Solvation

2020 Forecast: Fire and Ash with a good chance of Phoenix

Here are my forecasts. The gist is this: it's going to be a decade of transformative change, and if we get stuck in the transitions, we'll protract the agony. If we can agree on broad goals and a process -- a life -- that involves respecting the journey to meet those goals and the people we travel with on our roads, then we may see some amazingly wonderful things emerge.

(1) Community and Government: Regardless of financial stability, social systems will crumble. Schools will bifurcate into "bare necessity" and "elite." At least one emergency (but probably several) will point out just how utterly incapable our medical system is at caring for everyday, insured middle class working people when large masses need hospitalization. Protective services (fire, police) will similarly face a few overwhelmingly impossible tasks because of weather-, earthquake- or social unrest-related crises.

The emerging solution to this will be that young people ("digital natives"), marshalled by the middle-aged ("diversity natives") will reach across the socio-economic aisles as never before.  The challenges are so pervasive that only collaborative teams will be able to address them, and team-creation is easier than ever. 

Look for alliances: alliances among young adults to solve specific innovation challenges; alliances between educational and other services to provide emergency resources; alliances to share personal resources, skills and expertise that tie communities back together again.

(2) Finance and Regulatory: Financial stability won't happen. No, not for the whole decade; not until the uncertainty surrounding global warming, toxicity, and other health issues are addressed -- at a minimum. In fact, an entirely new financial system -- or rather set of systems -- will continue to develop. It will be like "the internet in the 1990's" where decreasing numbers of people think the new system is a fad but the technology just isn't quite there to bring everyone on and up to speed.

That's called Social Entrepreneurship and Social Capitalism, and is represented by some amazing innovations that run the gamut from reinventing the traditional (investing a philanthropy's endowment is far more powerful as a social change agent than the relatively small amount they give away as grant money) to the novel (new risk management exchanges -- like the Housing Index, or the Peace Index), and the hybrid mechanisms of evaluating (paradoxically real) intangible assets and removing the focus from the abstraction, "money."

Look for innovations in just about everything, from traditional philanthropies treated as financial funds, grant money coming from for-profits, to new instruments like "social bonds," new exchanges, and the merging of data as it flows across the boundaries between corporate, governmental, and community organizations.

(3) Personal: Love and loving will continue to become increasingly traditional, with women shouldering immense caretaking loads due to smaller families that are widely spread out, higher incidence of everything from asthma to autism and alzheimers. Women will want to marry earlier and choose again according to "prospects" rather than sensitivity; men will want to capture younger women. Boomers will pool their resources and recreate communes where at least some children will be enlisted to provide caretaking services. 

Amidst the resurgence of spirituality, where people recommit to some sort of faith: faith in God or society or their family, will be an eventual understanding of who is NOT the enemy.  As people from the LGBT community, as immigrants, and as people formerly known as "minority" become included in the real work of monitoring and healing society, empathy will increase.

That said, the tolerance for uniqueness, "Too Much Information," will continue to contract. People will consider themselves very transparent but share less and less. A lot of us will block much from ourselves. The small children will watch this.

Look for a resurgence in the arts -- people who reconnect adults to their emotions -- for 2030.

Goodguide Political Contributions Widget

I found this widget via FastCompany. It's fascinating.

I encourage you to click through and play with the filter - on Goodguide, you can scroll and mouseover for more information.  Also, you can select by industry or sort the output in different ways. The top one is the financial industry, sorted by how much the total contributions were. (The half-check box is Deutschebank.)

Democratic

Republican

GoodGuide.com political contribution data for the finance sector

And if you're wondering where to shop, here's this:

Democratic

Republican

GoodGuide.com political contribution data for the retail sales sector

GoodGuide.com political contribution data for over 100 companies
View data for other companies at GoodGuide.com

Metrics and Outcomes and Intuition, Oh My!

Well, it's Thanksgiving, and time to think about what we're thankful about. At the Social Capital Markets blog, we've started a blog roundup (#socap #thankful) and of course this first abbreviated month is about stories of thanks.

During the discussions about topics, Kevin Jones at one point said, "Quantify the good for which you are thankful. Does measuring it make it grow in your mind or memory? So what's the good of social metrics? If they take away from thanksgiving, what earthly good are they?"

As it turns out, this is a topic near and dear. (HINT: What that means is this is going to be a long, rambly post, and now you've been warned!)

Are You a Social Entrepreneur?

"Social Capital" and "Social Entrepreneurialism" are evolving terms that have fuzzy meanings. So, instead of adding another definition, I'm going to give you a check list to help you decide whether you might be a Social Entrepreneur.

You're a Social Entrepreneur when:

(1) Whether for-profit or non-profit, your entity was founded and continues to exist in large part because of an identified social need, rather than a market need. There might be both; however without the social need, the entity just wouldn't be the same. The employees feel that their work is purposefully contributing to a greater good.

(2) That social need might be related to providing for the growth or development of any kind of intangible asset(s): intellectual assets, relationship building and conflict management, the environment (water, land, air), health -- mental, physical, and spiritual.

(3) Your entity is market-driven when it comes to finding resources: people feel it's within the entity's mission to find donors or capital because they have a transaction of value to offer. (This is in contrast to having people donate because they should support the entity due to moral or ethical reasons. That type of entity has a role also, but it's a charitable role.)

(4) There is a growth strategy, and it can encompass merging with another entity. With traditional non-profits, one persistent issue is that some non-profits have a concept of "territory," as though non-profits were monopolies in their particular specialty. In that case, merging with another entity -- even if services can be delivered more efficiently that way -- can be perceived as a loss of status (which is then related to difficulty in fundraising).  In a socially entrepreneurial venture, there are other mechanisms to increase revenues, so more flexibility is available for merging separate operating entities.

Differentiating Spiritual from Social

Begin reading at the bottom.

When you finished (or read it the first time), did you feel pain?

Many do. That pain is evidence that we're connected. We imagine these two young men; we imagine or remember our own losses. That's Spiritual. Even those of us who do not know these people nevertheless feel their pain.

I need to pause here. I do also want to say how heartbreaking it was to hear, and express my condolences to those who knew Vijay personally, his family and Mike in particular.

I'm drawing connections into the financial world after the jump.

