 Hi everyone. Thank you for joining us. My name is Stephanie Neiman. I'm going to be facilitating this panel called Failing Ford. I dare to say this is the bravest panel at SoCAP. So we're setting a small record here. I submitted the idea for this panel at SoCAP because I tend to think of SoCAP as the place where people go on stage and make big announcements, big new initiatives, big new investments. But it's less often that they get back on stage a year or two later and say, you know that thing I was really excited about, I was so proud of, turns out it failed miserably. It was one of the hardest lessons of my career. And now I'm moving forward with that lesson under my belt. And I wanted to create a space where we could do that or we could have that conversation. So I thank you for joining us today. And in the spirit of fostering a small sense of community, an open sharing with our group here, I thought I would kick us off with a quick hand raise. So an audience poll. First question is, who in the audience has ever failed at anything in the past? Okay, good for sharing. I should contribute. Who in the audience has had some failures with your professional organization and its internal operations or strategy? Your current professional organization. Okay, great. Who has ever had an investment that experienced some sort of failure but then recovered? Great, okay. Who has ever had an investment that just ended up as a gigantic massive failure? Okay. And of those who have failed in an investment, who has publicly spoke about what happened on a stage or on a blog or other public forum? Everybody up here should raise your hand. You're about to do this. For those who have experienced significant failure, who feels like it taught them a critical takeaway lesson that they cared for? And lastly, who feels like they underestimate failure in your work? Who underestimates? Not that many. Okay. Who overestimates failure? Okay. That was a more hard one. Some of your responses helped validate the topic that failure is important to address and think about. I don't think we talk about it enough. And so our brave panel on stage is going to do that. I'm going to introduce each one of them first and then we'll go back through and to kick us off, each person is going to share a key failing forward message. Again, we're talking about failing forward and learning from failure. It can mean different things to different people, but the idea is that somehow it moves you forward before you made the mistake or situation happened. So I'll start as far in. We have Alan Kelly from SJF Ventures, which is an impact VC fund investing in high growth, positive impact companies. We then have Heidi Patel from Rethink Impact. Rethink, sorry, I skipped over Hope. We'll keep going with Heidi. Heidi's in the middle. My order on my list is off. Rethink is a VC firm investing in female leaders who are using technology to solve the world's biggest problems. Going back to our esteemed colleague Hope Mago from Hcap Partners. Hcap is a lower middle market private equity firm seeking to generate above market rate financial returns in addition to facilitating a positive impact underserved businesses, employees, and communities. We then, I'm going to double check now to make sure I don't miss it. We then have Greg Nietzsche from Kennearth, which is a single family office focused on funding market based solutions to benefit underserved communities. And to my immediate left, we have Jeff Eisenberg from Ecosystem Integrity Fund, which is a VC firm investing in early stage companies contributing to environmental sustainability. So I've already failed once on this panel so we can keep going. Okay, so I'm going to start with Jeff and then we'll go this way with asking each person to share a key failure in their career, what it felt like, what they learned from it, in a brief manner, because we have lots of questions to dig into after this. Okay, thanks. That was fun going first, especially in this particular kind of setting. So the failure that I'm going to describe is one that I think is typical of investors in my space, and I'm sure you all will have stories of this, but it had to do around judgment of character of a leader of a portfolio company and getting sucked in early to the promise and the charisma of the person, but then recognizing pretty early on within the first six months, 12 months of the investment, that that particular person was not the right leader for this company and maybe any company. And so the failure was not actually in the original assessment or evaluation of the CEO, the founder. I think it's tough to get that right in the relatively short amount of time you have to do diligence on a deal. The mistake, the unforgivable, and this is always the unforgivable, is once I recognized that problem, not addressing it immediately, not jumping on it immediately. And as time went on, having essentially getting, seeing it more and more and more and realizing that it was going to be harder and harder and harder to correct and essentially letting a bunch of mistakes build up into a failure. And that failure was having a company now that has a lot of money invested in it, does not have the right leadership in place, and it's having a material effect on the business. And I think that's, that is true for all of sort of my failure stories is that it wasn't, you know, a misjudgment up front, that happens. It is allowing small mistakes to build up as opposed to addressing them first and foremost right up front. And this is a problem now that I am, I am having to deal with on a daily basis. So it consumes a lot of my time, a lot of my efforts. And it's not what I want to be dealing with right now. And it is a direct result of my failure to address warning signs and warning signals and problems that I saw over the course of the last five years. Thank you. Yeah. Okay. So I'm Greg Nietzsche again from Kenny Arth. So one, one 30 seconds of context on, on our failure, which is sort of a market-based failure is we're a single family office, we're an impact first investor, meaning that we're primarily driven by the impacts we can create in rural marginalized communities. We, we invest generally in places where market rate or commercial money is, is, is not going. So unlike many people probably at the conference who sort of do well by do, by doing good, we do good. We hope to get our money back to do a little bit of more good. That's not as pithy as or popular. Some of the other slogans. So even though we manage $400 million, putting it into, putting it into rural places, you're not going to find us on, on the main stage of things like this. But so I think what's important also in terms of our successes and failures is that we have the luxury of being accountable to only one person. Kenny Arth's founder, Diane Eisenberg, happens to be sitting here. So I'm going to get quick feedback on whether my performance here is a failure or not. But, but I think it does give us leeway to, to sort of be, be nimble and pursue things where others might be afraid of failing. So the failure I wanted to discuss was, was a market based one about four years ago. We started