Scoping and Scaling Social Ventures Panel

Good afternoon. I'm Jens Mølbeck. Welcome to the last panel of the day. It's nice to see everyone still here. The goal of the session is to talk about both scaling and scoping social ventures, especially those that are focused on the low-income Americans that we're focused on in the conference. Broadly defined, we're going to look at for-profit organizations and not-for-profit organizations, and we'll even toss in a government agency or two in terms of how these ventures actually scale. We're going to talk about topics about how do they scale, what are the gaps and difficulties in scaling, do we want more of them, do we want them to replicate individually, or assuming you have individuals grow and scale individually, would we rather have them replicate? There's 5 of us up here. We're each going to take 4 or 5 minutes and do a quick intro. In terms of the work that we do. Then we're gonna have about a 15-minute conversation and open up for Q&A, and we're gonna finish it up and call it a day. Ready to get going? All right, with that, I'm gonna introduce Hannah.

So first, just a big thanks to Hunt and everyone else for inviting me to come. This is without a doubt the most I have ever learned in a day of being at a conference relative to my last however many years of conference participation. You all are wonderful. So I hope that I am somewhat Somewhat useful in this context. So I'm Hannah Calhoun. I work at the Robin Hood Foundation in New York. There I run a program called Blue Ridge Labs. You have heard a fair bit today about venture studio models. The lab is sort of one part venture studio, one part consumer insights arm, and we exist to sort of go after that opportunity that Susan was talking about, right? There's this belief that we now have this ability to meet low-income New Yorkers where they are with highly personalized, more user-friendly interventions. And to the point that Roy had made, you know, there are dozens of people trying to help you share pictures with your mom. There are hundreds of people trying to optimize your calendar. There are very few people trying to think about how we help you access government benefits or find housing if you're evicted or frankly find ways to not get evicted in the first place, right? And so my job is to build pipeline for many of the other folks in the room. And so, So we, by and large, write— we write checks to very, very, very early-stage ventures. We actually write checks to people before they've come up with an idea for an early-stage venture. We're usually the first check that the organization has, though not always. And Jens has asked us to answer two questions as part of our intro. The first is to talk about a success. Talking about a success is like having to pick your favorite child. I have two children and 20 portfolio companies, so in some ways it's harder., and one of them, Jimmy from Propel, is in the room and so can tattle on me to the rest of the portfolio, which is not great. But so I think given— I think we're going to talk a lot about for-profit models with the rest of the folks on the panel, that I'd talk about a nonprofit, which we haven't covered as much today, which is an organization called UpSolve that we started working with a couple of years ago when they were first getting started. And what they do is they help low-income families file for bankruptcy when they're facing crippling debt situations. They've had a really big week, which is why they're top of mind, because as of this week, they have relieved $100 million in debt for families across the country, and they are on track by the end of this year to be entirely financially sustainable based on earned revenue, and so they'll only be going out to raise philanthropic dollars to fund their growth, which is really exciting on lots of levels. That's a good example of a success from our perspective. The second question he asked was to sort of talk about a takeaway with respect to what we've seen work. Across multiple ventures. And we've talked a lot about sort of business plus academia, and I want to bring a third group into that conversation, which is community. A big piece of what we think leads to successful ventures is successful products, and successful products are products that people want and are going to use. And we think that the people who are closest to the problems are often closest to the solutions, and they know what the solutions need to look like. But if you look at the tech industry and the venture industry and the philanthropic industry, right, we aren't those people by and large, right? And so in all the same ways that it's easier to scratch your own itch, it's hard to build products and services for communities you don't spend any time with. And so we do a lot of work to think about how do we bring those communities into the product development process, how do we give them a voice and power in choosing which ideas move forward and who we invest in. And how do we think about bringing a different set of people to the table as founders, right? We have a childcare startup where one of the founders is a single mom. We have a couple of legal tech startups where the founders are lawyers. We have a startup that's training restaurant workers in the English language to help them advance in their careers. And the woman who started it used to run restaurant operations, right? Like those people should be entrepreneurs, they should be founders. And that's not typically what the profile looks like. So super excited to talk about those things and a whole bunch more with all of these good folks. And I will pass it to Mark.

Great, thank you. I'm gonna use two slides to orient the conversation. I run a small venture studio inside of Ideas42, a behavioral science research and consulting operation. You saw Josh earlier today. One of the things I wanna think about is, one of the wonderful things about a conference like this is it brings people across different disciplines. And one of the things about disciplines is that we're also disciplined.. And I'm gonna share a little bit how we think, what our discipline is about, how we scope ventures, and then how we scale them. And I'm gonna give you our tools. These aren't the tools, we're not solving all of the problems, but how we think about where we can use our comparative advantage to solve a subset of the incredibly large set of problems that we face. I'm gonna skip this slide and go here. When we scope opportunities, for ventures. We look for opportunities that have 3 characteristics. We look for opportunities where there is an existing— what we refer to as an intention-action gap, where there is something that people intend to do but fail to follow through on. When David Laibson spoke earlier, he talked a little bit about persuading people to eat their broccoli. We like to work with people who already want to eat broccoli but fail to follow through on that desire to do it. This solves a lot of problems about whether or not you are being paternalistic and so on. It is a discipline. I'm not saying the other thing is wrong, but that's a discipline choice we make. Second, we look for places where those intention-action gaps can be closed through the delivery of data-powered interventions through software. That's not because software is the answer to everything, and in fact, I think for the significant vast swaths of the problems we're facing, Software is in fact not only is not the right solution, but is not particularly useful. But I happen to have expertise in helping build and scale software products, so that's where I have a comparative advantage. So we look for where we can use data in software. And then third, and this is where it gets particularly complicated, is we need a buyer for our product. Whether we're a nonprofit or a for-profit, someone has to purchase what you're doing. And what we look for is opportunities where there is what I refer to as an enterprise beneficiary. Some entity that benefits from the behavior change. One of the interesting characteristics of intention-action gaps is people often think they are doing the things they want to do. So we see at Opower, which I was fortunate to work with Alex Lasky, who's over there, we worked with utility companies helping people reduce their energy use. And one of the things that was amazing about the treatment is that when we surveyed the people in our treatment and our control groups, They would both report the same behaviors about their energy use. So we weren't making people want to turn their lights off more frequently or program their thermostat. We were simply helping people remember to do the things they already thought they were doing. So to deliver an intervention like that, you need to have someone who's willing to pay. In the case of Opower, the regulatory structure motivated utility companies to purchase our product. So that's the discipline of always scope an opportunity. But that's only half the battle because now you have to scale it. And so how do we think about scaling? Software, and enterprise software in particular, has two key barriers to scale. We already have a problem. We have someone who wants it to be solved. And we believe we have a software invention. But the thing about software, unlike professional services, is it requires investment in the technology to scale. Not R&D as in discovering the intervention, but building the infrastructure to support this. And this is something investors in Silicon Valley understand very well, and they pour millions, tens of millions of dollars in core R&D building technology. But that's not obviously something that philanthropists are willing to do, and also something not obvious investors are willing to do for impact or, or impact investing. For opportunities that may have a smaller overall market size. And the second side, which is even harder for philanthropists, but something again Silicon Valley folks at OWL, I don't know if Tory's here, understand is sales and marketing. When he talks about the procurement officials at the school districts, yes, enterprise software is driven to scale through sales, and this is something I learned from my friend Alex more than anything else. That's the engine that drives it all. Investing in a sales and marketing engine and a core R&D operation that can scale. These are the challenges because what do you as academics want to do? You want to advance knowledge, find and discover new things, which is awesome. That's how we help when we scope, but to scale these things, we need to find the fuel to power our scale, which typically comes in those two things, which we're going to talk more about. With that, on to Todd to talk about how we're scaling his venture.