Financial and Social Capital - an Example

I just posted a financial analysis I did in 2006. The challenge was to canvas the entire space of novel materials (except bio), with particular interest in nanotechnology; look for a viable publicly traded alternative energy company; and then buy and hold that for three years with no risk management (e.g. options).

The name of the company has been obscured, but here's the graph. It was $9 when I recommended it, and roughly $31 now. (Between $25-30 in June '09, so the ROI would be about 3x.)

Of course I was looking not only at traditional financial performance but also applied social capital ideas to the analysis.

The Value of the Team

I'm lifting this mini-book review straight from a particularly interesting post on GigaOm, and I was alerted to it by Sebastian Hassinger.  The point is that if you are looking at how to measure morale and intangible assets, one way may be to look at how sports teams do it.

I am going to grab a copy of "Mathletics" just as soon as it materializes.

Finance: What is broken?

A quick shoutout today for a brilliantly turned couple of paragraphs to illustrate a new framework for explaining what many intuitively understand.  From  The Responsiveness Scorecard - Umair Haque - HarvardBusiness.org:

The real problem isn't stimulus, it's responsiveness. We're trapped in a zombieconomy: one full of brain-dead organizations who are about as intelligently responsive as Homer Simpson.

Want better clothes? Don't ask the Gap. Want better software? Don't ask Microsoft. Want better cars? Don't ask Detroit. Want better music? Don't ask record labels. Want better healthcare? Don't ask big pharma. Want to hold on to your money? Don't ask a banker. Welcome to economic Bizarro World.

The economy has gone catatonic. Unresponsive corporations are just the tip of the iceberg. Markets can't allocate. Investors won't invest. Banks can't value, or hold onto anything of value. People don't trust, much less consume. What's going on? The real problem isn't how or what we stimulate - but that almost none of our organizations could respond in the first place.

He goes along to illustrate four different ways to break through these problems. I'd like to add my drum: in order to be responsive, we have to know what's going on, and that requires two things: (1) measurement in line with our values, and (2) a new type of leader who instinctively, unrelentingly creates and upholds an healthy cultural environment even in the midst of a volatile, uncertain, complex, and ambiguous world.

Economic Policy and Protectionism Revisited

Today's Financial Times has an article that points out the EU is warning about the US stimulus plan adopting "protectionist" provisions.

So, please pardon me while I reframe:

Protectionism - preferentially giving money to our own country, rather than finding the "highest value" (quality per cost) provider.

Choosing suppliers based on the valuation of tangible AND intangible assets - preferentially giving money to those suppliers who employ American residents within our borders, who support our social infrastructure (via taxes or other contractual obligations), who are respectful of US/international values towards working conditions and environmental impact, and who provide low financial costs.

Note, any company can compete on these criteria.  A simple, new way of envisioning this process allows us to avoid protectionism while simultaneously meeting the needs for US economic development. Furthermore, it's largely European universities that are leading the way towards understanding how to systemically value of intangible assets.

I can only hope we'll take this opportunity to learn how to measure and account for these impacts more rigorously.

Drinking the Financial Kool-Aid

I just don't have anything to add.  This is a brilliant essay on bias.

naked capitalism: Finance Has Lost Sight of Its Role.

WANTED: Financial Pros with Firm Will

The WSJ blog post, "Don't Be a Hero" discusses just how random things are right now.  The financial markets have essentially turned into prediction markets, reflecting peoples' intuitions about what might happen next and rendering absurd the concept of a valuation model.  It's almost as if we're in a volatility bubble. What does "we're providing liquidity to the markets" even mean now?

What can be done?

Instead of "don't be a hero," we need fund managers and traders to go long, to stop staring at the short-term catastrophe, and INVEST for two years from now (or longer).  After all, what does risk management mean when the real risk is everything goes to he!! in a handbag? So, instead, imagine coming out the other side, after everything melts into a puddle and needs to be reformed: what should the economy look like in 5-10 years?

(HINT: Many of you will already know what I'm going to say, but for those who don't, this is not conceptually difficult.  Productivity depends on having the pieces of the puzzle ready to go. Those pieces center around (1) trust -- which is built within relationships, which are themselves created through common purpose and shared activities, (2) knowledge, and (3) personal and environmental health. Find entities that build those components, and we'll be out of the deep dark hole much faster than if we continue to flail around.  And it's not farfetched or out in wacky-land: here's the World Bank blogging from Social Capital 08.)

Financial pros: The social expectations are that financial losses will be huge, and that there's no rhyme or reason or good plays in this market.  It's not a matter of being astoundingly clever or fast on your feet; in a way, you have carte blanche to do what you think best without any second-guessing.  Stop looking for short-term opportunity -- it's all roadkill, and you're behaving like crows. Move this in the right direction.

Financial Crisis and Moral Psychology

There are those who might think I'd take the opportunity to call out Mr. Greenspan's confession that maybe "free markets" aren't a panacea, or that the Financial Times endorsed Obama, or even once again call on people to find the silver lining by heeding the wisdom of their (great-) grandparents. 

But instead, I'm struck by the juxtaposition of two things I ran across almost coincidentally. First, we have the New York Times' article on use of bailout funds by banks to do their own asset building to maximize their own competitive position, rather than using it for what the investors (all taxpayers) require, namely freeing up credit markets.

And almost simultaneously, I watched this fantastic video of John Haidt, which shows he has comedic timing as well as a intellectual brilliance and timely train of thought. He and his group have identified five components of "the moral mind."  Though his main thesis is truly fascinating, and I'll have more to say later on that, I've got to say that the part that struck me here was that in games requiring cooperation, there was a result that gamers perform much more cooperatively in a regime where there's punishment.

So what's going on with these crazy bankers? Are these people immoral on some axis ("fairness" springs to mind)? Do they believe that enhancing their own wealth, their families, their companies will somehow protect them from the results of worldwide distress (a deliberately-blind interpretation of "comfort")? Do they believe that profiteering is a main cultural attribute of their group, so their behavior is somehow more loyal than anyone on the outside of this group could imagine?

Or is it a simple case of using the social tools in hand to punish people whose greed has run amok: shame?

As Marlene Grossman says in the context of her work at a community organization, "People have to overcome all kinds of terrible things. And they manage to do it and survive, and survive with such dignity. Those kinds of stories need to be told. And shame on us who don't listen to it. And who put ourselves in a cocoon and say, 'oh, you know... those people...'"

