what is the real institutional game beyond the dollars that an institution can understand and get focused on and quantify, share internally, document internally in a way that if there's a handoff of that relationship it can provide support for continuing it. And this notion of a strategic learning return where these institutions have interest areas and thematic areas, it may be a part of their purpose. It could also be linked to their kind of core business processes like potential needs to know as an organization, a financial services organization how you provide inclusive financial services to grow the market for its services. Prudential needs to know that. And I assure you that Prudential does not have as good intel as smaller, more nimble alternative financial service companies, the entrepreneurs who run them and the investors who support them are on the front lines. And so there's an ability to think about that back to the institution as a learning return, get much clearer about articulating it and insisting upon that as a strategic value back to the firm in addition to obviously these other more additional-like considerations which speak to our better angels. But I worry about how that conversation endures and sustains itself internally over time so that when Keisha or Carl come back to that anchor five years from now and not that they haven't been talking to them but it's a different conversation when you're asking for the next five million that you're going to hear a similar conversation to the one you heard the first time. So I feel like we need that more self-interested toolkit to combine with these other bottom-line benefits. I think we're getting, you know, sharp around articulating. Can I just briefly say that was a surprising finding in the data actually was if you look at first funds that then raised a second fund, 25% of the LPs in the first fund invested in the second fund in the data. This is probably only 10 or 12 funds so it's not a huge data set. But among the anchors it was actually only one in 10 made it into the second round. So it seems like there may be this mission that we want to go forth and seat. We're Johnny Appleseed throwing her seat all over rather than sitting around and harvesting the apples as best we can. And there may be returns implications there because the research on PE shows that endowments do really well in the private equity space exactly because they get to know their funds when they make the first investments in the first round and they make a very intelligent decision about whether to reinvest in the second fund when all they care about is returns. And so here if you take this mission aspect you may be giving up some really attractive follow-on opportunities to pursue the mission. Yeah, and I'll add to that that I'm an Impact America fund as a venture capital firm. Venture capital, while we see the media it feels like people are getting rich overnight. It is a long game. Most of these returns are not happening before year seven if you're lucky and really it's year 10 and 12 with that extension. And so because it's a long game and companies like funds, the fund successes depend upon the companies it says. These companies, if you're investing at the early stage we're post-C pre-series A while we want high growth and it's happening we also in our case want impact. And so if we're serious about and committed to that impact it may take a little bit more time for that company and we may want to take more time for that company to go out and raise its first series A or series B and make sure to what Schwab is saying for the fund, in our case for the founders they're getting the value that they deserve and they're getting market rate capital for where they're at in the phase of their business and oftentimes for overlooked entrepreneurs folks that don't have these networks they're undervalued and underpriced to be honest. And so thinking about it as that long-tail game of it may take more time we'd hope to intentionally have small portfolio so that we can reserve 50% of our capital for follow-on so that we can support the company throughout this early stage life cycle and get to the point where the larger traditional investors who have much more capital which is happening can invest and continue to invest but for a certain period of time this early stage capital that we provide and others provide is absolutely critical if we want to see a pipeline of impact oriented diverse companies into the mainstream C landscape. And that crosses over here's an interesting point so what Keisha just said I agree with 100% and as a growth equity investor even though we're small our average company is doing about 5 million of revenue we have a slide in our deck that says our strategy takes patients the average value creation in our portfolio is at year six and it's because we're not doing follow-on investments in Alphabet City rounds we often will do one or two investments over the course of that 5, 6, 7 year hold period and what we found is that those businesses are scaling it takes time to put in the human, the infrastructure and build the platform such that it's ready to scale in an execution mode over time we still hold an ownership percentage in our first investment which we did 10 years ago and so I think you need to have patients I'm not sure if that's environmental I'm not sure if that's impact but we have seen that even in our portfolio where our companies are a little bit more mature than Keisha's we have had to go and explain to LPs who come and say well why haven't you know where are the returns in fund one which is a 2012 fund that funds going to be a two to three X fund but it's just now that you're seeing the revenue growth in the EBITDA growth that we talked to people about seven years ago so I think she's right and I think it goes to Schwab's point I think it goes to Tony's point that if you're going into this strategy and allocation it's just a portion of your VCPE portfolio and you think it's automatically going to be identical it's not fund sizes are sometimes smaller you're doing things with additionality and a real strategy and even if it takes a little bit longer so the IRRs may not be the same the multiple and invested capital and the impact the total impact that you can create should be what drives your investment decision and when you hear someone like Schwab say