1.Open Infrastructure Model To Support Early Stage Social Ventures
Social Venture Investment Bank

2. 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
3. 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
4. Function, Context and Timing
Infrastructure and Investment Banking
5. 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
6. Investment Banks: some history
JP Morgan: financed the railroads based on a vision for an integrated Railroad Structure
Goldman Sachs: pioneered IPO market
Barclays: involved in precious metals trading in the 1600s
Drexel Burnham: pioneered high yield debt market
Investment Banks satisfied a particular need for capital by creating innovative financial structures
7. 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
8. 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...
9. 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
10. What is the single biggest reason that we dont 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
11. 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)
12. 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...
13. The Creation of Primary Markets Infrastructure
Should Precede the Creation of Secondary Markets Infrastructure
14. Project Mapping and Relationship Development
Developing Early Stage Ecosystems
15. 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
16. 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)
17. Why Ecosystems? Changing Patterns of Interaction
Information flows freely across organizational boundaries
Geographic constraints are less meaningful
Structural limitations on information management dont 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 AcrossBoundaries Makesa Systems View Natural
18. Sectors/Verticals/Ecosystems...
All of the above are ecosystems. Open ecosystems are a new phenomenon
19. The TimingIs Right for A Systems Approach To Understanding the Investment Landscape
20. A Specific Example
The Open Manufacturing Ecosystem
21. 22. 23. 24. Developing an Ecosystem InvolvesBoth Developing Information on the Projects in the Ecosystem and Making it Visible to all Stakeholders in the Ecosystem, for example...
25. 26. 27. 28. From Visibility Into the Ecosystem, opportunities will emerge
29. Rollout Strategy: the phases
30. Potential Business Models
Support Associated Fund: management fees
Align with Funders (Buy side):provide deal flow and to manage investments in the ecosystem
Sell Side Funding Mandates
31. Project Proposal
32. 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