All right. I'm going to maybe blank the slide. Sorry, Mark.

Yeah, get rid of it.

Yeah. Hi, everybody. My name is Todd Rogers. I'm a professor at Harvard at the Kennedy School of Government. I'm a behavioral scientist, which means— I mean, I don't really have a discipline. I'm somewhere between economics psychology, education, political science, and marketing. And I'm gonna tell a story that ends in a company that Mark helped us scale up and is the funnest thing to date that I've ever been involved in, which is modeled after Opower, which for those of you who don't know, Opower reduces people's energy use by sending bills, or mailings that compare your energy use to your neighbors. Comes monthly or quarterly, and Hunt and Alex Lasky back there is the co-founder of it, and Hunt is the sort of leading scholar studying it, and I tagged along on some of the work with Hunt on that, and Mark was one of the leaders there. And so it turns out it's super effective at reducing energy use, easily the most effective way to reduce energy use other than price or technology change. And when I shifted back to academia, I used to do stuff in— ran a think tank in DC. First thing I did was survey parents and ask them all sorts of questions about their beliefs about their kid. Two very widespread false beliefs are that they underestimate their own kids' absences by a factor of 2. So if my kid has missed 20 days, I think my kid has missed 10. Universally. I work in something like 100 districts, and we do these surveys everywhere. And it's a consistent false belief. They underestimate their own kids' absences by a factor of 2, and kids— parents of kids who miss more school than their classmates, majority of them think they miss less than their classmates or the same. So they just don't realize that they are out of the norm. So naturally, the first project I did about 8 years ago, totally uninspired, I just copied OPOWER and did a randomized experiment in Philadelphia with 30,000 families and sent a bunch of these things saying, "Hey, your kid has missed this many days, and it's more more than their classmates. Throughout the year, we send repeated rounds. 30,000 families found that it reduced this chronic absenteeism by like 11%. We then replicated it in Chicago public schools with 20,000 families. We then replicated it throughout San Mateo and 10 other districts in California. I have a bunch of papers on it. And it reduces absenteeism. It's great. It replicates. It's now been replicated 15 times with 300,000 families. And it's getting more effective as we learn more. And these districts asked me if I would help them implement it. And I asked Harvard, and Harvard said that that would be not research anymore, and so I can't do it out of my lab. And so I tried to start a nonprofit, and it puttered along where I spent half a day a week helping this nonprofit with, like, alums from my lab working with districts. And then eventually, we decided we had to raise money. And we decided to be a for-profit for a variety of interesting reasons, and asked Mark to help lead the company where the goal was to stabilize the company, find a permanent CEO, and raise an initial seed round. This is about 2 years ago. And he found an amazing woman who used to work here at Stanford and work with a bunch of people who are in the audience, Emily Bayler, who's the CEO of the company. And it sort of rapidly grew. It now, this year, delivered 1 million of these interventions. Next year should triple again for the 4th year. It could this year reduce absenteeism by over 1 million days from the most at-risk kids around the country. And it's about 100 times more cost effective than the next best intervention that we know of, which is truancy officers and social workers. And what's cool from an A/B testing is that I oversee optimizations, and so there's a lot of heterogeneous treatment effect modeling where we sort of keep getting more effective. It's about 50% more effective now than it was a year ago, and you don't see that often with interventions like this. But what I have learned, and it's easily the most fun thing because it's sort of like, I thought writing the paper, it would lead to scaling it, and if I had a message for academics, the sort of surprising thing, which all of my friends who work in VC say is obvious is that the reason companies succeed is not necessarily the idea, but about execution and sales. It's entirely execution and sales. And so it's just entirely about— I keep wanting to improve the product, and nobody cares about whether the product works more than the original. In fact, being published once with a poorly done study would have been plenty. But it's just, like, seeing, working with, they now have like 25 or so employees and like a real sales team and like learning so much from this process. Academics, like it turns out one-year contracts are not ideal. Multi-year contracts make it easier for the sales cycle. But all sorts of obvious stuff. So that one is that when you wanna scale things, writing a paper sometimes doesn't do it, especially if the way to scale is not a policy. The way to scale it is an enterprise. It actually requires this infrastructure, and we puttered along until we had professional help. The second thing, which I actually think is like, this has led and guided my current research, which is nobody can tell the difference between good research and bad research. The standards of evidence, and I think Tory and Peter were talking about this, it's astonishing. I did an experiment with 200 principals where I asked half of them, imagine an absence reduction intervention where a single principal at another district says, quote, "It works great. How interested would you be in learning more?" The other condition I said, imagine an absence reduction intervention where 3 large-scale randomized experiments showed in similar districts to yours that it works great. They slightly preferred the principal. Like, what's the point? We're obsessed with causality and efficacy, but they can't— there's all sorts of potential alternative interpretations. It's a program of work that I'm doing, but I care about that it works, and I hold the company to the standard, but it does not appear that the industry cares or practitioners care, and so, like, share, like helping in education, it apparently, it's only us holding ourselves to some standard. That's too broad a statement, but sometimes it feels like we're competing with people who have like pre-post from one school and claim that it reduces something by 50%, and we have now 15 randomized experiments in districts around the country across multiple years, and people think they're roughly similar levels of proof.