investing into the energy access sector. The thesis being that solar home systems and energy access in rural remote parts of, of developing markets, we're going to have a, we're going to be a critical enabler to increasing income. So not, not generally life satisfaction or, or health or education outcomes, but specifically we're going to have an impact on increasing incomes in these places. So we made an initial set of loans. We committed a modest amount of capital, probably between five or $10 million in lending. We'd signed a big guarantee agreement with USAID to increase our capacity to lend into the solar home system sector in Africa. We had $20 million of guarantee capacity. We paid money to originate that guarantee. And we had some enthusiasm that this was going to move in, in, in a positive direction. Now, at the same time that, that these loans were, you know, were, were sort of getting dispersed, there was a huge amount of investor interest sort of crowding into the space. Venture money going into some of the larger vertically integrated companies. And a lot of pressure on those companies to grow quickly, to grow customer bases faster, and to sort of get, get market share. And in parallel to this sort of influx of investment, we were also seeing that actually the underlying data on customer repayments, particularly in the areas that we cared about those rural, poorer, harder to reach places, were actually beginning to default in a way that was, you know, that was making it hard for some of our, our borrowers to, to sort of keep up with our, our debt. And we were actually finding ourselves restructuring, you know, a number of, a number of these lines of, of credit. So, you know, we took a step back and said, hey, the, the outcomes for the populations that we are intending to serve are not what we thought they would be. There was also some data coming out suggesting that actually the income impact of solar home systems for these individuals was not as positive or rosy as other people wanted to, to, to sort of talk about. And, and so we, we stepped back from, from the market. We haven't used any of that guarantee capacity. You know, we have, have not made any more loans to date, although we're, we're sort of reassessing some segments of, of the energy access sector. And it was a lot of effort. It was a lot of, you know, there was a lot of money put out there. And, and in the end, it was sort of the market moved away from the communities that, that we had hoped to serve. We tried to do our best. We published a blog post sort of detailing all of this. So we've, we've tried to be very transparent about places where we've experienced failure and, and we'll hope to do more of it. Actually, I mean, we hope to, I mean, you know, we're going to fail, but we sort of hope to do more of the transparency bit. Thank you. Thank you for sharing. Heidi. Yeah. So this is a story of one of the very first of our 20 investments that we've made so far, which had a really negative outcome for us as investors. And it also was a year plus of pretty severe pain for me in terms of just day to day stress and distress. So we had an opportunity. This was one of the first deals where we were writing a large check and leading a transaction in a Series B company. It had been sent to us by a very good friend of mine from a conventional VC. And so it was presented to me as an opportunity to get into a Series B deal with really strong investor syndicate, fantastic board, and that there were a lot of investors who were circling the net ready to invest, and they just needed someone to step up and lead and price it and put down a term sheet. And it was a little outside of our sweet spot. We're primarily a software investor. This company had seasonality to it, and it had a physical product component to it that was a little outside our sweet spot, but it was very much within the center of the strategy for the other funds. And so we wrote a term sheet, it was accepted, and we're sort of off to the races. And then I mentioned the seasonality piece. So there was a lot of pressure to close the round, and the first warning sign is that all these other firms that were supposedly circling the net did not actually come in. And so there was pressure to do a first close on the round to fund it about 50% and then get through the seasonality piece and everyone else would come in. That should have been and is now my very first warning sign that don't do first closes. There's a plan to fully fund the business, and you should stick to that plan. And if you cannot find investors to come in with you as part of that full close, you should think hard before you move forward. You move forward nonetheless. And within 60 days, the company was 100% out of cash. Yes. So, you know, at that point, you're like, do I cry or throw up? Or what do you do? And then it got worse. So what was revealed then was that we were part of a very tired syndicate where these funds were, this was one of the, an early investment in a fund that was two or three funds ago and they were almost out of reserves. And I did not ask the question, how much reserves do you have left for this particular company? Because both funds came back and said, we have no more checks to write to this business, you are on your own. And then one resigned from the board. So, at that point, what do you do? Do you walk away? You're really early on in your fund life. We have a philosophy where mistakes can happen and as long as there is not fraud and you have conviction in the company and the technology and the market, maybe you write that bridge check. That one bridge check turned into three bridge checks for us. Really challenging. And I think what we thought was a trauma to the business due to an accounting error from a pretty poor financial controls perspective and a pretty weak CFO, turned out to be a cancer in the business overall. And it really took six to nine months to really reveal that. So very, very painful. Lots of warning signs along the way that for various reasons, you know, we either didn't pick up on enough or didn't listen to you closely enough. So I think, you know, lessons number one is really think hard if you're going to go outside your sweet spot. You probably set your strategy for a reason. Two, think hard when a company comes to you with a funding plan. And don't go in unless that full funding plan can come together. Because I think if we had had that full round funded, we would have probably had enough momentum to go through even this trauma. I think we could have made it through. And three, really think hard and ask more questions and do more diligence on the investors that are around the table with you and really ask them, where does this investment sit in your fund's strategy? How much do you have left in reserves to do follow-ons? And really think hard about how important your relationship is to that other investor. And do they really care about nurturing that relationship with you as a fund? And we were a brand new fund. Nobody knew who we were. We hadn't done 20 deals yet. And I think we discounted how important that relationship piece was before we moved ahead. And again, it was a year plus of lots of pain that I think probably could have been avoided. And thankfully, it was one of our very early investments and not one of our more recent. Thank you for sharing that lots of good insights there. Hope. Thanks, Stephanie. Can you hear me? Okay. So I'll provide a little bit of context around our failure. This was an investment where we had a lot of impact alignment with the company. It had about 1,000 employees. 