In-group loyalty! Vote for Obama and have one great big harmonious group.

SoCap08 - Financial Return Maximization is Absurd

Last week, I was SoCapO8, a conference that was oversubscribed nearly 3-fold, where most people have signed up in the past few weeks, post-financial catastrophe.

There is a lot going on in the social investment space, but I want to address, specifically, one item, since my for-pay job at the groupery is a bit hectic due to a major upgrade (...and if you run volunteer organizations, you should check it out! It's a powerful product and a great team!).

Back on-topic: on Tuesday evening was The Economist Debate Series:

Motion: This house believes you can maximize social returns by maximizing financial returns. Two voices for, two voices against.

    * Moderator: Matthew Bishop, The Economist
    * Shari Berenbach, Calvert Foundation
    * Elizabeth Funk, Unitus
    * Steve Zuckerman, Self Help
    * Alvaro Rodriguez-Arregui, Ignia Partners LLC

Soros' Financial Plan

For those who haven't heard me wax poetic, my personal dream team is:

Baruch Lev
Robert Shiller
Richard Thaler
Fareed Zacharia
Madeleine Albright

But I also really like George Soros.  Here is his outline for a solution to the United States' financial woes.

First, note, he also disdains the bailout bill:

The emergency legislation currently before Congress was ill-conceived – or more accurately, not conceived at all.

His explanation of what went down:

Two weeks ago the Treasury did not have a plan ready – that is why it had to ask for total discretion in spending the money. But the general idea was to bring relief to the banking system by relieving banks of their toxic securities and parking them in a government-owned fund so that they would not be dumped on the market at distressed prices. With the value of their investments stabilised, banks would then be able to raise equity capital.

The idea was fraught with difficulties. The toxic securities in question are not homogenous and in any auction process the sellers are liable to dump the dregs on to the government fund. Moreover, the scheme addresses only one half of the underlying problem – the lack of credit availability. It does very little to enable house owners to meet their mortgage obligations and it does not address the foreclosure problem. With house prices not yet at the bottom, if the government bids up the price of mortgage backed securities, the taxpayers are liable to loose; but if the government does not pay up, the banking system does not experience much relief and cannot attract equity capital from the private sector.

He drives to a more effective solution:

Since Tarp was ill-conceived, it is liable to arouse a negative response from America’s creditors. They would see it as an attempt to inflate away the debt. The dollar is liable to come under renewed pressure and the government will have to pay more for its debt, especially at the long end. These adverse consequences could be mitigated by using taxpayers’ funds more effectively.

Instead of just purchasing troubled assets the bulk of the funds ought to be used to recapitalise the banking system. Funds injected at the equity level are more high-powered than funds used at the balance sheet level by a minimal factor of twelve - effectively giving the government $8,400bn to re-ignite the flow of credit. In practice, the effect would be even greater because the injection of government funds would also attract private capital. The result would be more economic recovery and the chance for taxpayers to profit from the recovery.

Soros Foundation Blog

The Bailout, The Election

The market, this morning. Particularly telling: central banks might want to consider not throwing money into the system because it dampens any impulses banks might have to lend to each other.
http://www.nakedcapitalism.com/2008/09/libor-surges-to-nearly-7-but-us-stock.html

Thanks to Al Chang, via Jerry Michalski's Yi-Tan group for the next two:

Analyzing the Bailout: What's In It, Anyway? Clear synopsis about why this bailout is ill-conceived.
http://www.clusterstock.com/2008/9/analyzing-the-bailout-what-s-in-it-anyway-

Mussolini Style Corporatism in Action. On an actual phone call.
http://www.nakedcapitalism.com/2008/09/mussolini-style-corporatism-in-action.html

Merrill: Low Treasury Yields to go Even Lower. "...our models suggest that there is another 15-20% downside in average home prices and they are already down 20% from the peak."
http://www.nakedcapitalism.com/2008/09/merrill-low-treasury-yields-to-go-even.html

...and my personal favorite from a few days ago, a study of Republicans by psychology professor at the University of Virginia, written for liberals who grapple with why others make such different choices.

What Makes People Vote Republican - Jonathan Haidt.  "(M)orality is not just about how we treat each other (as most liberals think); it is also about binding groups together, supporting essential institutions, and living in a sanctified and noble way.  When Republicans say that Democrats 'just don't get it,' this is the "it" to which they refer. " http://www.edge.org/3rd_culture/haidt08/haidt08_index.html

----

Off-topic bonus link: Gut Instinct's Surprising Role in Math - NY Times

Your Future Financial Health - A Roadmap

The markets are crashing.  You might be feeling anxious, worried about how you going to weather this financial crisis, what you should *do* (or not??) to protect you and your family.

I will tell you.

If you build an airplane out of legos, and the airplane comes apart -- well it is very disappointing, you might feel crushed if you've worked very hard on it -- but you can still build a new airplane because you still have the legos. Sure, it's not an airplane until it's assembled, but the legos themselves are intact. When the airplane falls apart, it's time to make sure we don't lose any of the legos.  We can even gather more legos, get them organized, and start snapping those guys together for the rebuild.

That's what intangible assets are: the legos. 

Those are not only the aspects of life that we truly can't do without, those are the blocks from which productivity is built and risk is managed.  Examples of intangible assets are social relationships, trust, teamwork, knowledge, health, environmental resilience... the list goes on.  Take stock of those things. Treasure them and build upon them.

And the economy will recover, because those building blocks, like legos, are still here in a very real way.

So, do this:

• Build social assets: Build positive relationships. Reconnect with people you genuinely enjoy spending time with. Reach out to new people.  Help others who don't have much to rebuild with.  Help the elderly who won't have time to wait out. Protect your friendships. Have the courage to maintain a positive outlook during a time of misfortune. Don't argue, turn on each other, or let fear or panic guide your behavior.
• Build knowledge assets: While listening to other people, learn a little. Read what other people have to say; imagine things from their perspective. Of course, it's always a good idea to learn new things, just like it's always a good idea to behave honorably.
• Build physical assets: Maintain health, both physical and emotional. Get whatever it is taken care of. Keep your sick kids home until they're no longer contagious. Make choices that benefit environmental health.
• Build spiritual assets: Enjoy the arts: music, reading, whatever you prefer. Enjoy nature. Become grounded and connected with the teachings of the religion of your choice.