My name is Kanyi Maqubela. I run a firm called Kindred Ventures. It's an early-stage venture capital firm here in San Francisco. It's tough to go last in this group. Honored to be a part of it. I want to talk about two different things that seem to be going well and make reflections on both of them. The first is a company that was started in 2011, which was actually made reference to earlier today. I believe it might have been by your panel, Arjun, but It is an integrated health system, and the idea with the integrated health system is if there aren't principal-agent problems and if stakeholders can be aligned throughout the value chain from the patient to the provider to the payer, then maybe you can create efficiencies and deliver better cost. They do it over a digitally mediated distribution platform and are a really, really effective service that's gotten to scale. It was started by a, a Harvard physician and who had a sort of technical mind and they raised, have raised oodles of venture capital to date. In the 1970s, the Mormon Church did the exact same thing in Utah. 21 out of the 60 hospitals in Utah are the Intermountain System. The first one's called Ayora, the second one's called Intermountain. Intermountain I think was a 44% average cost reduction per patient and delivering the same quality of care to any competitor anywhere in the country, except for the one that was started by an oil tycoon and construction industrialist in the 1940s, Henry Kaiser, Kaiser Permanente, same thing. That one's a for-profit/nonprofit hybrid. Iora is a for-profit with venture capital, and Intermountain is a nonprofit that came from a church. So as it relates to where the capital comes from and how the capital comes in, who should be founding things and how the problems can be solved. I think we would all do with a dose of a little bit more interdisciplinary juju. So it makes me really happy that we're all here because it'll allow us all to share ideas and actually be willing to be open-minded about that. 'Cause it turns out you can actually solve the same problems in a variety of ways. And venture capital may not be as constrained as we are led to believe that it is. And nonprofit may not be as constrained as we are led to believe that it is., and just look at those 3 examples as a case study of it. The second thing I want to mention is that venture capital is an extreme version of the 80/20 rule. Maybe even the 90/10 rule is a better way to put it. And the 80/20 rule, as I like to describe it, is 20% of the participants create 80% of the output. And the 90/10 rule is the same thing, but 10 and 90. And to maybe explain this in a little bit more detail, venture capital as an asset class over the last 30 years is about as good as throwing a bunch of darts at the stock market, really. It's about as good as the Vanguard Index. As an asset class, it is not extraordinary, and it is not embarrassing. It's about the same. An optimist might read that and think, gosh, you're funding people on PowerPoints and you're plowing all this crazy money into stuff that should never work, and it's about as stable as an asset class as, gosh, a Fortune 500 company with audit committees and a whole bunch of structure and frankly a whole bunch of scale. And the pessimist might think, gosh, venture capital sucks. And I think they're both right.. And so that's what I hope we can talk about here too.

Thanks.

I run a nonprofit in Seattle. And we think a lot about scoping and scaling social ventures. But we do it from a public good nonprofit vantage point. And a lot of what we think about is if you want to scale these organizations and make them big, We need to think about aligning resources from companies, governments, and nonprofits. So this is the equation we think about. For any social venture we look at, we ask ourselves the questions: What problem are they trying to solve? And if you step back and you think all the problems we're talking about, we think that it's really important that every sector has a— has a role to play. We're highly unlikely to solve any of the verticals we've been talking about unless we can really capture the best assets from companies, the best assets in the nonprofit sector, and the best assets from governments. Affordable housing, homelessness, just go down the list, all of them are tri-sector problems. So when we think about this equation, we think about business models, and business models for— that really exist in any sector, and we specifically think about how can we help create business models where each sector both contributes to the business model and benefits from the business model. So that's how we define a win-win model. We're not as interested in terms of what the impact area is, what is really, really important. That's what a lot of you were talking about and what we're talking about here. We're really interested in the how. And we think we actually need to change how nonprofits scale, how companies and early-stage companies scale, and importantly, how governments tackle these problems with this lens. So as a nonprofit, we of course have a theory of change, which I've— I used to spend all my time in the private sector, but I've learned it's It's important to have a theory of change. So the first thing we do is we say if we want to generate impact, we got to change how organizations think about their models and importantly think about them this way of breaking the silos between the sectors and harnessing the best assets. The second thing we do is we try to reach the innovators or the champions inside these organizations. It might be the CEO of a startup foundation. It might be a biz dev strategist at a Fortune 100 company.. It might be the chief policy officer in a mayor's office. It might be the head of a community foundation. How do we reach the people who actually want to make change happen and want to drive change in their organizations? And then we give them a new mindset about how to structure their organizations. It's this tri-sector mindset. And we build a pragmatic tool bench so they can actually use data to inform how they structure their business models. So that's the core of what we've been doing. Two interesting things have happened in the journey along the way. Way. One is that we've been building these datasets so that innovators have these tools available so they can get smart about how to do these things. It turns out we're also building a community engagement platform, which in some ways might be even more powerful. It's a way to actually get a bunch of data into the system so that innovators can see what to do with it. The other thing that's happened for us that's been really interesting is both the UN and the World Bank have gotten very interested in this work, because a lot of our theory is how can we repurpose the existing resources that exist in all three sectors. So I know there's a lot of economists in the room, and if you step back and think about the balance sheet of the world, there's something like $400 to $500 trillion of assets between all the companies in the world, all the nonprofits, all the governments, excluding the value of derivatives. So there's a ton of money in the world that can be applied to these problems, but can we actually use the existing resource base to be put together in these different sort of models to actually drive greater impact. So this is what it looks like. We see siloed resources across the sector. You can think about any of the whats that you're working on. Every sector has resources that are relevant. How can you pick and choose the resources you need? How can you unlock them by harnessing the self-interest of each sector to show up so that gets released and create a model that we call a win-win model, which gives you higher financial returns and and greater impact. We're building this toolkit out. The toolkit has a variety of tools in it to answer different questions. One of them is this thing we call the Win-Win Wiki, which is like a huge directory, kind of like a network piping of who's doing what. It answers questions like who's on your team. It turns out no matter what impact area you're working on, you have a very broad team in all three sectors. You need to be able to activate them. Tools like Rants and Raves, which is a community listening tool— I want to talk to you about that, Hannah, actually— and Expert Spotlighting, our knowledge bases. What do people need? Where's the demand? What needs to be worked on? These are questions that innovators have. And then lastly, a tool we're building out— we're building with universities and community foundations called Impact Journeys, where to focus first and where there are opportunities. Here in the Bay Area, we've been funded by Silicon Valley Community Foundation, We built out an extensive database for both San Mateo and Santa Clara counties. So we have about 20,000 organizations across all three sectors mapped out to impact. We can know what their resources are, and importantly, we're categorizing their datasets because we think that the datasets and the different sectors can be incredibly powerful for unlocking innovation. And then we scale it up, right? We actually like to work with universities, foundations, and we are trying to create these platforms as public good so that innovators in any sector can use this sort of approach to scale faster. So that's the introduction to Win-Win. You've heard a little bit about some of the successes and how things work with scaling social ventures. I want to turn to the other side, which are what are some of the challenges and the opportunities. What do you guys see as the gaps in this sector? What are the challenges that innovators are facing when they're trying to scale and scope their ventures? And I'll open it up to anybody.