70% of them earned low to moderate income wages, which is one of our impact teams. There was great gender and ethnic diversity metrics around the company. It was fast growing, owned by a minority entrepreneur. So kind of checked all our impact boxes. The failure really arose in the fact that 15 months into the investment, the operational and cash flow challenges started arising. And in our effort to be supportive to the business, we provided follow-on funding to the company. And the real failure for us was we did not address the underlying structural issues in the business at that time. And so it just became a challenging situation where every two, three months, the entrepreneur came back and was like, I'm failing to meet payroll. Can you guys put in 250,000? Can you put in 500,000? And it just escalated. So one of the biggest lessons that came out of that situation really and what made it more difficult for us was do you take a step back and say, we're going to restructure the business and lay off 500 people, which from an impact fund perspective, the optics aren't that great. So we were kind of in this place in between trying to support the business and save these jobs, but also putting pretty much putting good money after bed in that scenario. And so it wasn't until we kind of had to change the management team and bring in an outside consultant that we kind of stabilized the ship, but it was a good three years of pain and hard work to kind of stabilize this business and turn it around. And there were a couple rounds of layoffs involved as well. So one of the things we've done internally is if there is going to be a follow-on funding for an underperforming portfolio company, we are going to treat it like a brand new investment and look at what are the underlying issues that are causing that company to first of all underperform. And can we fix or resolve those issues? And if not, ideally, we're going to cut our losses at that point in time. I feel like I should pay some sort of tuition for learning on this. This is helpful. Alan, do you want to share that? Thank you. So this is a timely subject for me. I'm struggling right now with a couple portfolio companies and the resulting disappointing performance for me personally. And one of the things I'm thinking about is when I faced a similar disappointing patch a while back while managing a mutual fund, I remember a chief investment officer at a leading investment firm gave good advice where he said that he observes that good managers will learn from their mistakes, but they'll keep moving forward and that a really underappreciated aspect of investing is managing one's emotions because inevitably there's going to be disappointing performance. And so how one manages emotions during that period can help not only for the current performance or for the current period but also for the long term. So I'm trying to think about that real time and manage my stress level and that means enjoying things outside of work, appreciating contributions from my partners, and also thinking about the stress that the entrepreneurs with whom we work encounter because I would imagine the stress that they experience is greater than what I experience including the entrepreneurs who are here at Socap. But finally maybe the thing that helps me the most is to think about this experience as a challenge to up my game. If you want to call that impact venture capital 2.0 or 3.0, the point is I'm trying to think through the different parts of the value chain of venture capital, deal flow, diligence, etc. and try to improve and I'm actually finding that exhilarating. So that's a positive twist to all this. Thank you. So I have some questions to go a little bit deeper into some of the failures shared but also other aspects of failure and then we will save time for audience questions. So keep that in mind, you will have a chance. But following up on these examples given, do you think you would have learned these lessons without the failure to a degree not if that's the case? And part of this question is related to is failure a better teacher than success? Greg? Sure. Yeah, I'm happy to jump in. So I think in many ways failing is just baked into our model, sort of baked into doing the work in the kinds of places that we hope to serve. Yesterday we were talking to a close partner of ours, another foundation funder and she was saying, well, we don't really even talk about it as a restructuring unless plan A and plan B have failed and then maybe we considered a restructuring. And I think we think of that similarly. I think in many cases where our biggest failure internally is when something goes wrong that we didn't anticipate. Something is going to go wrong on every one of our deals. But I think we're focused on, did we understand those range of things that could occur when we went into a deal? Was it one of those or was it something we hadn't thought about? So I think from our perspective, we can't learn those lessons without failure and I think we need to generate evidence bases and we need to generate data from those failures and then we need to share them widely with the field so that follow-on investment decisions and new investment decisions can incorporate that growing evidence base. So that's what I put it. Yeah, I think that failure can be a special teacher and I think it helps to sharpen the mind and for anybody who's been working with the company is it winds down. It's a disappointing, sad experience. You see what happens to the employees, to the management team members, to yourself, to your partners, to your investors. And it's a trying time but I think it can stimulate one to the next time say I don't want to experience that again. So that sharpens the mind to say what extra can I do for diligence or how can I bring in a team member to challenge my thinking. Of course, one doesn't want to go too far the other way and cause failure to make somebody freeze up at the end of the day and there's no perfect investment opportunity and we have to make leaps of faith and way different factors. But also it doesn't have to be an either or. After failure, you don't have to freeze up and you don't have to also be maybe too liberal in your investment decisions. It can cause a person to just be smarter. So again, to think harder about diligence to go that extra mile to run things down. So that's one perspective. On a related topic, I have a question of if we should expect more failure in our organizations and in our investments or normalize our attitude towards it. Could anyone share how your firm might prepare in advance for potential failures? Or normalize your attitude to react to them faster? So I can touch in on that. I think so for us as a