Markets convene in conversations, not in taxonomies or on trading floors. That was true when investors in ships going to or coming from the Spice Islands convened in Amsterdam coffee shops to figure out how to share risk and return in the exploding opportunity ahead of them. Those conversations, a reaction to transaction-intensive, one-off deals, created the Dutch Bourse. Similarly, a couple of hundred years later, merchants in the new trading empire of Manhattan gathered under the Buttonwood Tree on Wall Street to devise on the fly a shorthand means of understanding the value held by the man under the other limb, abstracting the relevant elements, assigning a future value to the current cost, and making a deal.
When a market is new, the value is discovered in conversation because people use different words for the same thing. Thus conversation is where market liquidity emerges. The Social Capital Market, sometimes called the blended value market, or half a dozen other names, has additional complexity as it comes into its own. That additional complexity is similar to the multifaceted nature of the market for clean technology and energy. In both cases, it’s not just about the money. It’s also about having a positive impact on the planet and its people.
In the early stages of the clean tech market, true believers dug themselves into foxholes and defended their definitions, holding their positions with more than rational fervor because they were linked to their vision of what the world ought to become. They were evangelists with a rigid theory of change: People ought to pay for solar panels even though they didn’t yet make financial sense, simply because it was the right thing to do.
That started to change when new money came into the room. Definitions are transformed when new money arrives; gold melts meanings that seemed to be set in stone, and they become fluid and eventually fungible. Meanings turn into negotiable things that accompany the buying and selling of companies in markets where people can figure out what the value is and what an increase in value looks like.
The hedge fund managers, the venture capitalists sniffing for potential opportunities, and the family office managers couldn’t understand the arcane insider jargon and linguistic disputes of the early clean tech conferences’ true believers. The value remained opaque to them, and the true believers were oblivious to the need for change. Then in stepped Nick Parker, who in 2001 built the Clean Tech Venture Forum. He made the emerging clean tech market make sense to the new money with a series of conferences and research initiatives that validated the category to the market.
The definitions changed and got simpler because real investors, before they take action, have to settle on definitions that mean the same thing to both parties so they can agree about value. This process was not without its cost. Markets are about fluidity, setting up structures in which value can be clearly seen and flow from one party to the other. The true believers who remained rigid were quickly sent to the sidelines because they could not function in this type of reality.
That same rationalization and clarity is happening in the Social Capital Market. Previously two things have plagued this blended value market. The first is opacity: When you tell people you are not just looking at risk and return in an investment, but also valuing the third dimension of impact, it’s hard for them to understand. There is a cultural validation of the position that single-mindedness—focusing only on the financial return—is the right approach to investing. Then people donate and create an impact out of the excess. Saying you can actually consider the social value you create when you contemplate an investment challenges the dominant way of thinking we have inherited from the robber barons of 100 years ago.
This new mode of thinking is incomprehensible to many investors, though the recent meltdown on Wall Street is opening many people’s eyes to the limitations of greed and the fact that you can’t escape the impact of your investments.
The second problem is a paucity of information; many people don’t see enough examples to buy into the reality of the new Social Capital Market. A convening in San Francisco in mid-October—Socap08—is solving this second problem. Socap08 will bring together dozens of social venture funds raising money from people who’ve accepted the investment paradigm that you can have both financial return and proactive social impact.
The Social Capital Market is emerging just as the deficiencies of the previous, single-minded model of investing have become obvious. Given the blood on the floor on Wall Street, people are newly aware of the downside of a purely greed-focused approach. Perhaps Socap08 can help people open their eyes and see the need to take into account the social impact of investing as well.
What I do know is that more than 300 people will be attending the conference, and more funds doing good while doing well will be there than have ever been gathered in one place before. The event has the potential, I think, to do more to validate this blended value approach to investing than anything that’s happened before it.
I can’t speak for the long-term impact of Socap08. I can say that the crowd assembled will, in the aggregate, show that this new asset class that draws on elements of both giving and investing, of both philanthropy and the power of the market, is real, big, and growing.
For more information visit http://www.socialcapitalmarkets.net
Kevin Jones is a cofounding principal of Good Capital, an investment firm that accelerates the flow of capital to enterprises that use market forces to create large-scale social change. Jones is a successful serial entrepreneur, angel investor, and cofounder of Social Capital Markets, the groundbreaking conference on social venture investing.