Want to start?

I'll take a first crack. In prior lives, I've been an investor across a variety of sectors and a number of companies that have very ambitious and exciting social impact criteria at the very beginning. And I'll use 3 examples just to talk about the unique challenges of scaling it. So one of them is Kickstarter, and One of them is Etsy. And the third is a company I'll call Buffer. So Kickstarter was started as an arts platform, a marketplace to create financing methods for creative projects. And we were fortunate to be in the first round of investment, maybe the first investor in the company. And the company has gone on to have originated more in any given year than the National Endowment of the Arts of pure, just unadulterated cash for creative projects. Absolutely fascinating, fabulous experiment. They were one of the early companies to become a public benefit corporation, which is the Delaware charter designation ensuring that you can actually, at the corporate charter level, introduce a double bottom line for your shareholders. And they created massive scale. One of the things that they also did was take venture capital, myself being one of them. And the awkward thing about venture capital for them was they had no intention of being acquired by anybody. And they had every intention, in fact, of continuing to do what they did in the way that they were doing it forever, quite literally forever. And they were hoping to structure it in such a way that they could. And 2-ish rounds into their venture capital journey, they realized that the venture capitalists investors didn't in fact see it that way. Because venture capital, when the cash goes in, it has to come out, and it has to come out ideally at a rate of return, and if it doesn't, then it's considered a failure. Kickstarter is a very strange example of a company where 4 or 5 years into it, the investors in it had written it down to zero, and it was a massive success. So is that a success or a failure? Is that a replicable model? Is that something we should be proud of? Is that something we should be excited about? I don't know. I genuinely don't know. The second case I'll make is Etsy. We were investors in a company which Etsy acquired, and so we became early shareholders of Etsy before they went public. And they also went into the route of becoming a public benefit corporation, so introducing in their corporate charter via Delaware a legal designation protecting a double bottom line for the stake of shareholders. And there was a point in their growth as a public company where it was not clear to the market why they weren't growing like eBay. And they were like, "No, because we're not eBay. We're trying to support local makers who are trying to protect their artisanal scale, and we're trying to be a scaled platform for small-batch artisanal makers." And the market said, "No, you should pretty much do eBay." And as a public company, they were under some serious scrutiny. Their stock price went down something on the order of 75% over the period of about a year and a half. They fired their CEO, they put in a new CEO, they are churning out product, and that stock price is back. So that's a massive success, except it's a failure. So these things are really complicated, it turns out. And at the very beginning, when you're putting in seed capital, when you're hoping something works, and you don't know exactly what work is going to look like, in fact, you can't know what work is going to look like. Which one of those worked?

Anybody else want to jump in on matching the right form of capital to the right venture at the right stage?

Yeah, I mean, I'll just say— and we've talked about this offline— I think part of what we struggle with, right, is that we don't actually have that many flavors of capital for funding innovation. We've got sort of the philanthropic grant, government grant version of the world. We've got small business loans if you happen to have enough collateral to stand up a bank loan. Which most folks in the tech economy in particular really don't. You've got venture capital, which assumes this hockey stick chart growth, which frankly just isn't a realistic expectation for lots of very reasonable businesses. Or even if they're going to be fast-growing businesses, it's not clear what the liquidity event's going to be. They're not going to IPO, they're not going to get acquired, they're just going to be great companies that churn along. And so thinking creatively about how we build other capital vehicles to pull that cash back back out of the business to give investors a return, I think, is a huge opportunity for the sector. There's a lot of great organizations doing some work in that space on the sort of traditional VC side. You've got folks like Indie who are running experiments around sort of revenue-driven companies. The BuildCap Investment folks are looking at revenue-based finance from an impact perspective. I think in the next sort of 5 or 10 years, one of the things we're going to see is a real explosion of more creative capital vehicles, but right now, Now there's sort of a couple paths to success, and if you don't quite fit that box, it gets very, very hard to fund the next stage, and I think that the sector as a whole is suffering because of it.