primarily a mezzanine debt firm, a big focus of what we do is how do we minimize our loss ratio. Unlike venture capital or growth capital firms where you have a certain loss ratio that you factor in into your portfolio for us, our loss ratio has to be a little tighter, typically single digits. So a lot of what we do when we're looking at underwriting and structuring transactions is how do we minimize that loss ratio? What are the underlying risks and how do we mitigate those? The growth aspect is part of our diligence, but it's really a key focus on downside protection from our perspective. And so as part of that, we actually have, you know, a lessons learned deck. And as part of the investment package, we have what we call a red flags checklist. So it outlines all the adverse events we've experienced in prior investments. And we asked those questions, are there any signs of those in this new transaction? So that's part of how we look at minimizing some of those issues. Um, there is a say again, investing that at least failure has a floor because the worst you can do is lose 100% of your money. You can't lose more than that. But perhaps in venture capital, at least the success has no known ceiling. You can make multiples of your return, you can't potentially see the upside. Can some of you share how you think about that risk of failure versus upside of opportunity? Is that how you think about it? Or is there another way? Yeah, I can respond to that. I mean, I think, I think failure actually can be worse than zero, because you're not just risking, you know, your investment. You know, you're also, it's not just losing your money, right? I mean, there are a lot of unintended consequences and ripple effects when a company fails and hope mentioned some of it. Part of it, you know, as also as yourself and an investor, you can, you can lose your, not just your money, you can lose your nerve. Being a VC can be really scary. You have to have conviction and optimism because you don't make it as a VC by avoiding failure. You make it as a VC by repeating success. So you've got to keep your nerve. You can end, but there's a lot to lose as an investor, as a company, and particularly when you're doing impact investing, especially when you have place-based investing going on, there are the stakes are high. So I think, you know, the way we think about it with everything impact is that we have a special responsibility as impact investors and where we don't, you can't invest everything in every company, failure has higher stakes, right? So they say often in times an NVC or in tech move fast and break things, right? But when you're investing in healthcare or local economic systems, you're not just breaking things, you're breaking lives and livelihoods. And so I think you really want to think about how do you survive, right? And so we're not, a lot of people will cut losses after an early warning signs and say move on to the next, just concentrate on your winners. I think we take a different approach where we really try to think about and work with our entrepreneurs in advance is what is your plan B? If this doesn't go your way, what are the contingency plans? How could you cut burn? How could you retrench? What would this look like if you were to go a slower path versus a quicker path? And those are very painful conversations to have, particularly early on in the diligence process where a company is really looking for you to see the upside and to be optimistic. But I'll tell you, you know, cuts are always possible. And if you have a plan B that you've worked out with the CEO in advance of like what to do when things start to go wrong, it makes it much less painful if you happen to arrive at that position again, because an impact investing, you want to make it big, but also survival has, you know, can have tremendous impact benefits for the problems that you're trying to solve. And so we think about that a little bit differently. So can I want to amplify this point about unintended consequences, because I just think it's so important. And I'm going to try to channel Annals Allen's wisdom to not let your emotions get too strong, because I think it's an area that we at Ken Arath get really frustrated about. You know, I think that some of the companies that are most lauded in the impact investing market, some companies that will have, you know, big places on stage, big voices in this market are doing massive damage to individual livelihoods. And I think that if we don't take that seriously, you know, we don't deserve to call ourselves, to call ourselves impact investors. You know, I think that some of the same dynamics that we observed in the energy access market are now happening in markets like fintech. If you look at lenders in small microlenders in places like East Africa or Kenya that are making, you know, loans directly to individuals with absolutely no credit score, making small, small loans. And then, you know, if you don't pay back, oh well, now we've learned some credit history, but oh well means that you're on the Kenyan credit blacklist and you now have to dig yourself out of that. There's three and a half million people now on that blacklist who, you know, are going to have a really much more difficult time than they already had getting access to credit. You know, and I think that we, I just think that we really, really need to remember why we all sit here, why, you know, and who we ultimately are all trying to serve. So totally agree with that. Following up on that and Heidi's point, I think that one of the things that is different about impact investing and I know very specifically in sustainability focused investing or clean tech is that very often you can pick the right solution or you can invest in something that is solving a real problem, but you got the timing wrong. And so this idea of just kind of cutting your losses early makes absolutely no sense if you are trying to solve problems that are necessarily going to be solved over the course of the next 20 years. And so I mean mistakes, not failures that we make are getting into things when the market isn't ready or the customers aren't ready to start buying that solution or the company isn't mature enough or there isn't product market fit, but it doesn't necessarily affect the underlying value or importance of what they're doing or their technology or their solution. And so going to plan B or plan C, finding ways to avoid failure so you essentially buy time for that solution to find its way out into the world and make a difference is a big part of what we all do. And I think getting back to the previous question about planning for failure, I think that means having patience, but being willing to jump on mistakes quickly, but then having heavy reserves, essentially accepting the fact you're not going to get it right on that first check, like the chances you get it right on the first check are basically zero. And so you got to be ready to fund plan B, plan C. I think that's incredibly important, especially in the work that we do. I'm glad you brought up this topic because in addition to failing forward, there is the concept of failing fast, which could