Building a New Paradigm
We all invest in our futures in various ways. Which begs a core question: Are we making our futures, or, merely waiting for them to ‘just happen’? We’re committed to the former.
The process whereby a fantastically private model of the world leaps beyond the wall of mirrors in which it was created and reaches out to change the general landscape of awareness is unmistakeable… — George Steiner (speaking of Borges)
Here’s the funny thing about monoculture, you know, that singular, uni-focused construct guiding our current monetary system, political system, commercial industries and philanthropic domains.
It’s deceptively inflexible.
So inflexible, in fact, that these systems — or the foundational elements driving them — are collapsing under their own weight. Cases in point: debt and asset bubbles (auto and home loans specifically), total mistrust in the government (with or without a Trump administration), labor and resource stratification (you can see many forms of it all around you), as well as the general inability of non-profits to offset or ‘repair’ the damage done to people + planet by for-profit companies and their operational footprints.
Given that we know this, that this is becoming more and more obvious to more and more people, it’s important that we ground ourselves in building whatever we can as an alternative to what isn’t working.
This may sound obvious, but the reality is that most people aren’t trained to be able to build things, especially if they can’t actually see what their efforts look like in the ‘real world’. Yet, this is precisely what the world is calling for in this moment — a moment of extreme transition, uncertainty and complexity.
Identifying the Core Economic Paradox
The ‘middle market’ is the biggest area of investment, ‘alternative’ or not. Literally, the biggest.
The additional data is even more important because it points less to a lack of capital, but a lack of seeing the opportunity for what it really is. When you really look at it, it’s a paradox that jumps out at you, simply because the opportunity is really that big.
As SOCAP’s Good Capital Project points out, the amount of money earmarked for ‘impact’ projects is staggering, yet only a tiny percentage has been/is being activated in the market.
See what’s happening?
We have more capital available than at any other time in recorded history, and, we have more social and environmental needs than at any other time in recorded history… and relatively little is being done about it. At the very least, we should be asking very different questions about our own business and market practices. It would be, well, idiotic not to do so.
Here’s an even bigger thing to consider.
Current global debt has reached 325% of world GDP. Current global debt is around $217t. Current U.S. debt is around $64.3t. If we allocate just 20% of the $287t+ that’s available across the ‘impact’ domains, we put a significant dent in this equation. If we allocate 50%, we can wipe out the majority of debt flows in the two largest industrialized nations alone (depending on who or what you source, the U.S. and China).
Sit with this for a moment.
Looking past debt jubilees, austerity measures, sustainability plays and the like, we are looking at an opportunity to literally fix our economic woes in very short order through smarter, proactive, ecosystemic investments.
What are we waiting for?
From Theories to Applied & Embodied Practices
For starters, if all this money is available for ‘better investments’, why isn’t being allocated?
Here’s what we’ve seen in our work across multiple business and civic domains, including, of course, multiple startup spaces:
- Ideology (“change the world”, “save the planet”, “resist so-and-so” etc.) has not changed vetting processes
- Vetting processes tend to not identify *new* asset + asset class creation
- Capital structures (to include PPMs) must completely transform
- Operating models must completely transform
- A wider variety of stakeholders must participate
Economic theories are the most ideological and ineffective ways to vet opportunities because they are rooted in making assessments after the fact, and even in doing that, they constantly circle around in revisions of perceived realities, rather than running constant experiments that test assumptions against reality.
Good times or bad, there is a huge opportunity to build the civic goods and services of the near future. Here’s the…medium.com
Modern economic theories — those we find created in this century — are even more troublesome for the simple fact that the language can’t be applied nor impacts measured. Ask folks in the regenerative and circular economy spaces for definitions of either and you are most likely to find a smattering of ideas that don’t connect or interrelate. Even worse, there’s a ton of dissonance within these groups as people jockey for position to profit from their ‘perceived knowledge’ of these spaces.
There is an even bigger issue at stake which is that companies and industries, for the most part, still do not see themselves as playing critical roles in a larger ‘global operating system’. Granted, many of them never will, which puts them at risk of becoming obsolete, in short order. But this notion of a ‘global operating system’ doesn’t require that companies or people opt-in to some other system; what’s required is that they operate right now as if they were that other system, so that when huge, sweeping changes come around, they are ready to ‘plug in’.
Those sweeping changes are already starting to take hold, and they will almost immediately affect most businesses and markets in previously unimaginable ways, either directly or indirectly. As shining examples…
Over 70% of retail space in the U.S. is turning over. Brick-and-mortar businesses are shutting down at alarming rates.
Pension funds, mutual funds and many hedge funds have stopped producing returns, providing payouts, or are simply dried up and closing their doors.
Government agencies are being shut down, and not just because of executive orders — they can’t keep pace with public discourse, and at the same time, with private innovations.
Many people are migrating away from rural areas to urban centers because they cannot generate new resources and create better livelihoods.
In all of these areas, people and institutions are woefully unprepared to develop the multi-faceted skills required to create new businesses and markets, and the current infrastructures cannot, and do not, support them in these efforts.