Am I working? All right, I have a different, a narrow perspective on just this company in class today that we've been involved in that we spun out of my lab. The first is that the The business model is— and Mark has helped me put a language on it, which is that there is an enterprise beneficiary of increasing attendance. In something like 40% of kids, somewhere between 30% and 40% of kids attend schools that get paid per kid per day from the state. So in California, about $50 per kid per day. If you use truancy officers to reduce absenteeism, The best evidence we have, it costs $500 per day generated from experiments. So they increase attendance, but it doesn't generate revenue. It's net cost. We can increase attendance at a cost of about $5 per net day. So it's massively revenue generating for districts. Just in California, I did a back of the envelope, very conservatively, there are about 6 million days of attendance that we could easily capture within, without, which is just implementing what we do from the most at-risk kids who are already missing 20 or plus days. So days that are clearly high-value days for the bottom-performing kids. They would generate something like $300 million in revenue. That $6 million, we're probably gonna capture $300,000 in California this year, so about 5% of what we could and should capture. And we've now— we have the strongest possible evidence, massive financial incentives, an apparatus that scales, because the backend— ultimately, it's a backend software. But it's sales and execution. And it's a self-sustaining business model. So we're talking about just challenges. I go back to— I thought the paper was enough. If anybody's interested, it's in Nature of Human Behavior. But it turns out that, I don't know, just adoption, even when it's incredibly financially beneficial for the districts for targeting these students, and can be implemented at scale with fidelity immediately next week.

Yeah, so I think I would echo the capital and the challenges of scale. What I would add to this is we look across some of the deep social challenges we we face, the benefits from our interventions, be they behavioral science interventions or other software, are diffused across a vast array of beneficiaries. And when you have diffused benefits, it's extremely difficult to then sell this product. And so there are relatively few examples of opportunities where we have the benefits centralized to an individual entity. So we're We're building a business in the recidivism space, and we're working with— the costs of recidivism are diffused across multiple parts of the government, different government agencies, but then also to the families and the communities and all up and down the line. And the good news for us is the cost of recidivism is so high that there are sufficient potential different beneficiaries who are willing to pay for it. But I think— so, So if I were to categorize, we have access to capital for social ventures and thinking about creative funding models. We have challenges always across sales. And then there's policy work to be done to create, as Tom talks about, to shape these markets. And then the fourth, if I can add a moment, Jens, is finding ways— I mean, multiple people have said it here, the investors— but finding ways to increase the diversity at the entrance of the funnel across our entrepreneur base. And there are clearly a set of blockers. And it's extremely difficult when we watch a venture firm that's making B and C rounds. It's very hard for them to influence it. By the time a business gets to being ready for a Series B or Series C, it's essentially irrelevant. At that point, you know your customer acquisition costs, you know your gross margins, and it's just an engine that we're going to— how much money, how much fuel we're going to put on this fire. But it's the seed, and even earlier, the angel, and finding ways to push capital lower down to then, I think, encourage and create those opportunities for those entrepreneurs.

I think that's really interesting. Hannah, you were talking about being the pipeline. And can you say a little bit something about diversity and getting a broader range of people into this social impact space? Please.

Yeah, listen, I think there's a whole bunch of reasons it's important. Obviously, from our perspective, the most important of those is we think the folks who really know and understand these problems are going to be great founders, because they're going to get it. They're going to get what the customers want and need. But when you look at what it takes to get something to B or C, first, for a lot of people, there's some amount of time, potentially an extensive amount of time, where they're working for no or very little pay. And there's a certain segment of the population who can afford to do that. They've had jobs at big tech companies. They have a personal buffer, right? We run a program where we bring potential founders in and they spend time with us over the summer and we pay them, but we pay them quite a bit less than, than they would make in sort of an open market if they're technical folks. But it's still not even remotely enough for folks who are supporting kids or supporting parents or have huge student debt loads. To think that they can do that. Or maybe they can do it for 4 months, but then God forbid it doesn't work, right? And 80% of this stuff doesn't work. They've stepped away from the opportunity cost of the job at Google to come and spend time with us, and now they're in a really rough spot. So we've thought about, you know, should there be founders insurance? Should there be other sorts of scholarships or things to bring different people into the pipeline? So they've started, and they've got something, and they're off to the races, and now they hit the angel funding stage, and if they haven't gone to Harvard or Stanford or at MIT, they don't have a friends and family network. They don't have the professor who's got the seed fund for the venture firm who's going to write them the check, right? And so before they can go out and have a serious conversation with a venture capitalist, they need to be able to show traction. They need to have built up the platform. And all of that takes money. And so I also think there's an interesting sort of space for substitute friends and family rounds, right? We've said, gosh, somebody should start more funds that are aimed at this space. That say, listen, we get that you're a person of color, you grew up in inner city New York, you've got a great idea, you understand the dollar van market, which is a New York City thing where you pop out on the street and you stick out your finger and somebody picks you up in a van and you run down a route because there isn't public transportation. And that's a great opportunity, but nobody in your family is gonna loan you $150,000 'cause they don't have it. And so I do think there are things I think that's something that we need to do early on in the pipeline to get different people in. Frankly, despite the fact I think we're bad at it, I think that's where philanthropy needs to play a role. And when I say we're bad at it, I don't mean Robinhood. I mean, I think the industry as a whole is not great at taking those sorts of bets. Robinhood has been a lovely home for us, and I think does a better job than most. But yeah, I do think, I think if you want those folks in the A rounds and the B rounds and the C rounds, you have to put, more money and more capital into really helping them get there early on.

I think that's super interesting. I'm also intrigued by this concept of founder's insurance. And Kanyi, I want to go to you as a VC. If a founder came to you and you knew they were insured— a lot of VCs want their founders all in and out there. If a diverse founder showed up who had a backstop, how do you think about that?