be interpreted in a couple of ways. It could be interpreted as responding to market feedback and pivoting, which is something I think all companies do. But it could also mean looking at your failed investments and saying, I'm going to have to let you go and focus on ones that are succeeding. And this goes to one of the topics you were saying, Jeff. And so with both of those versions up for interpretation and commentary, how do you think about that advice of failing fast? So I never, I'm not sure I really understand this idea of fail fast. I like the idea of go fast and break things. But again, it comes back to this idea that these are big problems that we're trying to solve and they take a long time. And I think it is incredibly arrogant to think that we can figure out whether or not something is going to work quickly and then move on. I mean, I have companies in my portfolio that I thought were going to be, like, you know, a year after I invested, I was like, I don't know if that's going to work. That's probably going to be one of our dogs. Let's just kind of put it in stasis, get it to cash flow, break even, let it, let it just sort of sit there and not suck any time or energy out of the portfolio. And then two years later, whoa, lo and behold, the market really wants what they have. We got the thesis right. We were just two years early. And so I was really glad that we didn't put that to bed, you know, that we kept it going. I think what I do agree with in this idea of sort of fail fast is identify mistakes very early and jump on them and push hard so that you're sort of bubbling up the problems, the mistakes in the business model or the mistakes in the product so that you can just keep jumping on them. And this idea of this constant iterative process is really important. It can be exhausting, but you have to push in order to kind of bubble up the mistakes, bubble up the potential failures, and then fix them as quickly as you can and know that that's never going to end. That's like an ongoing process that will go as long as the company lives. Any other comments? Yeah, I would echo that. And I, you know, I would bring it back also. So when in those situations, right, it's not failure or success, but are you okay with a slow middling success? Great. And at Rethink Impact, we think that definitely has a place in our portfolio. We don't only do moonshots. There are investors out there in the impact space who don't invest unless they see like a trillion dollar TAM and they want to see a billion dollar outcome. And they're fine if they hit, you know, one or two big winners and the rest lose. We just have a very different portfolio construction model where we are happy if the overall portfolio is successful and we have a, you know, successful but not, you know, absolutely crushing it. But venture style returns that come from lots of pretty goods. Right. So the way I think about that is, can you have a plan B? And if you are on that plan B, just having a laser focus at making sure you are building an asset, right, whether it's your team or your customer base or your IP, don't come out of a six months to 12 months to 18 months without something really tangible to show for it. And then for investors as you're going in, I think this has been mentioned a couple of times, but if you're going to embark on something like that where maybe it's a success, maybe it's a middling success, maybe it's just, you know, you're on life support until that product market fit is there, really do that impact risk assessment upfront as part of your diligence process and try to figure out, you know, are there unintended consequences? Are there people in planet trade-offs that may materialize if this investment is successful? And what's the fallout if it fails? And I think really thinking through those different sources of impact risk ahead of time can help be your guidepost as you're going through sort of this life support or plan B or middling success on your way to finding true product market fit and ultimate success for the business. I wanted to return to one of Hope's comments in the introductory session where failure can mean budget cuts and it can mean layoffs. And it may be necessary for a company to do that to avoid closing its doors altogether. And so how do you think about that hope as an impact investor of weighing those situations and making difficult decisions? And how do you have any advice or frameworks that you use to advise your team on what to do with those companies that are burning too much cash and it's getting dangerous? Yeah, so I would say early on in previous funds, I think it was much more difficult for us to embrace making those odd decisions. I think the thought process and mindset was always we're going to do everything we can to save us, you know, hold the jobs right and support the business. But with, you know, going through lessons learned and a couple of different companies that have not worked out so well, what we've realized is as part of that moving fast and really trying to understand the structural issues in the business, sometimes the overhead structure of the business is not ideal for the stage of company where it's at, right? A lot of the capital we put in as a growth investor is we're putting, we're trying to support the infrastructure and overhead as the business scales. And sometimes the revenue may not come quickly enough to support that overhead. So there are cases where now we are okay with making those cuts if we understand and are able to save the majority of jobs and reposition the business to be successful going forward. And it's worked out in a number of scenarios where we've actually had certain companies where just due to changes in the market or the sector, they were burning cash, losing, you know, a lot of capital. We had to reorient the business itself and its overhead structure and we turned it profitable and three, four years later, we had a larger workforce than what we had at the time we had to make those cuts. So, you know, ideally, you know, as we look at the communities we're investing as an impact investor, we're also looking at if we shut down this business or it goes into bankruptcy or foreclosure, which typically was case scenario, right? What is the impact on the community as well? Because it's not only the jobs that we're letting go at the company, it's also the surrounding businesses that are dependent on that company for goods and services. So, you know, if we can figure out a way to save the business, we are much more open these days to making some of those tough decisions early on. I think this is an area where, you know, how Heidi was talking about thinking through some of those unintended consequences early on in the diligence process. I think, you know, that's, this employee issue I think is one that bears looking at early in the process and thinking about, okay, if this business takes X, Y, or Z path out in the future, what might those unintended consequences be? One of the sad stories that, you know, I'd sort of point to in this regard is in this energy access world, I was talking about one of the major players was running a big training university