You may think, "Lovely. But what the heck am I supposed to do with what remains of my money?"

The answer is to do the same thing. Invest in building blocks. Will the financial ROI be good? Will it even be positive? That, I don't know, and even for successful investments it will depend on the time frame.  But I do know this:  If you are going to invest, carefully investing in areas that will benefit the ability of the world to solve problems and be productive will build the ability for the economy to recover.

Specifically:

• Invest in technologies centered not only on energy production and efficiency, but on sensor and separations technologies (like filtration). 
• Invest in approaches that facilitate community cohesion, problem-solving, and the formation of partnerships and groups. 
• Invest in knowledge growth within schools and beyond.

There is a lot to do.

When Variance is High

I was talking to a friend this weekend. He mentioned how broadly distributed intellectual potential is among the population, and it got me thinking....

When I was a kid, I played games at recess and ran around. I swam butterfly for a year in high school.  I played some tennis. A few coaches commented that I have decent hand/eye coordination and was reasonably quick. I was nothing special, either way... unless what I needed to do required both my feet to leave and then to return to the ground! In that case, failure was (and is) a reasonable expectation, and an injury, quite possible. Unless I'm going to be landing in water at the end, this whole "leaving the earth's surface" thing is clearly something my brain doesn't process well at all.

I was lucky, since I was a girl - the fact I was eager to play sports successfully offset my comparative lack of height as well as my leaping challenges. But for many boys, Physical Education class was a nightmare of humiliation, where coaches had achievement expectations that the boys just didn't have the inclination to train for and in many cases lacked the physical talent to meet.

Those same boys grew up in many cases to be academically successful men; fathers, who could determine funding priorities and administer school districts. I'm not sure this is related, but my son's academically excellent public school has a Physical Education department whose grading requirements for an A- in 9th and 10th grades are apparently "successfully changes into PE clothes."  There is no required physical education at all for 11th and 12th grades. The coaches do care a lot about the teams, but not at all about educating anyone of even average physical talent.

In other words, I suspect that since PE was difficult for people who weren't talented athletically, it was curtailed and then turned into an utterly useless program.  Imagine what would happen if we taught math that way? If you're not "math team" caliber, you show up for class, play math-based games if you want to -- hang out and talk to your friends if not -- and then you get an "A-" so long as you don't cause any problems.

I believe we need to create "learning environments" for physical learning in the schools. Teachers ridiculing kids who can't make the quota of pushups isn't okay; but neither is saying "voila! no need for push-ups!" I think understanding how to deal with the wide distribution of physical talent will help academics find innovative new approaches for managing the wide distribution of intellectual talent.

So back to the conversation with my friend, because there's another part to this, centered around the wide disparity in IQ that schools have to deal with, and how that affects the way people approach their lives, particularly how they approach conflict.

I don't actually have any answers to the questions he raised. But I have been thinking a lot about, specifically, the role of public education beyond the education of specific intellectual skills.

I have seen bright children become so competitive that they lose all sense of empathy. I have seen average children become so insecure and anxious they get sick. I have seen children (and adults) become violently angry and destructively frustrated when they just can't "get it," particularly when the pressure's on and the stakes are high.

I believe the future of education has to be team-based, because we can't afford, as a society, to exacerbate impulsive anger in children who aren't succeeding at the moment, whether they're just not smart enough or they're just generally prone to anger or impulsivity, or they are having short term personal crises.  Having social support helps people feel calmer, and gives them confidence they'll weather whatever they need to face.

We need to know a lot more about how to integrate people who are experiencing failure, anger, and obsession. We have an idea of how to create an intellectual learning environment: it's okay to try, mistakes are tolerated, unpacked, and knowledge is gained. Now we need to learn how to create learning environments that accommodate emotional learning.

And we have to expand those domains to encompass a way to differentiate the curriculum for a very wide disparity in natural talent.

Tying Funding to Asset Growth

I'm hosting a forum on SocialEdge.org for the next two weeks centered around Marc Dangeard's work building and Entrepreneur's Commons.  There are many other ideas that are being discussed in the lists and the forum, and I'll pull them together at the end of the two weeks so we can see what came out of the discussion.

Some questions are just too good of a platform for me to let slip by!  Today, Andrea Saveri from Institute for the Future asked the question:  How/does this take into account the measurement of various capitals (social, financial, natural, etc.)?

The way it is related to issues regarding the development of non-financial capital is based on a current disconnect: Currently, people whose sole mission is to protect their fund's financial capital (i.e. VC's, Angel Investors) have made it difficult for organizations with non-financial goals to raise capital.  This is due to a design that requires a very high return on investment in a short amount of time.

However financial and non-financial capital are actually related through the idea of intangible asset development, which is a necessary precursor to financial return anyway. So even for-profit organizations sometimes have issues with the rate and amount of financial return necessary for their funders, as they try to develop their internal capacity rather than focus on short-term financial results. Certainly, social entrepreneurial ventures have even more difficulty, as their desired outcomes involve building non-financial assets, which are only related to the original investment in terms of "economic health." Think, for example, of an educational non-profit: eventually an entire generation of optimally educated young people would be a huge boon; but that's a 20-year time horizon.

So Marc's Entrepreneur Commons manages to find solutions for both these issues: how to maintain financial protection (risk/return) for investors, while simultaneously allowing the venture to focus on building its intangible assets for future financial return, and/or to build non-financial assets within the community.

7/29-8/4: Skoll Foundation SocialEdge.org forum

Next week, I'll be hosting a forum on the Skoll Foundation's community website,  SocialEdge, which describes itself as "the global online community where social entrepreneurs and other practitioners of the social benefit sector connect to network, learn, inspire and share resources."

I'll be addressing the following issue:  When entrepreneurs start a social venture, they are immediately in conflict: they have a short-term focus on achieving financial return for their investors, with a long-term focus of building a community's intangible assets as their mission.

A social venture itself is usually specifically about developing intangible assets within a community: social connectedness, intellectual resources and skills, creative expression, personal health, a safer and cleaner environment. But the entrepreneur/investor relationship (typically through an equity deal) is at odds with this because the equity partner is mostly interested in return on financial capital: in an equity deal, this is the only measure of success.

