A framework is helpful for more effective and efficient decision-making. A framework for deciding in which opportunities to invest is particularly useful in situations where you want to be able to communicate the reasons behind your decision to others. If there is no reason or purpose to communicate your decision-making process, your framework can be much simpler and certainly less “rational” than what I’m about to describe.
The following is a framework developed to make impact investing decisions, called.
Taking care of the village is a way of thinking and being that ensures you, your family, neighbours, community, planet, and future generations have access to the essential resources you and they need to survive, thrive, and be happy. This approach has been missing or lacking from investing activities for decades. The prevailing concept of maximizing shareholder value took flight almost 50 years ago, made popular by economist Milton Friedman. One could argue it was the beginning of the decline in social responsibility of businesses and we’ve been fighting it ever since. Integrated Investing was developed to help investors optimize taking care of the village.
Integrated Investing isn’t just an evaluation methodology. It provides the foundations from which we can make decisions that help create a better world and future for all.
1. Access to Essential Resources
Integrated Investing starts with access to essential resources and helps to answer the questions, “What startups do we still need?” and “What essential resource do you feel is important that people are able to access?”
Essential resources fall into six categories:
- Sustenance, such as food, water, energy, and shelter
- Expression, such as art, culture, language, music, and writing
- Connection, such as telecommunications, transportation, or places (physical places to meet and connect)
- Managing change, such as financial services, insurance, and travel
- Making decisions, such as education and information
- Means of exchange, focusing on employment, barter or other alternative currencies
Thinking with a frame of essential resources helps you focus on ventures that aim to provide access to the essential resource you identified to beneficiaries. Included in this would be identifying the people or communities who would benefit from the access to essential resources.
Example: as technology automates more and more low-barrier jobs, what other forms of work or livelihood will give people access to a means of exchange?
2. What’s the Why
What is your motivation for investing? Is it to express your leadership or to support innovation? Is it to leave a legacy or to express your status? Understanding your motivation shapes your decisions.
Example: motivation of investing is leadership. I’m in a position to support ventures and the positive impact they have that I feel are important and lead others to do the same.
3. Impact and Taking Care of the Village
In the context of impact investing, this part of the Integrated Investing framework was designed to ensure that businesses have some kind of impact component – that is, are they doing business in a way that takes care of the village. Taking care of the village is a concept of impact that conveys the idea of ensuring that we, our families, neighbours, community, planet, and future generations have access to the essential resources we need to survive, thrive, and be happy.
Example: taking care of the village includes ensuring that people are able to earn a living and have a livelihood to survive, thrive, and be happy.
Identify your values and those of the venture or investment opportunity and consider the alignment of those values when choosing.
Example: three things I value, amongst others, are abundance, curiosity, and fairness. I would be more inclined to invest in a business that includes some or all of these values in their own values.
5. Integrate analysis, emotion, body, and intuition into your decision-making
Antonio Damasio’s research demonstrates that emotions drive decisions. We can do analysis and develop a rational framework that is defensible with data and analysis, to help narrow down the field of businesses to invest in, but the final driver is emotional.
If it is a future outcome you want the venture to achieve, then you need to apply your intuition. You can attempt to use historic data and predict future outcomes, but there is no certainty that the future will follow the patterns of the past. You can’t analyze what hasn’t happened yet and to quote Jason Voss, CFA (and author of The Intuitive Investor), there is no such thing as a future fact.
Example: when considering a business to invest in, I would ask myself:
- whether it makes sense to invest in them (do my analysis on their track record and operations),
- whether I want to (do I feel good about investing in them),
- whether I get any physical signals about investing in them (such as feeling physically energized versus sluggish or other ways doubt or skepticism might manifest itself physically, it’s different for different people), and
- whether I know to invest in them (my intuition tells me it’s a good decision).
6. Adopt the right mindsets
Mindsets such as abundance, curiosity, relationship, exchange, future potential, and resources will help you in your decision-making about investing and future outcomes.
7. Apply the Integrated Investing Toolkit
The Integrated Investing Toolkit is an efficient, robust process for evaluating and performing due diligence on impact investment opportunities. It is a combination of traditional analytical tools, venture evaluation tools, and impact identification and evaluation tools. You can download your free 24-page Integrated Investing Toolkit, by signing up to the Pique Ventures newsletter.
With these concepts in mind, you can then design what it is you are looking for and what impact is meaningful and best aligns with you. It formalizes your investing criteria and becomes a guide for your decision-making or a way for you to communicate and articulate to others why you choose the ventures or businesses that you do.
The example I gave is a real example articulating what guided Pique Fund to become an investor in MuseFind, a technology-powered company that helps brands find influencers. In doing so, MuseFind has created compelling new forms of economic opportunity for the influencers in their supply chain.
A version of this post, as a decision-making framework for philanthropy, was originally published on Quora and was recognized as a Knowledge Prize Winner.
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For more impact investing resources and tools, check out Integrated Investing: Impact Investing with Head, Heart, Body, and Soul, available at all major online book retailers.
Download your free 24-page Integrated Investing Toolkit, by signing up to the Pique Ventures newsletter.
Photo credit: alejandramaria.com