in East Africa for, you know, for domestic folks to sort of learn and get trained up and they built a really amazing brand around this training program. They built a lot of pride in, you know, in sort of being part of this business and people probably left good jobs to sort of take on this Western position. And when this company had to sort of retrench and fire a lot of these people, you know, I just think that it sort of crushed a lot of, you know, hopes and, you know, probably mis-set expectations and families. And I just think the context matters a lot firing a bunch of developers and, you know, around the corner in San Francisco, who gives a, you know, they'll find another job, you know, it's not that big a deal. Like I'm not going to cry because a bunch of developers lost their job, but I think, you know, if we need to have proper context on which, you know, which employees we're losing and what expectations we've set. I wanted to return to another topic that was mentioned earlier around potentially divergent outcomes for impact and financial failure and success. And, you know, it didn't operate in a world where it's possible to have a financial win and an impact failure or vice versa, the impact win, but the finances don't return attractive amount as investors. Can anyone share examples of what those and any lessons learned from those situations? Yeah, I'm happy to take a stab at that. So, you know, part of our strategy and our diligence process is finding those models that are convergent business models where financial returns and impact go hand in hand versus having a cross subsidy model or points where they work against each other. So, you know, a couple firms back, I had invested in, but you don't always get that right. A couple firms back, so this was, I don't know, seven or eight years ago, I invested in a marketplace, an online marketplace that was supporting local food systems. And they wanted to support access to markets for local food providers in multiple markets. So, Bay Area, New York, Southern California, and others, because they wanted to see, can this thrive outside of a place like the San Francisco Bay Area for obvious reasons. And so, they launched this, they had those, they recruited local food producers and artisanal food producers to invest in the infrastructure and resources they need in order to supply at the right levels to serve the marketplace. And they grew really, really fast. For a long time, it was my best performing investment. I think I was looking at like a 20X at some point on paper. And then the whole thing blew up. Luckily, we had a really small investment. And so, what happened was, what was right for the business was to retrench. And so, they focused on their core geography. And overnight, they shut down all the ancillary geographic markets. And so, all of those food producers that had invested in that infrastructure to participate in the marketplace were SOL. So, that's a situation where in a failure, the company survived, did a recap and is now absolutely thriving to the benefit of the one location where they're based. But all of those local food producers are really in an unfortunate position. And so, that was where, several years ago, that lesson of impact risk and like, what can go wrong? And what are the sources of divergence today or tomorrow really hit home for me? And I still think about all of those food producers in these local markets and it's why the stakes are really high with the type of work that we do. I'd like to add one thing to that. So, if you look at our impact evolution, when we started off, we thought financial success was pretty well aligned with job creation. We didn't dive into the types of jobs being created. And as we started seeing exits and these companies doing well, we were seeing the financial success and the outcome from that. But the real impact wasn't taking place as we thought it should be. So, we've actually had to switch our impact focus from just job creation to creation of quality jobs. So, part of that is, as you look at how you're deploying capital, how does that align from a value creation perspective with your impact pieces? How can you impact not only the management team is going to do well? So, but how do you make sure the success is broad based across the entire workforce at the company? And so, just making sure we're spending more time really understanding how we can help drive some of that impact across the entire workforce. That's kind of how our impact pieces has been evolving. I'm so appreciative that all of you are sharing these stories and examples. Honestly, when I invited a couple of your peers to go on stage and do the same, I received a couple of polite declines and the reason was I'm in fundraising mode and I have to be very careful of the message that I'm sending to potential investors. And I respect that. But it also irks me that we can't openly talk about these things with our investors. And so, perhaps a provocative question, but do you think that the asset owners and investors with whom you work really want to hear the failure stories and the lessons learned? Do they delve into that sufficiently in diligence? So, the one thing I would say is those people who said no, they don't want to share their failures because they're in fundraising mode right now have probably never raised more than one fund because you're always in fundraising mode. Like, that's never going to stop. That is a big part of what we do and I'm sure everyone on this stage can... Not me. I don't know. We don't have to raise money. You're too good for raising money. And so, I just think that's ridiculous. I think that, especially because we've all committed to be impact investors here, we need to be focused on trying to do this better. And the only way we're going to do this better is by sharing our failures. And if LPs don't respect that, then they shouldn't be LPs in our fund, quite honestly. So, your second question though of do LPs get at failures and ask the right questions and are they open to it? I would say the best LPs, like the folks who I respect the most in terms of their diligence, their intelligence, understanding things quickly, they just have an incredible knack for getting down to where we've messed up and asking us why and how and what we've learned from it. And they love transparency around your failures and they do not ding you for that. They reward you for that. The thing that they have learned through experiences, managers who obfuscate and try to paint a rosy picture are just... They're going to be a nightmare and they don't want to work with them. And so, full transparency is always the best way to go. Yeah. I'll just echo that. We've observed in our prior funds, we were very frequently asked what lessons we've learned. So, we started to address that. And then for the most recent fund, we went ahead and proactively put together an entire section, our private placement memorandum, on a lessons learned. And we found that that was the section that probably got the most praise or the most positive comments, so we're certainly going to do it again. It's nice to be proactive. And then, yeah, about