Microfinance has emerged as a solution by providing debt, which changes the expectation for the scale of financial returns.  However, microfinance typically manages risk of course by lending small amounts and also by focusing on how building a community's intangible assets manages the risks associated with default. 

Social Enterprises often require a scale that microfinance can't address, and while the service area may be in desperate need of intangible asset development, the social enterprise is rarely a "distressed property" in terms of its social, physical, and intellectual assets.

But a hybrid is possible:

• apply concepts from microfinance to Entrepreneurship in developed countries (heretofore the VC playground)
• use debt to provide seed capital for ambitious ideas -- de facto very high risk
• mitigate the risk through the same focus on intangible asset development: providing resources to develop the social and intellectual assets associated with the building the enterprise.

An example of such hybridizing is what Marc Dangeard is building with the Entrepreneur Commons, which I've mentioned here previously.  He explains:

Sustainable Economy

A few people have asked how in the world the variety of things I work on are related to each other. Well, some aren't (tennis, piano, quilting...). But professionally, they're all tied together. 

I've decided to make a map of what that looks like to me. For my astute and precise friends, you'll notice that there are many more examples that could be added. Please feel free to comment if your map is faceted differently, and of course mention anything you feels needs mentioning.

Gas Prices and Car Decisions

The situation with gas prices seems to be somehow representative of many peoples' current woes, ranging from getting financially slapped around, to environmental concerns, to the many issues surrounding the war.

So in the interest of giving something concretely useful to the extremely focused yet incredibly representative question of "what should I do about my car?" amidst the chaos of the world as we know it, I've made a simple "back-of-envelope" spreadsheet model:

Download the spreadsheet. Enter your annual miles, the expected annual gas price increase, the price of gas now, and two different car mileages to get a cost difference between the two cars.

For those who don't want to bother, I'll give you one little tidbit: in 6 years -- when my son graduates college -- assuming a 10% annual increase, the cost of gas will be $8/gallon.  The difference in gasoline expense between a 35 mpg car and a 20mpg car will be $215/month for 15,000 miles/year. That's how much he would save owning a 35 mpg car; that's not including the actual cost for the gas, let alone the car itself.

Think of the implications. If you were a 22 year old, would you buy a car? How about a motorcycle?  Would you choose to live in a city with poor public transportation?

And on that provocative note, let me point out a great new game by Institute for the Future, which as usual blows the lid off the concept of "provocative,"  Superstruct. It's part of their very popular Ten Year Forecast, widely subscribed to by large corporate clients and non-profits. It's open to everyone to play.

This is a game of survival, and we need you to survive.

Super-threats are massively disrupting global society as we know it. There’s an entire generation of homeless people worldwide, as the number of climate refugees tops 250 million. Entrepreneurial chaos and “the axis of biofuel” wreak havoc in the alternative fuel industry. Carbon quotas plummet as food shortages mount. The existing structures of human civilization—from families and language to corporate society and technological infrastructures—just aren’t enough. We need a new set of superstructures to rise above, to take humans to the next stage.

You can help. Tell us your story. Strategize out loud. Superstruct now.

It's your legacy to the human race.

Green Suburbs v. 0.9 (Beta)

In his insightful post on Open the Future: The Suburban Question, Jamais Cascio points out how the re-urbanization of the middle class and the suburbanization of the urban poor is an important trend.

He notes that the suburbs may eventually be abandoned to the low-income, people who are even less able to afford transportation costs, for example.

It's easiest to decouple suburbs from income once you realize how many people opt to remain childless, or send their children to private schools rather than neighborhood ones.  Suburbs have been able to have a more controlled environment simply due to zoning. If in the past education has correlated reasonably well to income, and the success of a child at school is most strongly correlated to the educational attainment of the primary caregiver, then lumping expensive houses together and plopping a school there might keep the children from learning some life lessons, but would presumably clump higher-academic-potential children together.

However, squeeze three families into that same McMansion, and the story looks a little bit different.

So how do we "green" the suburbs? It really is a drastic change, which is why I'm not calling it "Suburbs 2.0," but rather "Green Suburbs (beta)."  I think Jamais' focused the main issue: it's about living close to work. Greening the suburbs hingest on having clusters of product-oriented companies (not only retail services) available as employers. "First Ring" suburbs have managed this: Mountain View-to-Palo Alto have a tremendous force of high tech.  Fremont, Union City, Newark and South Hayward have benefited from the crawl north out of the Santa Clara county and into Alameda County, particularly in both biotech and solar.

This is an urban design question, in my mind: how to create a habitat where there is industry and work and social/physical/aesthetic experiences yet something of an ability to uproot and move when a new job appears.

The way to measure this -- had you thought I *wasn't* going to tie this back to the drum I beat? -- is to establish community indicators that focus on building specifically these assets. Communities need to measure what they want.  I point to the Boulder site because I believe they do a good job not only of building their program but also of explaining their results.  There are many commmunities in the United States who have begun this work.

New Model for Angel Investment

Yesterday, I had coffee with Marc Dangeard, a friend from Institute for the Future's FutureCommons.

He's working on a brilliant project. (And he is still forming if you want to investigate if this is right for you.)

Identifying the issues that start-ups have finding angel-level funding as well as the issues angels have with the volatility of their returns, he is bringing a structure that has been successful in Europe to the United States.  In this structure -- a mutual guarantee society (how insurance began) -- a capital pool is formed by angels and debt is loaned to startups. Inclusion is by invitation.

There are many things I just love about this:

Picking Winners

Gonna toot my own horn for a moment while I make a point. In Jun 2006, I was asked to consult and recommend one equity that would satisfy the following criteria:

• Publicly traded
• Advanced Material, preferably nanotech
• Alternative Energy, preferably solar
• Buy-and-Hold for about 3 years
• No hedging or arbitrage (so it couldn't be a "momentum" play)
• And it would be nice if it began appreciating within 6 months

It took a lot of work. I was too ambivalent to be comfortable recommending any "solar nano" publicly traded stock.

By looking not only at financials, markets, and technology, but also considering social asset base, and companies' intellectual property and the potential for continuing to solve problems, I was able to confidently make my recommendation. It was about $9 at the time, and it has just topped $35 yesterday (about 24 months later).

Here's the chart:

Job Training - Microfinance, American Style

A few months ago I had a conversation where I was told that we do have microfinance in the US:  we have introductory credit cards, wherein anyone can get a few hundred bucks to do with what they will.