I think it would be great, but— I think it'd be great, of course. But I also think that venture capital is uniquely well-suited to solve this problem, and just up till date, across the vast majority of venture capital, has chosen not to. So I want to make a brief comment about Y Combinator. It's a very famous incubator here in San Francisco, and it's not necessarily known for being the the bastion of social impact or serving the bottom of the pyramid. But they do something very interesting. And I asked the head of Y Combinator a couple of years ago, "What do you think is the secret weapon for Y Combinator?" And he said, "Oh, paying for the YC interview, of course." I said, "Why?" And he said, "Because when we pay for your interview, if you otherwise don't have the cash to be able to apply for YC, fly out here, interview, get in, and start, then we are manifesting a startup opportunity." with our capital. We're not just funding somebody who's already ready to go. We're creating an outcome that didn't already have a trajectory. We're literally introducing a trajectory-changing moment for an individual, and we're finding a way to do it at scale by paying for a plane ticket. It's as simple as that. And I was like, "Pfft, that's just cool." And it led me to realize something pretty interesting, which is this notion that VCs have a trope and a meme, which generally has to do with the fact that you, for the most part, have to be rich to be a VC in the first place. And most rich VCs have been so far removed from when they were a starving entrepreneur that they forgot. But there's a trope that you have to be all in, you have to have bootstrapped for some level, you have to already put some skin in the game, which is a bunch of hogwash. It doesn't line up with the data of the best outcomes in VC, and it doesn't line up with the data of where there's the greatest need and the greatest opportunity that's unmet. And so what I didn't mention in my intro, in part because as I was talking to Todd about earlier, I didn't necessarily think it was relevant, is my venture capital model is if you are unfundable by virtue of being too early, then you are a fit for me by definition. Because that means two things. One, I'm going to have impact by investing in you because I will introduce a trajectory-changing moment for you, and second, because I'm going to do it when nobody else is. And so I'm going to get to do it better. And I think VCs are uniquely well suited for this. They've just chosen not to, I think, because they're all too old and rich and due respect white.

Thank you. I'm going to ask one more question to the panel, then we'll open it up to the group. I want to jump to the other end of the spectrum. We've been talking about early stage companies, seeds, ABCs. This morning we were talking about the power of B of A, or Wells Fargo. You know, Mark, you were at Opower, and I want to think about what does it mean to have social impact if we can get some of the largest organizations in the world— they already have scale— rather than trying to take small ones and scale them up. What's the challenge for getting a big organization to start to think this way? How do they— how can they disrupt themselves to embed impact more into the scale they already have? Anybody want to jump in on that?

I thought you were going in a different direction on that. Can I twist it a little?

Absolutely.

So, Opower went through the full cycle, including going public and being crushed in the public markets, and then acquired by Oracle, which was one of the more remarkable experiences of my professional life. And as we were discussing this panel, I think, and I think about the work that Susan did at Microsoft and and others. The introduction to, to Oracle was an opportunity to understand how one of the world's largest software businesses interacts with the largest enterprise across the globe. And I had an opportunity there to influence the software being built for the 300+ largest utilities across the globe. And we are just at the beginning of the software as a service revolution. What we've seen today is super thin top layer, Salesforce, etc., but deep vertical SaaS is 10, 15+ years away, and it's gonna change the way fintech, utilities, and other industries operate. And if I— I care deeply about the environment and the impact that we all are having, and it was clear to me at that time that staying inside that large organization was going to be the single largest impact I could have have on the environment because I could have an internal impact on the software development to build configurable app— SaaS applications one small ounce faster. I chose not to stay for personal reasons and lots of other complexity. And this is sort of one of the interesting challenges for each of us is how we allocate our time. And that's one of the dimensions. But I do think it's important, especially with Microsoft here, it's important for us to all remember some of the largest impact we can have is operating— I think Peter's doing this with his text-based intervention for education. Unlike InClassToday, the text-based intervention with the learning management systems doesn't really work as an independent business. The physics just aren't there for that to be an independent business. So Peter's working with the existing players to deploy it. That's his path to scale. And so I think understanding the levers of how you can bring your impact and A lot of this, here in Silicon Valley, there's a lot of ego, and sometimes working for the big organizations requires you to suppress your ego for that impact, and that's something for all of us to think about.

Thank you, everybody. Let's open it up for Q&A. Are we trying to get out early on Friday afternoon and end the last session?

The wine is outside.

Hi, I want— Alex Lasky, thank you for the nice words. I want to get back to the question you asked of the panel, because I don't think you guys really answered it regarding— or not sufficiently for me. I think there is this conflict, I'll tell you, between the standard venture capital and these public good, at least double bottom line businesses. You talked about one end of the spectrum, which is like it's hard for people who are doing this work to attract venture capital funding, because people are, you know, whatever, period. But I don't think you talked about the other end of the spectrum, which is that once you've crossed the chasm and you're able to raise money, there is a temptation because of the amount of money that's flowing through the streets in Palo Alto and Menlo Park to raise a lot of money that I think that can also cripple companies. We talked about Opower. We went public after raising $34 million total in capital over 7 years and had, I think, $15 or $16 million still on the balance sheet when we went public. And now companies with just an idea are being valued at obscene amounts of money. And it seems— you're a founder. It seems great to protect your ownership of the company and to raise twice as much money as you think you need for the same amount of dilution. But my experience watching companies do this, particularly companies that have a double sort of bottom line mission orientation is that cripples them on the back end and prevents them from being— controlling their own destiny and actually having an impact where it matters most. So I'm curious if you guys can talk to that and also in the process if there are types of businesses or sectors for which you just think venture capital is not the answer because of the mismatch in return expectations and speed, and I was the one who laughed earlier when David Leitfin talked about how they just— everything beyond 7 years is worth nothing to a venture capitalist. So curious thoughts on that.