exchanging lessons and failures. And, you know, I was thinking about that. Oftentimes, that happens sort of informally and on a case-by-case basis in board meetings, as people think about particular situations. But is it a good idea to think about, is there a more structured way to share that knowledge in the impact community? This panel's a good step. But, yeah, it's a good question to be thinking about. I'll just add, I think we've, you know, in our fundraising deck, we include slides on lessons learned. The LPs are going to look at your attribution model. They're going to see the losses anyway. So, you might as well have that conversation. Like, there's no hiding it, right? So, you know, one of the things we've always thought was important for us, not only from optics with the LPs, but even internally for us to just improve was we should have that discussion internally and just see where we went wrong and how do we try and avoid that going forward. So, the lessons learned conversation for us never stops. Yeah, I would agree with that. And I'd say, you know, most LPs understand that the problems we're trying to solve are hard, otherwise it wouldn't be impact. And most of them expect failures and they expect these lessons learned within the portfolio. I would say, you know, the best LPs also really dig into successes. They want to understand, like, why is this not a one-off? What is it about what you're doing that will allow you to repeat this? Because I think what we're all trying to do, particularly within venture capital, which is an industry that's obsessed with pattern matching, is that within the impact space, whether you're investing with an impact lens or a gender lens, you're trying to get people to form new types of patterns from the ground up. So I think really digging into failures, middling success, or great successes to really try to understand what are those data points that should be creating the new patterns for how venture and investment should work are really fruitful and great conversations to have as a team, to have with other investors, and to have with your LPs. So I guess I want to answer the question from the LP perspective. You know, I was joking that we don't need to raise the money, but I do think that, you know, we don't have to raise the money and I think that that gives us a unique sense of accountability and a unique sense of responsibility to be more transparent. You know, I guess from my perspective the, and I think it's actually, you know, I applaud all of you because you do face this tension of needing to raise money, but also wanting to be transparent. All of your firms have obviously done well because you, because all of you sort of represent a real sense of integrity around that. I think that in the, you know, in the family office and foundation world, you know, I think there are two reasons that more people don't speak out and those reasons are ego and cowardice. You know, I think that people care more often about their reputation than real lessons learned getting out into the field. And you know, I think that I have the privilege and blessing of working for somebody who would rather us be unpopular or even intensely disliked if it helps us, you know, if it helps us direct money more effectively into the communities that we serve. So, you know, I think that we're, you know, we're going to try to keep putting pressure on other LPs, on other foundations, on other family offices, you know, to talk more widely about the stuff that's going wrong in their portfolio because we're invested in the same things and we know it's going wrong. So, yeah, I think it's, I think it's really, really critical. I want to open it up for audience questions. If you raise your hand and then stand up and say a question about it, go ahead. Oh, there's a mic. Thank you very much for being brave as an investor. I really appreciate it. Have any of you done some work in understanding your internal team decision-making processes and how those might have contributed to failures or successes? Yes. The answer is yes. Yeah. Now, so I think sort of like starting a business or running a business, it's iterative. You start off with an idea of what you're going to do and then you have some failures, you learn, you get better. And we had a much more siloed decision-making process prior. So, you know, during due diligence it would be like someone was handling the market, someone was handling the financials. And now it's a scrum approach and it's a consensus-based decision approach. And so five people are involved in the due diligence on all parts of it, and five people have to sign off on a deal. And that has really led to some great decisions of passing on deals, like getting the term sheet and then passing on half of them because one person or two people were just like, yeah, and before a founding partner would have just driven the deal through. And so I think that really focusing in on ourselves and who is making decisions and then diffusing that or dispersing that decision-making power out has been a real benefit for us. Other questions here in the front? Hi. Kate Cochran from Upaya Social Ventures. Again, thank you for being brave enough to be up here. I went to a session like this at Andy last year which came with some advice, some very incredibly practical tips for changes that investors had made based on their learnings. And an example is so that that group of people don't fall into groupthink. Mercy Corps now always has a devil's advocate on every IC. Do you have any just little nuggets like that, particular changes in practice that you have implemented based on any of these learnings? I mean, I would just say from our point, make sure everyone feels comfortable speaking up and voicing a concern. I think that having a flat organizational structure in the sense that it's not like an ego or two at the top. Because having people come in fresh, and that can often mean younger members of the team, see things that you don't or see things that your ego has forced you to cover up or rush over. And if someone speaks, this is the other thing. When we invest in a company now, we interview everyone in the business. We know that that's not going to happen during due diligence. The management just won't let us have access to everyone. Or those people will be coached on how to talk to us. And the first thing we do in the first two weeks is get into a company and take everyone out for lunch and get them to give us the dirt and make them feel safe. And again, it's not like because we want them to tattle. These are people who want to go work at an impact company. They want the company to have impact. And so if you set that stage and you say, I want this to be successful, I want your company to have the impact that you want it to have, what are some of the things standing in the way of that happening? Just get incredible information that the CEO himself won't get or herself won't get. And so doing everything you can to make everyone feel like they have a voice and they can speak up allows you again to bubble up those mistakes and little mistakes over time turn into failures. And so bubble up as many of those