I have no doubt this is true: compared to other countries, we do have access to capital in the US.  But I know that microfinance works not because 16 year olds (or the marginally employed) have money shoved at them, but because along with the funding comes knowledge and social support.  In fact, Yunus was so successful with microfinance because the funds were given to women (who had entire families to take care of) and to no less than five people at a time.

Health Post

Well, the EPA -- by minimally protecting air quality -- has shown once again that having regulatory oversight for a first-approximation level economic system just doesn't work well. 

From the Washington Post article:

The EPA estimated that it will cost polluting industries $7.6 billion to $8.8 billion a year to meet the 75-ppb standard, but that rule will yield $2 billion to $19 billion in health benefits.

So, once again, we have this issue that we are accounting in a way that the right hand has no impact on what the left hand is doing, so even though we can see the connections -- and by "health benefits" just imagine how much innovation and productivity isn't happening to think about the magnitude of secondary effects -- we have no true "market mechanism" at work here.

When I was in MBA-land, we had a case in Cost Accounting regarding two Division heads having at it as they lobbied for their own interests.  This is the same issue:  the health people want one thing, and the industry lobbyists want another thing.  As a society, we have no CEO, no ultimate arbiter of whether we're following the mission of the organization, because as a society, we don't have a single mission.  This is where a "market" ends up being a helpful proxy for "wisdom of the crowds".

The good news is that we're on it, as a society; there are many people developing new ways to manage risk and evaluate sustainability in industry so as to enable us to reward those who "do good."

Underlying "doing good," though, is acting in concert with our own long-term self-interests.  We all know that sometimes we don't sleep enough because there's something else more important (work? sick kid?...).  As a society, sometimes we don't act sustainably because we're caught up in something else (economy? feeling self-protective?). Sometimes, it's the right decision, sometimes it's not.

Version 2.0 of the economy will be to have a global model that can account for all facets of humans' lives, not simply the accumulation of financial currency.  Further, it will be robustly sustainable. Our current market system has many components that push us towards accumulating money; that's how the score is kept, after all.  A sustainable system will have many components that push us towards a sustainable equilibrium, incenting us to "do good" simply by following those rules of the system that are now relegated to "morality" or "ethics," but which can (with effort) be part of the main measurement systems.

Scarcity, Abundance, and The Importance of Risk

Chris Anderson at Wired has recently written a fine piece on abundance, scarcity and what's going on with all that there... I generally like the taxonomy at the end; I think that's very helpful.

But, I want to jump in with a bit of a different perspective on the expository section.

For some situations, there's such a thing as "scarcity," and in other situations, it's not relevant at all, which is a bit hard to fathom.  It's like the difference between classical mechanics (where energy can have any value) and quantum mechanics (where energy can only have specific values).  It freaks people out specifically because it's such a big difference from how we perceive reality.

However, I look at things in terms of how they advance several types of capital, and how they have *some* degree of transferability among them: financial, social, intellectual and environment (personal and environmental health).  We used to think about everything in terms of financial capital or precise monetization of other types of capital.

But each type of capital has both a "revenue" or wealth-accumulating component (popularity, knowledge, fitness, brand-identity...) but also an ability to mitigate risk in its own or a different category.

An example: IP

MIT/Stanford VLAB Summary

VLAB had a very interesting line-up on Tuesday in a packed house at Stanford's Business School.

Ron Gonen, the CEO of RecycleBank, might have the most interesting doppelgoogle ever.  He also has an interesting business model for recycling, one that allows consumers to acquire frequency points for recycling.  The concept hinges on RFID chips that allow operators to match recycling with recycler.

An engaging, dynamic speaker -- who knows how to flatter Californians -- Ron reports 90% penetration in the communities he's launched within. He gets quite a bit of interesting information based on the places the recycler-consumers choose to spend their frequency points. He notes that low-income neighborhoods use their points at the supermarket.

One of his points that I think bears repeating here: he strives to leave some money on the table with respect to charging municipalities so that the municipality can point to the success of the program and build positive community cohesion.

The second presenter was the CEO of Lucid Design. This company creates real-time energy use dashboards for commercial building owners.  He made mention of a reality TV show that is a competition for lowering the carbon footprint.  The winner?  50% Saved.

The last commercial presenter was the founder of GreenPlug, a company that makes chips and gives firmware to companies: Pip Coburn, are you here?  (Pip had a very memorable picture in his book "The Change Function" that rails upon the excessive amount of computer hardware that must be lugged.) The hardware automatically recognizes what the specific device needs, and turns off after it's fully charged.  Further, it's created for easy disassembly, minimizing e-waste.

Soros on the Current Financial Crisis

George Soros is, by far, my favorite billionaire. His article in the financial times calls this
the worst market crisis in 60 years. 

Although a recession in the developed world is now more or less inevitable, China, India and some of the oil-producing countries are in a very strong countertrend. So, the current financial crisis is less likely to cause a global recession than a radical realignment of the global economy, with a relative decline of the US and the rise of China and other countries in the developing world.

If nothing else, his very well reasoned arguments along with this conclusion will probably cause a lot of investment capital to (continue to) build overseas and avoid the US.

For those people who are so inclined, I call upon a balanced view of portfolio management -- particularly investment in social and intellectual capital in the United States by driving local investment and scientific advancements -- in order to support the future growth of the US economy. 

A great point made at the "Green Technology" VLAB at the MIT/Stanford Tuesday by John Denniston of Kleiner Perkins Caufield Byers was that the US invests about 1% in transportation R&D, and if you were to look at any firm that invested such a low percentage in R&D, this is a doggish position to take. (I'm paraphrasing; he was more eloquent.)

Well-educated Rest Of World Requiring US to Step Up?

Worried about education in the US? The idea that our electorate votes on issues based on the emotional appeal because taking the time to become informed -- either directly or by finding trusted sources to give direction -- might cause a missed episode of American Idol?

Well, fear not! We'll be rescued from our own foolishness as the rest of the world weighs in on our plans for governance.  This has always happened, of course, but frankly the degree to which the rest of the world gave a vote of No Confidence in Bush's economic proposal is pretty astounding.