this or you hear Tony say this it's not across the entire industry I want to make sure we're being really up front about this these two gentlemen have talked about things that I have been doing this for 25 years and 90% of the people we speak to do not say the things that they're saying on that and that doesn't mean it's not changing but I do think we have to be realistic. The point on patience so I want to add because I think that this is what I do internally especially even when we took a look at our endowment there's a lot of patience that actually exists in the endowment I think the second you slap an impact label on something everyone's like well I'm like well because we have this running thing we had an investment that failed at CERDA that we wrote off and I won't go into the details but it was like everyone's like oh yeah that happens right but then when it happens to us and on this side everyone's like well I knew and it's like wait a second welcome to investing everybody the same rules apply on both sides of the you know of the pools of capital that's one I think the second important role and I did this with Kisha someone called and was doing sort of a diligence check and we started having this whole conversation about you know scenario analysis and the stage that they invest and I was like time out this is nothing to do with the impact investing this is nothing to do with Kisha being a woman of color fund manager do you understand that this is a post seed series a fund right and you understand the risks around that and literally I was stepping back and like the three questions she should really be asking is product market fit is this and how do the unit economics scale scenario analysis is not relevant at all in this discussion and it was just shocking to me because I think part of our role as in an early investor is to also set like okay let's actually realize this is the segment that you're investing in these are the risk characteristics this is nothing to do with impact or any of these things and then I called Kisha I was like so this conversation happened but I think it's an important part of our role to say a this is what it is and to redefine that because I think people continue to bring their preconceived ideas of what is impact investing and our job is LPs is to support what your respective visions are of what you're trying to achieve and why that matters and also sometimes have conversations with perspective LPs that you all may not necessarily be able to have right and I think that that's another sort of important piece that we need to continue to play but and I think that that's part of our role and I go if we were directly investing in a company we'd be doing the exact same thing I mean I think both of you exactly that's the role you play as shareholders and companies and for us as investors and companies you know and these are these LPs are the exception and have wonderful LPs I say all of my LPs are amazing this is being videotaped and they are they are but there are conversations that we've had with potential LPs those who have taken a while to decide whether or not they want to commit which is fine you should do your due diligence but at a certain point it becomes a burden on us as a firm and I think about and I have to step out you know take off my fundraising hat and sort of think about at times you know what's happening here and I thought the other day you know if I took this much time and missed deadlines and extended you know had delays with the founders that I would invest in they basically like tell me to go you know go somewhere and go and find other capital and you know unfortunately is emerging impact managers you know we're not in that position yet that over subscribed position you're speaking of where we need capital and we're convincing people of the strategy and so we're enduring more pain than I think is actually necessary through fundraising processes in order to raise the capital that we need and so you know coming back to that conversation around power dynamics it's just you know if we're really in this to win it as an ecosystem to create real change there's a value chain I'm a fund manager I'm tracking companies for you know 12 months 18 months sometimes and I'm timing my capital raises per when I have the pipeline and the trends that are happening in the marketplace like this isn't I'm not waking up every day you know choosing sort of out of the blue who I'm going to invest in so I'm strategic about my pipeline my strategy et cetera and that capital piece the investors the clients that I have the people's whose money are saying we want our money to be managed and deployed in this way has to marry that timeline and so LPs unknowingly I think can throw off strategy and timeline for an emerging manager and prevent us from actually getting the best deal for companies because we're not ready to make that investment per you know the timeline of our strategy so I just you know I've learned a lot of the last you know four or five six years now managing these funds and I'm sure I'll learn more but how critical it is for us to be in alignment on that timeline in order for us to do our jobs you know as general partners but I would also again and I this is my advice to perspective LPs coming into this space you need to be clear just like you are with your strategy what are the risks you're willing and not willing to take on a GP what are the strategies that you're willing and not willing to take and really having that internal conversation before you go into the marketplace right and really understand even just doing homework of like what are the fund managers that are out there like if you go into a specific sector you're going to understand different players what is the competition look like we should be doing that same sort of work of like if we want to do emerging managers or at certain if we want to support emerging managers of color what does that actually mean what are the risks that we're actually taking the fact that we realize that we're building a platform this isn't one fund this is three four five funds potentially it's different pools of capital but we had to do all of that homework that's why I feel like it's easier for us to make these decisions and then spend the time to get our investment committee to understand our strategy because what I found is it's like I