mistakes as you possibly can and get it all out in the open. I think something everyone should do. I'll add one thing. We've built in is because like you mentioned, in certain cases, deal momentum can make you start overlooking things because you want to get a transaction done. So we've built in as part of our transaction process, just a period where everyone just takes a step back and you have an open conversation just about concerns about what you like, what you don't like, things we might not have discussed in any of the other investment comedy meetings. And it just allows everyone to just think through things that may not even be related exactly to that transaction, but might be industry factors. And so you just kind of take a moment to take a deep breath and see if you can surface things that are concerns that may not come out in other conversations. So I think that's been very, very valuable as well. Just to add a little bit. So one thing we're thinking about a little bit, trying to avoid a dynamic where after there's a natural human dynamic, where after you make an action, then you end up trying to defend the action. And so your point about a devil's advocate, one of the things we've talked about is well before you get to the point of making an investment recommendation. And we write like 30 page investment recommendations and put a lot of effort into it. So well before that we'll take a step back and maybe have a devil's advocate again before you put that stake in the ground because after you put that stake in the ground kind of hard to reverse. And I think there's something really interesting around struck. It was mentioned before, but I think it's actually really important is to explore more about not using attribution, particularly when you're looking at funds. So I come from a eat what you kill training, I've been doing VC for 20 years. When I joined Rethink Impact, we decided to do things differently. So we co-own diligence, we co-own deals. So what that means for us is that we're constantly playing devil's advocate for one another. And it really yields much better decision making. And then once we're in an investment, because no one partner feels like it's their deal that they own it, but that everyone co-owns the whole portfolio, even if you have sort of like first and seconds, it yields much better problem solving. Because you really feel as each partner has a true stake and they're looking for every deal to succeed, not just their deals. And it also really diffuses and eliminates politics, like support my deal, then I'll support your deal. All of that just goes away. And I think it really is something that the LP community needs to embrace because we've been in these meetings and they'll kind of pull you aside and be like, yeah, but what deals are really your deals or what deals are really her deals? And so it's really moving beyond that. And we have found it was hard for me because I had spent most of my career doing it one way and I'm spent now three years doing another way. And I'm just I'm a huge fan of non-attribution. So just having co-owning deals and co-owning problems and successes as they arise. I want to second that and just say if there are any LP's in the audience, do that. We as a firm do not do attribution. And we've had people come at us and try to again like try to dig in and like secretly figure out attribution and we put up a wall and we're like, no, every deal is a team deal. And I can tell you, I personally bring in a lot of the new deals and because there's no attribution because I have no like personal political or career steak and getting that deal done and having it be successful. I have killed deals that I brought in. And that makes absolutely no sense, except it's the thing that you should do. It's the right decision to make. And a big part of that is we will not tell people attribution. We won't give attribution. I think one one addition is we don't we incentivize we don't incentivize based on financial performance. I guess it's from an LP perspective. So because we're so impact focused, we don't want our employee decision making around a given deal to be influenced by what they might make on a deal. We want them focused on, hey, we exist to serve this mission. We exist to put money into the right places. So we pay people perfectly fine livings, but they don't have financial stakes and deals. They don't have bonuses. And I think that actually has people have people have rejected. People have sort of not wanted to come to work for us for those reasons. But I think it actually has built a culture of decision making that really is grounded in impact first. I think we have time for one more question right here. Sorry, there are a lot of questions. Hopefully you can have a chance to discuss later at SoCAP. Thank you for for discussing this. Let me approach it from the side of an entrepreneur where I am and I'm trying to do the best for my folks, my community and I'm trying to fail if I fail, I fail forward. By the time I seek VC, I come from East Africa. I'm learning a micro pension fund. We're trying to encourage the informal sector to save for retirement. In my country, they have never had a fund that is targeting them. It's high risk. By the time I seek VC, I probably have maxed out my resources. But it's difficult finding somebody to understand that this is my chances of success are limited. But if I succeed, it's an entire new ballgame. You built a platform. And so trying to find what I have struggled with actually is I find a lot of people telling me you're doing a nice stuff. But when they bring in, they bring in debt and they continue piling the debt on my assets. And that is kind of a little bit uncomfortable. I'm already maxed out. So anyway, I hope I should raise it up and see what's your comment on this. Thank you. There's a lot of different points on that question. But one of them is that I heard at least was around this concept of it may be risky, but the impact opportunity is really large. And how do you find the right investors to support that vision? Questions about who might be better suited for how you find groups that are willing to take the risk? I guess my feeling is that trying to convince investors who don't have context on an opportunity, that it's a great opportunity, is really going to be a waste of time. We've seen that with companies we lend to trying to talk to more Western investors about developing market opportunities. And while there's interest, I don't think it's, while there's superficial interest, I don't think that many of them get the context. And so I think that while it's painfully hard because we are an investor in East Africa as well, and I think there's a limited set of people who are who are putting venture money into these markets, I think really targeted pitches to the people who you see are investing in the market, in financial services. I really think that's a better use of time than sort of a broader approach. Otherwise it's sort of like square peg round hole or whatever that saying is. Please join me in thanking our panelists for sharing today. Thank you all. And thank you guys for joining the conversation.