So the Fed steps in and makes an unusually large cut in interest rates one week ahead of their planned meeting, but, worldwide, markets are sluggish to respond.  The US is naked.  We don't want to see just how close we are to a meltdown, we continue to believe our neighbors are struggling due to some sort of inherent personal flaw, and that by making the right choices and working diligently, we'll somehow avoid real hardship.

Given how indebted we are, foreign countries not only depend on our consumer spending but on our ability to service our loans.  The entire US is becoming a bad risk. Sell Sell!

Is there an antidote?  Heck, yeah! We need to solidify behind a sustainable ethical framework:

• Frugality
• Disdain for the simply superficial
• Production for the purpose of purpose
• Support for those who inspire, heal, and keep us empathetic (yes, this is where play comes in!)

It's a new frame.  For further ideas on the driving force of the lending market, SocialEdge has a guest this week who has some interesting idea.

Advanced Materials and Consumerism

There is an interesting article out of MIT, about a new tiny, quick sensor.

Note to VC Funds interested in alternative energy because it's such an obvious thing: the field is competitive, there are many paths that are going to dead-end, and it's highly interactive with regulatory forces.

Wanna diversify?  You should be investing in filtering and sensing technology.  Control of microstructure as well as the creation of new types of advanced materials will make these the must-have consumer products of the (20)10's.

Decisionmaking Under Uncertainty - Global Warming

Here's a brilliant video describing how to deal with the "is it real or is it memorex?" questions about Global Warming.

In true Generation X leadership style, the argument -- devoid of idealism, only paying attention to pragmatic concerns -- is as follows: Who cares about what scenario is true or false? Who cares about who is right or wrong?

What should we do?

Microfinance in America: Building Assets by Fundraiser

There are so many things to take note of in this article on a church fundraising project. 

First, that the scripture cited (and for the record I'm an atheist Jew, but I know a good quote when I see one) was about taking an appropriate level of risk with one's financial wealth... something ABOVE zero.  However, I think that the interpretation presumably lends itself to any kind of talent. It's certainly something I've always believed: I am lucky enough to have several talents; they're not for me to use for my own gain at the expense of others. That would be an inappropriate use of power.

Another thing to note is that while the news item reported exceptionally large profits, the church did fine -- not exceptionally well -- so one can assume that there were many people who lost money on their project. (What did they gain?  In the right environment, they've gained skills, knowledge, relationships... in the wrong environment, they've gained self-doubt, risk-aversion.) 

Third, this news article noted a gain, overall, in community cohesiveness.  A recent article in New Scientists describes the Survival of the Selfless, which is to say that an altruistic group can be more competitively fit than a group of individuals with no altruistic traits.

This is a very interesting approach to microfinance in the United States.  Please let me know if you have heard of similar examples: using microfinance explicitly to build social infrastructure.

Bubble 2.0

Mamas don't let your babies grow up to be cowboys.

The real harm of helicopter parenting: correcting the problems we encounter in OUR generation and forgetting that our children will encounter entirely different ones. Maybe, given what massive foreclosures can do to an economy, not to mention environmental mishaps and other disasters we seem to be one step away from, we should be teaching our children hyper-cooperation rather than fostering hyper-competitive "win or die trying!" attitudes.

(Update - previous video was pulled down. The link goes to a newly released version. Thanks to Sky's Blog at the Dalai Lama Foundation for alerting me.)

The video

The credits

The Social Capitalists' Lens

Shankar Vedantam wrote up an interesting article in the Washington Post, One Thing We Can't Build Alone in Iraq.

It's a quick introduction to why thinking in terms of financial wealth and "more money = better lives" is misleading:  a bigger bottom line might correlate with a healthy economy, but it's not predictive.  A community's social capital is.

The Best (Financial) Prediction of 2007 - CNBC

When I was at a Hedge Fund in Minnesota -- Deephaven Capital Management -- I was fortunate enough to be exposed to the insight of Andy Redleaf.  He subsequently left and set up Whitebox Advisors.  Here he is expounding on his "best prediction of 2007".

He ends with his new prediction: he agrees with US dollar predictions and adds to it the anticipation of highly volatile markets.

The Experience of Prediction Markets

(Cross-post to IFTF's FutureNow blog.)

I had been co-administering the prediction market for the Open Ex program at IFTF and pulled together a summary for people interested in Prediction Markets.  The IFTF market used InklingMarkets.com as a platform.

These ideas are pulled predominantly from the experience of running the market, rather than participating in the market.

Risk Management via Monitoring Activist Investors

In the article The Subprime Meltdown and SRI: Engage, Avoid, Predict, Bill Baue describes the issues and relates how activist investors expressed their concerns about these dangers by such methods as tying executive compensation to fighting predatory loans.

Explicit For-Profit funding model

I'm at TechSquared in the Economic Sustainability forum.

Here, as everywhere, there is a concept that if something provides a value, even to a mission-driven organization, the organization should charge money.

However people don’t always have money...particularly people who mission-driven organizations feel are their core beneficiaries.

So the question is, if something definitely provides value that investors would like to see monetized, can other assets be built up as intermediate component that can then provide at least compensatory non-monetary value to the organization or even be monetized by entities that are for-profit? 

I just sketched a framework (attached), but off the top of my head other forms of payment in lieu of financial would include volunteering -- of direct benefit to the mission-driven organization -- but also components that for-profits might be able to consider monetizeable services, such as adding knowledge (even knowledge in terms of documenting experience of those who are program recipients), building reciprocal relationships, participating in research study, or finding information or even contributing "micro-information.”

Sustainability Reporting in XBRL

Socialfunds.com, a fabulous site, has relayed that the Global Reporting Initiaitive has released a draft taxonomy based on their G3 recommendations for the XBRL reporting framework.

Assassination Markets

I've been doing some work in Prediction Markets for IFTF, and have been particularly interested in the concept of assassination markets:  I predict this person will die can be transformed into a price on their head.

The thing that's fascinating is that markets have positivity and negativity built into them all the time.  However, with prediction markets, it becomes explicit.  A new betting site, BetUs.com, allows people to bet on specific outcomes for global warming.

Will new types of regulation spring up to eliminate the possibility of creating markets in destruction? 

Porter and Kramer CSR Framework

I'm a big fan of Michael Porter's, so I was pleasantly surprised to see that an article (.pdf) about the framework devised by him and Mark Kramer to re-examine Corporate Social Responsibility was granted the 2006 McKinsey Award by Harvard Business Review.