want to do impact investing that's not a strategy right like actually figuring out how you want to show up in the market what risk you are not willing to take is actually the homework that needs to be done before because then you end up sort of taking people through these rigmarole conversations and it's frustrating for us as LPs like when is this thing closing and when are we moving on to something else as well because we're caught up as LPs of like okay the terms are still getting negotiated someone else wants to do something else this is also up for the rest of us as well here's a great example of exactly which I was talking about and it addresses Keisha's as well so we had a large a $12 billion O.C.I.O. that manages foundations and college endowments come to us about a little over a year and a half ago and they had lost a client and it was a large client and it was someone who had wanted to see the actual impact of their portfolio they wanted a values aligned impact investment portfolio when they didn't see that they switched so all of a sudden we get a phone call and I think they looked at it and said well let's just see what's out in the marketplace these folks are only two hours away they're experienced investors so why do I say that they were very intentional we now know as an O.C.I.O. that has university endowment money that the students want to see this the boards of trustees want to see this they don't know how to do it themselves they don't know how to get their arms around it so they came and they created something they then set terms they were very fair terms it was a normal dialogue it took to Keisha's point another six to nine months for us to tell them that we were ready to do the next close that they had basically catalyzed and they're sitting there waiting and thinking if this was matrix four it would have been done in 90 days or 60 to 90 days why is ArborView2 taking nine months and I do think it goes to the points that everybody's made where people are tiptoeing in they say they want to be impact investors they don't know exactly what that means it's not quite intentional yet and to your point it's not a strategy that's the goal now you actually have to build the strategy around it to come to the Keisha's and to come to the SJFs and the Bridges and the ArborViews and say I'm ready to go and I think we need to be patient as GPs because it's really frustrating but we also need to make sure that we're guiding new conversations to the other LPs and the industry to say before we have another before we keep going on this dialogue why don't you look to some of the other LPs and see how they develop their strategy so that you can make some progress before you spend nine months getting to know me I won't quickly fast forward to the future a little bit and then I'd love to open it up for a couple of questions too but so I've just heard two different data points that I think are kind of interesting the first one is so yesterday I was talking to an asset allocator with 14 billion under management and she was saying this is becoming kind of a crazy and this is the Wild West right now and she's trying to make decisions and figure out who the managers are she can have confidence in and she said the universe looks to her like a giant RFP right now and so she's just kind of like how do I weed through this right she's wary she thinks it's going to something's going to explode in a bad way and it's also just frankly kind of exhausting to have to weed through that so there's that piece of it and then there's also I think at Impact Capital Managers we field a lot of calls from starting their first fund curious about raising they say I've got to talk to a potential anchor investor they love our strategy but they're totally committed they're committed for like the next you know they're covered they're looking for track record and you know it's like come back to us in five years so I guess it goes back to that point around timing but you know is that a real thing do we have a sort of a supply demand issue here is there a cyclical element or not I think that's the broader industry I mean we are now graduating into the broader VCPE and at some day we won't have the conversation about impact it will just be part of the broader VC industry world but if you're you know you name the valley firm that's out there on fund seven it's going to be a lot different than the first time fund in the valley that's trying to go out when Sequoia is raising a fund right and I think you know that's just an analogy but I think we're going to see that I mean there are now fund managers in the impact space that are on you know fund five or six and so other than the the really intentional thought leaders that want to seed various sectors of our broader impact space the followers are going to just they're going to do what they need to do to learn but they're not going to take tremendous risk just like institutional LPs sometimes don't in the broader VC and PE industry I'm also going to say I think it is there is going to be a market shift but the shakeout that happens I'm not afraid of it right because that also means we're growing up as an industry and the market dynamics are taking over so I say that as a positive thing this is why partly I obsess internally about like we're not just impact investors we're values based investors because when the shakeout happens we want to be able to stand up and say okay yeah we took the right bet we bet on the right people not all of them worked because that is part of the evolution of the market and we want to be able to stand behind those decisions but I actually I mean the shakeout is going to come question is but I think it's an important part of the evolution and development of what makes a good fund manager what doesn't what is impact that is palatable what isn't how do you articulate it this is we're in a market dynamics right this is where this is a little different that if you can't prove the impact or you can't prove the financial returns should you be continuing to raise capital right like and so I think that this is part and parcel of we kind of should it want this to happen yeah I think the market's changing rapidly as Shweb is saying and and as I look at it it's become a more competitive space for managers it's more crowded as well I think from where I sit what I see is that some of the