Do you invest in anything that makes the world better?
Individuals, governments, corporations, families, or communities can’t solve the world’s biggest problems. Can venture capital?
When you look at some of the world’s biggest problems, do you believe the problems are solvable? Think about big problems that the world faces. Climate change, inequality, mental health, political instability, education challenges, and healthcare quality/access are big challenges. Do you believe individuals, governments, corporations, families, and communities are working to solve these problems? I often don’t. I think we tend to look for one group (e.g., the government) to fix the problem or we look for one group to blame for the problem (e.g., corporations are the cause of climate change). Never mind the idea that perhaps multiple entities bear some responsibility for the cause of the problem. Also, forget the idea that any of these groups might work together.
What about you? Is there something you can do to help? One area that is often overlooked is your investment portfolio. Think about your investments. Do you know what you own? The answer may be some mutual funds and ETFs. Or maybe some individual stocks, crypto holdings, real estate, and perhaps some small business/startup investments. As you look inside that mutual fund or ETF, what kinds of companies are you profiting from? It might surprise you.
We will discuss the importance of investing as ownership in another blog post, but the key question is do you own ANY investments that are making the world better? I’m not talking about giving money to charity in hopes that they may solve problems. I’m thinking more about a business that can use your investment capital to solve real problems that our society faces. A business that solves problems profitably and reliably.
Your answer to the question above is probably “No” or “I don’t know”. Now, if you answered “Yes” because you own an Environmental Social Governance oriented (ESG) fund, you may want to re-think that. Beyond ESG funds, if your answer is “Yes”, then that’s fantastic (and quite unusual) because you are one of the few people that is trying to solve problems through investment.
I believe that if you are investing to solve a REALLY big problem (with an elegant solution that people will use), then there is a tremendous payoff for doing so. I agree with Naval Ravikant on this.
Related to this conversation, perhaps you have heard of the power law in early-stage investing? The idea is that returns from your investments aren’t normally distributed. Instead, the home runs of the investments that you make more than offset the failures (i.e, an investment in a future unicorn can more than make up for the failed startups in a portfolio). It remains to be seen whether the power law reliably works or will continue to work in the VC space, particularly under different monetary policy regimes. Nevertheless, it makes intuitive sense that if you invest early in a company with exponential growth then the returns from that investment can be enough to offset losses in other investments. Of course, you have to ensure that you have exposure to the winners to do this.
I think the power law is also an interesting concept in terms of impact. If a startup offers the potential to grow into a unicorn from solving a problem, then what about the impact that this startup can have on the world? There’s no denying the (positive or negative) impact that unicorns like Facebook, Uber, and Airbnb have had on the world. What if investors looked to fund companies that are solving big problems with big potential payoffs? Again, our belief is that if the company can provide the right solution to a big problem, then the financial payoff can be huge, but the societal impact can be just as significant.
That’s our approach at the Flourish Fund, where we invest in startups that are adding to human flourishing and/or strengthening communities. We believe that companies with a stated mission to solve big problems are underfunded today. We would like to have 10,000 investors working together to use their capital to back startups that are on a mission to make the world better. If this vision resonates with you, then look at your portfolio. Do you own any investments that are making the world better? If not, consider dedicating a small portion of your portfolio to those companies that are trying to solve our world’s problems.
For more information on the Flourish Fund, go to FlourishFund.co or our syndicate page on AngelList at https://angel.co/s/flourishfund/dwYcy.