I'll start as the venture capitalist, but I actually am very curious to hear the other answers here. If you were to ask the Kickstarter founders in a little more detail what happened, They would have said, we had an aha moment after our second round where we were like, we need to stop raising any money, 'cause the more money we raise, 10x or some such is the expectation of what we're gonna have to get back on that, and that doesn't allow us to control our destiny. That actually means we're serving someone else. And so they stopped, and they bought a building in Goaness with their profits instead, and they pushed their employees to think about creating a union and reinvigorating the way they think about benefits instead. And they were very happy to have done that. So to the point about whether or not a company should be raising more money, for the purposes of impact and for the purposes of controlling one's destiny, the answer is unequivocally and enthusiastically yes. And venture capital, just like many industries, roots for its success itself, and by virtue of rooting for itself, it has financialized and kind of become an industry that's trying to protect its interest and trying to protect its reason to exist. But how do you go as far as absolutely possible with the least amount of money is generally a good business principle, and venture capital isn't particularly different in that case. So I'm appreciative of your mentioning that. The other thing that's worth noting about venture capital, which I didn't touch on, though I made allusion to, is is this notion, and Hannah mentioned it too, of the mission-aligned exit. And so, you know, Opower is in a tremendous extraordinary business that went public. There's a variety of reasons why a company may choose they don't want to go public. All sorts of reasons. There may be impact reasons, there may be structural reasons, there may be financial reasons. If you don't want to go public, then what's the out? And if there's no out, then there's a little bit of a pickle there, and that's actually a big issue. It's a big issue that's sitting unsolved. Method Brands is the company that's making the sort of natural soap and beauty products and stuff, had a mission-aligned exit to private equity where they sold half of their stake, liquidated, bought out their investors, but kept independence of the company. Fabulous exit until another company bought that other half, and then SC Johnson bought the whole thing, and now now it's just SC Johnson and have a nice day. And so this notion of having an exit pathway that protects the sort of core principles and protects the company charter and protects that mission in time, so the downstream financing issue is actually a really big one too.

I'll jump on this one. So I totally echo your comments. I founded a company and took it public. And the moment we went public and had raised a bunch of at, there was no middle path. The foot was on the accelerator and it was not coming off, right? So it took away any sort of flexibility to slow down, do some other things. And that led me to the conclusion to, you know, to say sometimes growth can be an overrated strategy. And so my thinking now is that when you're building these enterprises, you want to be super thoughtful about the capital. And in terms of the exit piece, there's actually nothing wrong with a company that's growing at a medium rate, that doesn't have to pour a ton of cash in for growth, and actually is spitting cash flow. A lot of investors are looking for cash companies that are growing at a moderate rate and throw off a lot of cash flow. It's not with the venture model, but there are other types of capital out there that are interested in long-term. Family offices tend to look at this stuff that, that could be a match for this. That's my thought. Anybody else want to jump in on that one?

I'll take the second half, which was places where it doesn't— we don't see the VC model working well. So I guess I would say across the board, I don't think there are universal rules, but if I think about the sectors that we do work in where we see comparatively more successful nonprofit models as opposed to for-profit models, everything around legal services is a big area, just in part because of the principal-agent problem. It's really hard to build a socially impactful for-profit profit legal business that's focused on low to moderate income households without it going scammy really fast. We see a fair bit of nonprofit work in the housing space, particularly given the timelines, and if you're thinking about capital buildouts and things of that nature. And then the other place that I think we've been a little surprised by, but it makes sense when you think about the underlying margins, has been sort of anything that involves dense urban logistics. So things around food and nutrition and solving food desert type approaches. People have tried to launch a lot of for-profit models, and they've really struggled to build economic models that make sense. And so we're seeing more and more of that work being funded by philanthropy.

The one thing I would add, and I think a struggle in the volume of money— as I haven't had the position where I've had to decide to turn down or take large sums of money yet— is that the danger of not taking enough to scale your business is that you become a service business. And the types of businesses that we think work in these opportunities are product businesses, and product businesses require investment in the core technical infrastructure. And so finding the kite string of the right amount of capital to make that technical investment is super challenging. And then the flip on the exits, I think it's clear if I were to like think of the funding problem to sort of echo what Kanyi Maqubela is saying, is like we need a vehicle, a mechanism that's some middle ground so So that there's the front end of the money, and then there's this back end of how's the credible out for a profitable business in a $300 to $500 million TAM space to provide return to the initial investors and the initial employees and celebrate the success, because the public markets can't support it. And just being acquired by a monolith is also not a great answer.

Can I add one thing? Just in addition to the survival risk of taking on outside investment, those of us who actually care about impact, there's the danger where you may have to sell things that you don't have evidence work. Or just because your clients want it doesn't mean that it works. And so when you lose control, you you also lose control of the product offerings if you care and focus on impact. Also, I wanna echo what Hannah was saying about the vehicle for scale. If it's a cultural innovation, the vehicle might be books and public communications. If it's a policy change, if the innovation, the natural vehicle is trying to advocate for policy change. If it's a product, maybe a company. If it's a service, then maybe it's contracting with government as a nonprofit or with philanthropy. But the innovation, the vehicle for scale should match the innovation.

Thanks.

I think there was a question over here.

Hi, thanks for a really interesting panel. I'm Neil Kelleher from here at Stanford. And Kanyi and Hannah, I was hoping you could respond to something that Todd commented on. Many of us here in this room, I hope most, kind of value evidence and kind of that drives a lot of our work, especially on the academic side. And Todd spoke about how, like, when you started this project was focused on the evidence side and writing up the paper and then realized that the, like, execution and sales were so fundamental. And Mark provided a nice framework for these three inputs that go into deciding what to incubate. From your perspective, from the funding side, do you have examples of where it wasn't just about execution and sales and where evidence factored into your decision-making process? To make a funding decision?

You want to take it first? You go first.

Sure.

So one of the really wonderful things about being embedded at the Robin Hood Foundation, which is a foundation that is obsessed with metrics and evidence, is that part of my process for making decisions on which organizations to take into my incubator is that they all have to go and do an impact assessment with a Robin Hood grantmaking program officer, who, effectively has the ability to veto if they think that the company is trying to sell me a load of crap. So somebody on the education team talks to all the ed-tech teams, and somebody on the jobs and income security team talks to all the workforce teams. And with the caveat that these groups are really early, they haven't yet done the RCTs, they've usually done extremely small-scale pilots, the question we ask the grantmaking officers is not, are you 100% sure that this thing is gonna work and drive impact, but given what you know, both about the best of the literature and the best of the research, given the organization's theory of change in the intervention model, could you imagine that 3 or 4 years down the road when we go back and try to evaluate the impact retroactively, that we'd actually be seeing a measurable impact that the foundation would be excited about as we calculate out our benefit-cost ratios? And if the answer to that question is not yes, people just don't move forward. That's the constraint in the box that I work in, and it's actually extraordinarily helpful It's the thing that lets me do what I do without being an expert in fintech and edtech and healthtech and all of the rest, because I get to lean on a whole host of people, many of whom I think work with many of the folks in this room to actually build that evidence base. I can't speak to the sort of more traditional VC side.

