Innovation at the cross-roads

My current investment thesis is based on a combination of :

PAYG Inter-Operability + a.i. / data driven finance

since such combination could open the door to the financing goods and services for approximately 1-2 billion persons currently living at the bottom of the pyramid.

I became interested in the combination of PAYG Inter-Operability + a.i. + data driven finance as a way to enable access to credit for the BOP, after having read this paper:

Behavior Revealed in Mobile Phone Usage Predicts Credit Repayment

by Daniel Björkegren and Darrell Grissen

Marc Andreesen has recently said in a podcast – please note that I am just paraphrasing here – that humanity is nowadays at a time when it is historically most connected, and that in the next years we will experience the benefits of going from isolated thought systems to globally inter-connected systems.

Inspired by Marc, I firmly believe that if we combine:

  • an increasingly inter-connected population located in emerging markets – enabled by inter-operable systems rather than tolerating that such information be kept behind walled gardens – with
  • a .i . / data driven finance

we could soon expect to add billions of consumers/producers to the global economy, despite the fact that such persons do not have a credit record, ids, any significant assets, etc.

In sum, I am looking to add to my impact portfolio, seed stage startups active in frontier or emerging markets that are capable of mining smartphone behavioral data to create mobile users credit profiles, similar to:

‘The future is already here – it’s just not evenly distributed’

William Gibson — The Economist, December 4, 2003

Why impact investment?

I am another of the rational optimists and that is why for some years I have invested part of my savings in companies with high social impact.

The goal of ending extreme poverty has been announced on more than one occasion and it is a fact not too widespread by the media, that in the last decades’ much progress has been achieved in this area, removing almost 1 billion people of extreme poverty only so far since the beginning of this century. However, not everything is a reason for joy; there are still more than 750 million people who survive with less than USD 1.9 per day. Although it is projected that extreme poverty will continue to decrease, at the same time, mainly for demographic reasons, it is expected that it will be increasingly difficult to combat it despite technological advances.

Like others I am convinced that entrepreneurs, especially those who seek to solve “structural problems” and primarily those who plan to achieve BHAG goals (big, hairy, bold, goals), that is, big, hairy and bold goals, are and they will be fully capable of successfully overcoming these transcendent challenges as long as they are provided with the right tools and opportunities (including economic capital). Ergo, an important way in which we can all support these entrepreneurs is to do something ourselves for them, whether helping them as mentors, facilitating contacts, investments, etc.

It is notorious that in recent years socially responsible investment (ISR) has grown exponentially and possibly – unless we go through a lasting global recession – it will continue for many years to come, in the same trajectory. No one escapes either that the ISR remains proportionally marginal compared to the trillions traded daily in international financial markets; However, everything seems to indicate that we are on the right path and that the ISR will become even more important in the future.

Some of the reasons why the ISR has increased significantly in recent times and that allow us to anticipate that even in a scenario of high volatility and inertia, the ISR continues to grow, are the following:

  1. It is a worldwide phenomenon – guided by the once for altruistic principles and for the · invisible hand · of Adam Smith – which encourages the ISR to spread and spread to those markets that are more favorable to the objectives of investors;
  2. society supports it and governments promote it and even impose it on its citizens through legislative changes;
  3. there are an increasing interest and activity on the part of the stakeholders in these type of investments, a virtuous circle is created in which the growth of the market contributes to its actors becoming increasingly active in terms of its dissemination and public awareness.

Another of the emerging and lasting trends that should be highlighted is that of incorporating, at a strategic and tactical level, the ASG for investment decision making by consumers, companies and professional investors. As there is greater scrutiny by the different actors within the decision-making systems and especially by the shareholders, civil society and governments, considering the ESG factors will become an unavoidable stage in any project. Progressively considering the ESG criteria will become an essential part of the decision-making processes, to the point that, over time, they will no longer be considered extra or complementary factors to the financial objectives. We will get used to automatically incorporate the evaluation and further measurement of the potential impact of the investment based on ESG criteria, within the inescapable criteria for decision making.

Today, technological advances allow us that those privileged who have the necessary means to that end, can access a growing and increasingly detailed volume of information on ESG factors, discover the opinions and recommendations of other people (experts or not in the matter), spread our opinions and decide on the basis of our personal preferences (including – to a greater or lesser extent – the ESG factors), what to buy and what to invest in.

Similarly, company decisions are submitted incrementally to greater scrutiny and demand for transparency. They are expected to justify how they have assessed factors such as sustainability and impact (positive or negative), within the decision criteria. Eventually, these parameters will be as common and accepted as today is doing business legitimately and without resorting to corruption. They will no longer be extraordinary criteria, activities aimed at a certain public of the company, and like CSR they will evade corporate jargon to become a central part of the strategy of any company that will consist not only of avoiding negative externalities; but above all, in creating and sharing value (obviously not only economic).

Gastón Bilder

The content of this post was first published in Revista RS – Centro Internacional de Responsabilidad Social y Sostenibilidad.

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