by Esther Park
I’m not exactly sure how I got connected to this guy, but one day I found myself at a club in Menlo Park across the table from a very traditional tech bro/VC type who said he was interested in food and agriculture. We had nearly nothing in common. This was back in 2015, not long after a good swath of Ohio found itself with unpotable tap water due to algal blooms in Lake Erie, which were caused by agricultural runoff. Toward the end of our conversation, my lunch date casually name-drops a famous band member (whom I was not hip enough to recognize) and says that he’s interested in investing in water technologies. Citing the water issues in Ohio, he asked if I knew of any interesting and investable companies that could address getting clean water to households. I told him that if his famous friend was really interested in clean water, the better thing to do is invest in strategies that help farmers stop practices that allow huge amounts of water to run off their lands along with the chemical amendments applied there. Stunned, he just looked at me like I had an alien head. He didn’t say it, but I could see it in his expression: “how does that kind of strategy make any money?”
I was recently reminded of this strange interaction while in conversation with someone about investability, which is usually code for generating goo-gobs of financial return. Many non-profits and for-profit social enterprises lead with their impact statements of the social ills or problems they are addressing with their programmatic or consumer models. The tech sector is particularly notorious for thinking they can engineer or reverse-engineer any problem society offers up. And investors get excited at the prospect of profiting from models that generate revenue off of social problems. Take the Ohio water problem, for example. Some tech/engineering company comes along and offers a great solution for getting water from an over-phosphorated state to a potable state. It will take huge water treatment plants, or technology add-ons to existing treatment plants, or some distributed model of water treatment that every municipality or household will have to buy. That will generate TONS of money, right? Right. This is happening all the time. That’s why things like cleaning, detection, and synthetic technologies, along with externalities marketplaces get so much air time. Those are GREAT opportunities to make some money. In fact, sometimes they are so great that they reinforce the patterns that caused the problems to begin with.
Let’s take a couple of other examples. One of the most striking models to me is a traditionally-structured venture capital fund whose mission is to address poverty by investing in businesses that will create jobs and economic opportunity in low-income communities while also achieving venture returns. Seems like a great investment thesis. However, if we believe that economic deprivation is a direct result of income inequality, I’m not sure how an investment vehicle that extracts value from these communities and creates more wealth for already existing wealth holders does anything to actually address the root cause of that inequality. (Let me also say, as a champion of nuance, that there do exist similar-sounding funds that downplay returns in favor of utilizing strategies to retain more of the wealth in the community.)
And let’s not let philanthropy off the hook here. If the root cause of poverty is unfettered wealth accumulation and the resulting division of power and resources, how many foundations concerned with poverty are working to curb wealth accumulation?
Getting closer to home, in the food and ag space, another favorite set of examples are companies that are addressing food deserts. We all know that a lack of access to fresh fruits and vegetables in minority and low-income neighborhoods are a huge problem for a number of reasons tracing back to government-sanctioned land theft, ridiculous farming subsidies, and large-scale food system industrialization, just to name a few and for which there isn’t enough space to elaborate on here (but suffice it to say all these things also point back to unfettered wealth accumulation). Nevertheless, every year I see a new business plan that proposes to address the issue by opening small scale grocery stores or fresh food pop ups, or financing corner-store modifications or what have you. Sounds great. However, these strategies do not begin to address the reason this community became a food desert in the first place. And they likely further hamper a community’s reach for food sovereignty – the ability to make its own decisions about land use and food choices, to actively take part in the production and distribution of food, along with its economic benefits. Just look at where the profits are going.
But changing root cause behaviors? Those are great opportunities to make very little to no money, so they attract very little investment.
As investors and philanthropists, we like to believe that we are critical thinkers, but how many of us are truly looking at root causes? Mostly we don’t because it’s inconvenient, it’s hard to find someone working on solutions that address them, and the financial returns are paltry to non-existent. Yes, sometimes we absolutely need to band-aid certain problems and there is no shame in that. But if we are truly committed to creating real systemic change, we also need to dedicate a good chunk of our portfolio investing in lower-return solutions to root causes.
Esther Park is CEO of Cienega Capital, an investment company utilizing an integrated capital approach to systemic change in the areas of soil health, regenerative agriculture, and local food systems. She has 20 years of experience in mission-based financial services ranging from microfinance to risk capital investments. Read more >
by Esther Park