The hidden cost of market rate

Mission district
"Mission" by Dale Cruse via Flickr (CC BY 2.0)

The spring of 2000 should have been a very good time for me. I’d just made a sale for the most cash, the least equity, and shortest earn out of my career. It was 10 days before the NASDAQ peaked and a few short weeks before it was clear to everyone that the Dot-com bubble had definitely burst.

But one day in the midst of all that action, standing in San Francisco’s Mission District holding my grandson, my daughter asked me what my life was about.

I didn’t have a great answer to give my daughter that day. In the years since, I’ve been working to find one.

I love earning market-rate returns when particular kinds of need are so great that delivering a public good through market means makes ethical sense and can still meet top-tier venture demands. I’m talking about markets like off-grid solar power in rural Sub-Saharan Africa, or treatments for PTSD or Type 2 Diabetes in the U.S. 

As in the dynamics of vaccine distribution, these businesses are like a public good that needs to be spread as fast as possible. With off-grid solar, startups are (1) eliminating kerosene that kills one million people a year through indoor air pollution, and (2) cutting lighting and fuel costs by 40%, and democratizing their benefits for work and study. With chronic but treatable diseases like PTSD and Type 2 Diabetes, the technology needs to be spread as quickly as possible.

We need to solve these problems. Market-rate investment, even top tier venture capital returns, can help us do that. It should be a part of lots of investors’ portfolios.

But in more recent years, my business partners and I have chosen to look for deals where investors have to bear more of the cost of doing good. I’ve put more recent earnings toward scholarships and travel for underrepresented entrepreneurs, and toward building markets where venture capital and demands for market-rate returns won’t work. 

We simply can’t address the embedded cost of systemic injustice at market rate.

For the kinds of investments that have helped me answer my daughter’s question about the meaning of my life, concessionary, neighborhood-scale capital has been the answer. In light of past injustices, there also often needs to be some level of philanthropy, donations from individuals, support from foundations, and even public funding or other subsidies to make wealth creation in marginalized communities a reality.

At Faith+Finance, we’ll be talking about how the demands of our religious faith are calling many investors through the narrow gate of an approach to investing that takes seriously the harm our economic systems have perpetrated and perpetuated on the communities Jesus called “the least of these.”

We won’t make easy money on such projects. But we can tell future generations about what we’ve learned to stand for.


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