larger institutional players have taken in that learning return that I talked about and are now actually coming up with competing product where they themselves are playing the impact capital manager role and they're going to go out and raise third-party capital to go with their internal corporate balance sheet anchor investing I guess you could say that's a significant shift let's see how you know how generalize it becomes but I can think of at least two large institutions that used to be the anchors that are now creating their own product in the same spaces they used to anchor so I guess if I would step back from that and look at that I would say then for it's not as ripe a field for a startup fund as it may have been five years ago not to say you can't do it I think the barriers are a little more present even if you're a smallish manager and you're struggling to get to scale I would wonder if it makes sense to begin to look at who you can partner with maybe in a like incorporation merger kind of way the area that I think has not been explored as much would be the JV where you really have a large scaled institutional player who develops some type of joint venture with a manager where some benefits beyond the capital really flow to that manager without trying to bring them inside which I think would be very difficult to be an entrepreneur while inside a large institution I think that's a potentially interesting space I don't know if Prudential will head there but we're experimenting with it by thinking about this broader operational set of resources that we can bring to the table but I think the market has shift and it's continuing to shift rapidly in ways that I would say don't necessarily favor the startup mentality I just want to make one more point the types of people like Schwab and I would put myself in this category who took jobs and institutional investors and had the personality and the willingness to take social and professional risks to make those anchor investments like we're like in limited supply and frankly what's happening is that impact being professionalized and so the people that are coming in now and the folks we work with and even ourselves we're not exactly the same folks who are doing that anchor investing way back in the day and so I think we just have to really be honest about the shifts that we see in the sector and then I think for entrepreneurs who want to create investable vehicles, intermediaries of different kinds I think you have to think about the playbook differently and that old playbook of hey let me get that meeting with the person at the family office or even the principal or the empowered player in the institutional asset owner group and I can make it happen off that meeting because it's going to get harder and harder to kind of reproduce as the playbook and I'll add to that in saying being very mindful for those of you who are exploring the idea of raising funds or have a strategy taking the time to really think about your thesis and does it stand up as something unique in this crowded and ever-growing space of fund managers that want to manage an impact fund so being very clear about your thesis and I think there is a way of saying is to get those institutional resources without necessarily having to sell your soul to the institution it may work in some cases and I'm not I'll never say never but I think if you have a unique impact strategy and you are intentional about who you bring around the table for our fund too, Kellogg Foundation the Kellogg Foundation is a large investor and they are I can't keep track of Cynthia and team they have obviously a hand print here at SOCAP to build the institution but their support of us as a fund is incredible and they are thinking about those what do they have internally in terms of communications and other support resources leadership training for our emerging team what else can they do to provide that support as an LP I think what I'd love to see and I know there will be a shake out and there will be different forms of this and I know folks will partner with institutions but I hope teams like SJF and Arbor and those of you have created independent platforms to really do this work in a way that institutions may not be able to do as deeply it's really important that independent thinking stays true in the impact investing space I agree with everything that Tony has said I think the one risk that I would highlight is that one of the things that we think about is that if it's just the same institutions coming in are they recreating the same paradigm the same challenges and the same issues and it's just a different set and so for example if it is all those big firms it's the same people doing the same thing and are we seeing different faces, different voices and different perspectives and so we are very cognizant of that one but also too you know Carlisle Group didn't just raise hundreds of millions of dollars one day and showed up if you actually read that firm was built over time to the place where it is today and I think that we forget that because everyone's like oh but this firm but that firm they did one-off deals they did one-off three one-off deals with a bunch of friends based in DC that were all in government right we did the same thing we didn't raise a fund until we had done three one-off deals and so but this is where we look at both of you this is where we also have to recognize that we have to take that long-term view to be like do we believe that these could become the premier institutions that are out there not today and when you see the billions of dollars and I agree with Tony they may not be able to do it these guys because being smaller and nimble has a different line of sight into the marketplace you recognize underpriced assets in a different way that they simply don't see there's transaction sizes you can do that they can't do so there's that balancing as well in terms of thinking about that also awesome so we are at time and so I know I said we were going to have take questions and I was just kidding we are not going to do that but I would assume that everybody here this is a conversation I feel like we could go on for like a couple more hours on this if you all are willing to take questions from people after can people meet up with you after to continue this thank you so much for joining thank you to our panelists