I can.

Yeah.

And I'll give a couple examples to hopefully illuminate the opportunity. Opportunity in the pickle that VC finds itself in. So we made an investment in 2011, my prior firm, in a group of urban theorists who had been studying city design and studying transportation modes while at Cornell, and actually one in Zimbabwe, and they'd been trying to figure out the right structure to take advantage of all the sort of fallow asset latent inventory that isn't being adequately used, like the cars sitting in parking lots. So they started a thing called Zimride, and their idea was that Zimride was gonna take advantage of a bunch of the research that one of them had done at Cornell and a bunch of the research the other one had done in Zimbabwe to figure out the right way to make cars more efficient for the sake of actually creating environmental impact based on some fair amount of research. It didn't take. And so they pivoted it into a way that not just for a long-distance ride, you can, You can't hop into someone's car, but for a short distance ride you can, and they called it Lyft. Gosh, that's my business. And is that good? Is that bad? 3 years into that, am I proud of Lyft? 5 years into it, am I proud of Lyft? These are very extremely impossibly complicated questions. Second example I'll give is a person who is from Canada, a computer scientist. He started a social bookmarking service. It became reasonably well regarded. It was acquired by eBay. He thought eBay wasn't doing the right thing with it, and so he actually raised some money to buy it back out of eBay. He was running it really well and was extremely creative, had a lot of creative output. And so he decided that he wanted to start a side project along the way. The person who had funded him on the social bookmarking thing said, "Gosh, you're brilliant. I'm in." So he started this side project called UberCab. Gosh. And I don't know where evidence would even fit. I don't even know how I would consider it and conceive of it. I want to in those cases. Now, in the case of two companies we've recently invested in, one called Replenish, which looked at evidence of trash picking in countries where waste management infrastructure was actually weak, and they found that the ability to upcycle and take reusable material was way better because there wasn't a trash chain. There was actually a possibility to build a supply chain because there was actually no chain and there was huge heaps of random stuff and you could pull out all the bottles and cardboard and monetize those. And in the US, it's actually really hard to do that because the trash train will downgrade material. And so he took this whole body of tons and tons and tons of evidence and is building a— dispatching app so that trash pickers in the US can go straight to Chick-fil-A and pick up their cardboard. Tons of evidence. Put it in his deck. I was able to diligence it, and then I made an investment decision. So it super depends, but the thing about venture capital is it's risk capital where you have a long list of unknown unknowns, and to some extent, we have to create the right framework for that. And so how do we couple that against Todd's incredible work and not just commercial commercialize Todd's work, but also go into the breach and go into the dark and hope that when we find some light, we can start to organize things and put them in the right boxes. That's the challenge I think about almost every day.

I'm interested in whether you guys are familiar with impact bonds, whether you've heard of them or— 'cause they— Brookings have been covering them for the last 5 years or so, and they haven't taken off, but still a really interesting instrument, not a grant, intention to repay, not intended to fund hockey sticks either. Just interested in your views.

I can go really quickly. One of the early— we'll say a very large district, one of the largest districts in the in a state that gets paid per kid per day, was resistant to working with us, and a philanthropy represented here offered to effectively put up, basically pay for it, but contracting so that they only get paid back based on net revenue generated, exactly like a social impact bond, but simplified because they're doing it internally instead of having a third party. And the contracting was so simple complicated that the district was like, screw it, we'll just buy it ourselves, which was a win. But exactly, we're still playing around with a debt pool, like in Texas in particular, where there's 15 districts that are big enough that you could do a random— we would already do a randomized experiment in their districts, and we would offer it, but the contracting for public entities is so comp— that's my experience with it. And from what I understand from my friends who do research in the social impact bond space, that's been one of the barriers. The scale of the project has to be so large to justify the evaluation and the contracting.

I would echo— I don't work in that space, but I have a lot of friends who do. And it's a wonderful layer of the capital stack, but it is super hard and complicated. And to get all those parties to agree up front and there's just barriers to getting them off the ground. My hunch is they're not gonna scale hugely because of those problems.

Yeah, totally agree. What we're starting to see more experimentation with actually is just straight-up recoverable grants. So particularly from the foundation side, if you're thinking about sort of mission-related investing or otherwise, is there an opportunity to put money in that's grant capital if everything doesn't work out, but if things work out and you hit a set of economic milestones, then comes back as relatively low interest or no interest debt. So the capital is at least recyclable, and I think it can sometimes, depending on the situation, avoid the contractual negotiations and the fee structure and the admin overhead, but get you to a relatively similar place. Now, writing a recoverable grant for enough money to fund a state's worth of text message interventions is maybe hard, and so some of that's a capital mismatch, but yeah, I think— I think everybody agrees it's just a complexity thing.

But it's important because we were talking about earlier, when you have these interventions where there's, there's lots and lots of small pieces of benefit and no one entity gathers them all, often it ends up coming back to a government cost. I mean, what's the cost of mental health, the cost of homelessness? The government tends to collect all those things but way down the road. So I think the promise of the impact bonds is that you could somehow somehow transfer those things, but it's not working as smoothly as it needs to.

Yeah, and I would add, while we're at the GSB, I'm not an accountant, so I may be slightly misaligned in this, but as a software business, putting work at risk through these types of things, it's very difficult to account for the revenue, and it puts tremendous challenges to the operations of the business. Businesses that we're trying to build were in the interest of not just having 1-year or 3-year, but 10, 15-year contracts. And the way we see putting that at risk is through contract renewal. And if we don't deliver value, we're not going to get our contract renewed. So I think that's the simpler and easier way to hold us accountable for not being bad at our jobs. Now, to Todd's, I think, appropriate you know, sort of fuerza is we have to have mechanisms of measuring our impact through definition of the outcomes that we're measuring. The amount of stuff we go up against and see, it's amazing, the claims that people make are unbelievable. And I think we, as both academics but then also as entrepreneurs and investors, can hold our businesses we're starting, our CEOs, accountable to delivering measurable impact, because it's just not— like, what's the point if not?