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Open Infrastructure Model To Support Early Stage Social Ventures Social Venture Investment Bank
Objectives Provide vision and model for a social venture investment bank to support early stage social ventures Incorporate current context Open infrastructures Information technology landscape Introduce notion of ecosystems and describe how ecosystems can form the basis for understanding the investment landscape Provide suggestions on how to rollout the model Advance specific proposal for consideration for funding
Vision Openness: utilize open models whenever possible Collaborative: develop collaborative models whenever possible Focus on ‘emerging’ spaces; I will focus on spaces that are evolving around open architectures
Function, Context and Timing Infrastructure and Investment Banking
What is an investment bank? Add value in the capital allocation process Develop industry segments by judiciously deploying capital in a risk adjusted way Provide intermediary services between capital providers and those that require capital brokerage Provide advisory services
Investment Banks: some history JP Morgan: financed the railroads based on a vision for an integrated Railroad Structure Goldman Sachs: pioneered IPO market Barclay’s: involved in precious metals trading in the 1600’s Drexel Burnham: pioneered high yield debt market Investment Banks satisfied a particular need for capital by creating innovative financial structures
Why Does The Investment Banking Model Work? Market Intelligence! Traditional investment banks have very strong research processes and therefore understand the industry context better than most of the companies in the space. Market Intelligence is based on a top-down view of the space
Why Does The Investment Banking Model Work? Industry Relationships! Traditional investment banks invest a lot of time and energy as a part of their research process to get to know the companies in a particular industry segment There is no shortcut to relationship development...
Developing Infrastructure in the SV Space: function and context What is the function of SV finance infrastructure? To support the evolution and development of the SV space. Therefore: IF we have an evolved SV space, we need many things that would parallel the traditional SV space: Research Brokerage M&A Advisory However, We DO NOT have an evolved SV Space
What is the single biggest reason that we don’t have an evolved SV landscape? We do not have a sufficient infrastructure to support new entrants into the space! No seed funding for pre-proof of concept social ventures No support infrastructure for pre-proof of concept social ventures Developing Infrastructure in the SV Space: the current problem Creating infrastructure to support new entrants into the space should be the single biggest priority from an SV infrastructure standpoint
Why is there a lack of infrastructure to support early stage social ventures? Projects are high risk and, in many cases, do not carry sufficiently visible financial return (in contrast to traditional early stage markets)
The Solution...Mitigate Risk! This can be accomplished by: Developing information and increasing understanding of space Developing relationships to drive transactions; acquisitions, partnerships etc. Driving collaboration between projects and funding the collaboratively (see Ecosystem Pooled Fund) Driving collaboration amongst SV ecosystem to share risk on deals, better enhance due diligence methods etc. One Final Thought...
The Creation of Primary Markets Infrastructure Should Precede the Creation of Secondary Markets Infrastructure
Project Mapping and Relationship Development Developing Early Stage Ecosystems
What is an ecosystem? A natural set of relationships between a group of projects that makes it possible that they collaborate! Share common goals: ‘Solve climate change problem!’ Are a part of a value chain: supplier manufacturer, distributor Share common team members Share common customers or markets Etc Manufacturer Supplier Distributor
Why Ecosystems? The Evolution in the Communications Infrastructure Internet connectivity penetration rates are increasing Bandwith limitations are being reduced The cost of communication is dropping (thank you Skype!) Interoperability protocols, applications etc. are evolving Social networking platforms (Facebook...) are changing the culture of communication Processing power is being pushed to the edge of the network (Smartphones etc.) The real time infrastructure is evolving (Twitter)
Why Ecosystems? Changing Patterns of Interaction Information flows freely across organizational boundaries Geographic constraints are less meaningful Structural limitations on information management don’t constrain participation (thousands of people can work on projects!) Meetings can be run virtually Projects can be managed asynchronously Projects can be scaled to involve many people with minimal incremental cost Your communications infrastructure can be scaled to include many people with minimal incremental cost Real Time Connectivity Across Boundaries Makes a Systems View Natural
Sectors/Verticals/Ecosystems... All of the above are ‘ecosystems’. Open ecosystems are a new phenomenon
The TimingIs Right for A Systems Approach To Understanding the Investment Landscape
A Specific Example The Open Manufacturing Ecosystem
Develop Single Ecosystem: any ecosystem of your choice Objectives Develop Ecosystem Map Develop Ecosystem Information Model Identify collaborative funding candidates (see Ecosystem Pooled Fund) Identify individual funding candidates Identify ecosystem partner from within ecosystem Draft ecosystem Summary Report Timeline: 6 months Budget: $25,000 Build foundation to prove model in one ecosystem