The fundamentally new part of this article is the explicit comment that the need is to change the adversarial relationship between business and society into a collaborative one; the authors review current approaches and offer commentary about their framework.

I actually feel this framework doesn't go quite far enough -- though I haven't talked to either of the authors so this may be simply because of the article scope -- but it *seems* that they're saying that there needs to be collaboration across the boundary or in the interface between firm and non-firm.  In contrast, I'm saying that the concept of externalities is outmoded now that we can model complex systems, and a new model needs to be developed that treats firms, community groups, etc. -- down to the individual level -- as actors in a larger topology.

A new innovest index - Access to Medicine

A new type of sustainability index is at access-to-medicine.org.  Well named by Innovest, it's an index that attempts to measure access to medicine.  The key indicators for performance are listed below.  (...from their site, where they also list a non-profit heavy -- not pharmaceutical-heavy -- list of stakeholders):

The key indicators for performance are:

20%	Access to Medicines Management
20%	Research & Development into Neglected Diseases
18%	Equitable Pricing
15%	Patents & Licensing
10%	Policy Influence & Lobbying
7%	Drug Donations
5%	Philanthropic Activities
5%	Ethical Promotion & Marketing Activities

American Superconductor

I was called upon to make one professional investment recommendation last year.  It was for a fund that is buy-and-hold (long only); consequently they wanted an advanced material in the alternative energy space that had minimal downside risk and high upside potential, preferably where the upside is realized in the short term but the time horizon was "three years."

I recommended AMSC. Many reasons: well run, conservative company with extremely well defined market with which it had outstanding reputation; making a core technology with many different applications, and they were approaching that diversity in a very organized and thoughtful way; and of course, leading edge disruptive technology.

Anyway, it's up 50%. Not too shabby.

Lehman, GE, Duke support carbon caps

An enormous, bellweather story:  Bush says any regulation is bad for the economy.  "Free market, free market, free market."  Yet, Bloomberg.com reports

Duke Energy, one of the nation's largest generators of coal- fired power, says carbon regulation is inevitable and would prefer Congress to enact rules so it can plan for the future.

The article describes the enormous alliance that provides shelter for congress to enact reforms.  It also describes the political climate.  It's published in one of the key financial industry international online communities. 

What does this mean? It underscores that it's not unfettered behavior that's important, it's uncertainty.  The first step is within the old framework: please make a new playing field and lay it in concrete so we can eliminate risks associated with fluid learning.

The step that comes after this is developing methods to deal with fluidity without creating the false sense of security a cement playing field represents.

Looking for an edge?

In January, Forbes ran an article that 4% of funded CEOs are women.  Even people who are horribly sexist have got to think that the existing partners are missing a huge group of potential leaders (often who perceive market opportunities that are utterly hidden to young men who typically pitch them). 96% / 4%? That's just ridiculous.  Further they often fund specific schools preferentially.  Nothing against the schools of course but those degrees really are just degrees - not risk control.

I think there's a lack of liquidity the arises from these unsophisticated methods of risk control.  For example, one reason people "can't find good help these days" is because they are looking for certain indicators they believe will bring down risk as opposed to developing a method for explicit evaluation.

In other places in the financial industry such as investment banks, it's just tough (for some) to figure out where to put someone who hasn't just received or is soon to receive an MBA.  The MBA screens for people willing to pay money to learn the ropes and who expect to work insane hours (many of which may be of dubious productivity because they're novices).

It's a way to propagate a culture: take someone young, make it an all-or-nothing game for them, and require total immersion.  It keeps people from questioning the status quo much.  And it's easier to manage people who are just like you.

But creating structures that screen out everyone other than those who have the highest probability of success isn't an effective risk management technique, it's a broad-brush risk avoidance method that necessarily tosses out a lot of opportunity in order to oversimplify the risk management process.

Where Are The Women Venture Capitalists? - Forbes.com

A VC friend recently mentioned that VCs are always slightly behind the curve, looking for the next big thing.  Another friend reported that the next big thing is evidently under-25 year olds, because they'll truly "get" social networking.

What women have had to do for millenia is to build social capital. It wasn't all that long ago when women couldn't own property (and the idea lingered for a while, even in the US... one of the impetuses for "keeping your own name" when getting married was so that property could be listed in the wife's name as well as the husband's). 

When you're not allowed financial power, and you don't have relative physical power, the only thing you CAN do is have a strong social network.  I strongly question where there's any more low hanging fruit under the category "ways for young people to hook up using social network software," but you know, porn drives technology adoption, so perhaps I speak too soon.

Yet I believe that there are far more women and people of lower socio-economic level and cultural backgrounds who have fresh ideas in this area than 25-year-old upper-middle-class white men.

Where Are The Women Venture Capitalists? - Forbes.com.

Indeed, in the first half of 2006, only 4% of VC-backed companies had women chief executives, and those companies with women at the top received just 3% of the total dollar amount raised, according to VC research firm VentureOne, in San Francisco.

Fairfax County Library brouhaha

A list I frequent had a thread about the article, "Hello, Grisham -- So Long, Hemingway?" where the Washington Post points out that Fairfax County library is being very ... aggressive ... at weeding out classic authors' work at the expense of trendy fiction.

Suspecting "social entrepreneurism" run amok, I did some research.  Thinking originally that they were desperately strapped for cash, I discovered that, nope, in 2004 they passed a $52 MM bond, so they clearly had lobbied the community successfully for funds; a quick google found this article from http://www.libraryjournal.com/article/CA6298558.html:

According to library consultant Rhea Rubin, another way to evaluate library services is through user-oriented measures known as outcomes (see "Measure Your Worth," p. 10). The power of outcomes is in the revelation of whether you have touched lives with the work you do.

Prediction Markets

A project I'm working on for IFTF is very interesting.  Anthony is leading the team, and writes up a great summary for an event he went to at Yahoo: IFTF's Future Now: Prediction Markets at Yahoo! ConFab.  It's a clever way to get at "group wisdom" data.

HP used it reduce errors in DRAM price predictions (highly volatile commodity) from 4% to 2.5%

Greendimes: a capital idea!

Greendimes has an interesting approach to risk management that spans the domains of financial, social, and environmental capitals.

It starts simply enough: You give them a relatively modest amount of money.  They reduce your junk mail.