It is important to realize that these conditions are not to be feared, but rather, to be embraced and leveraged.
But first, a few more reality checks.
The Distinction between Emergent & Incremental Approaches
So here we are, faced with another important element in the mix, which is urgency.
Do we walk before we run? Or, do we run and learn along the way?
Common logic would dictate that we take an incremental approach to development. But *we* know better.
While various academic, institutional and progressive groups debate over what is happening, why it is happening, and what to do about it, we’ve already run out of time. We’ve run out of time in the sense that accelerating change and staid, outmoded processes for living and working don’t align. They can’t.
And while it is vitally important to understand the nature of complex adaptive systems, or culture design, or adaptive design, and explore territories addressing ‘social business’ or ‘flat organizations’, or to consider any number of fancy approaches to innovation and leadership, if we don’t build the alternatives quickly, we can’t really learn and we can’t really adapt to accelerating change.
Our position and operating strategy is straightforward: surface the knowledge that is available among the widest number of representative stakeholders, then prototype, watch what emerges, then enlist networks of people to help those prototypes scale into viable civic and commercial utilities.
We’ve generated a considerable amount of success doing this for entire ecosystems of market players (commercial and civic), and it’s led to the body of background practices and platforms we’ve developed as of today.
Apart from tangible results, and outcomes-based methods for creating new revenue streams, we’ve seen something even more important:
We can get entire industries to shift their operations practically overnight by realizing that many of their competitors are also their allies. All this requires is an adaptive design process that shows them what the ‘whole pie’ looks like, and how to build towards different, more prosperous futures.
Design processes abound; the difference between those that are adaptive, and those that are reactive, affects the speed and accuracy, and ultimately, the sustained value a company or ecosystem of companies can provide.
Now comes the ‘whole systems’ piece to making the whole pie actually work — you have learn from the entire marketplace, identify the gaps, and then build whatever you can either with those players, or, independently. Adaptive design processes naturally allow for this, provided that you have real operators in the mix, and people who can break things and rebuild them rather swiftly.
The Little-to-no-Risk Equation of Ecosystemic Design
There’s another very critical element to the experience of building companies and/or innovating with them: the notion of risk.
Talk to any fund manager or director of a family office or investment banker, and they’ll tell you that risk and asset value are inextricably linked, but they won’t tell you how they arrive at most of their investment decisions. The simple truth here is that if enough people are investing in a specific market play or a market sector, then they invest in it. It’s almost as if their vetting processes don’t matter. Insiders call this ‘following the smart money’.
They call it ‘smart’ not because the money carries with it some degree of deep intelligence or bundled data, but because the market players moving the top tier of that money know something that the rest of us don’t. Of course, there are severe limitations to this strategy, not the least of which is the fact that without intimate knowledge of what’s driving a market force, you can’t scale.
But this points to much bigger dynamic, which is that risk isn’t at all what we’ve been conditioned to think it is.
Risk is narrowly defined as a situation involving exposure to danger.
To boot, investment managers constantly complain about having reached thresholds in virtually every asset class, and therefore — through severely flawed logic — they want to ‘take less risks’.
And yet, time and time again, investors make incredibly dangerous bets under the auspices that their ‘vetting processes’ are exceptional. For the most part, they’re not. It’s a big part of why we’re in the mess we’re in economically, socially and environmentally.
Hence, why we’re building what we’re building.
We’ve chosen domains and cross-sections that are, naturally, of critical importance to business, society and the planet (“futures of__”), and we have a system whereby we match our core offerings and background practices with the ventures and projects we actually build.
The elements all inform each other, and, they allow us to expand into new territories. As vital, we can learn and adapt quickly, sharing that knowledge with market players of all types.
This is how we can mitigate and even avoid risk as we’ve come to know it.
It’s also how we create sustained value.
For those of you in various investment spaces who are curious, up until recently we haven’t operated as a fund (there is a link to our Higher Order VC fund structure at the end of this piece). In this way, we have been unrestricted by capital pressures normally tied to LPs and other structures, as we’ve been developing new, adaptive structures. We also want to be able to invest time and resources into projects that are ‘pre-operational’ — it’s a great way to test the market and find ways to see what the real opportunities are around a big idea or a vision for a new market that might not necessitate an early life as a startup or an extension business unit of a larger company.
Again, maximizing value, removing risk.
Creating Societies as Polycultures for Maximum Impact
One of the main things to observe in the development of ventures and projects of an open ecosystemic nature is that creating sustained market opportunities is also, literally, the rebuilding of society as a polyculture. Polycultural societies allow many different types of people to thrive because they can support them on locally variant terms. This also provides the most furtile ground for investment.
Take one of our newest ventures, Vertical Innovations, as a primary example. In this, we find a group of visionaries who literally see a different society that is manifested through the creation of a robust, highly expansive organic food supply chain.
To amplify the earlier point, the notion of maximizing value and removing risk entails a vision for society that includes diverse ways of generating and measuring impact. And when we talk about impact, the proxies and standards of measurement constantly evolve. Below is a map of Vertical Innovations’s impact radius in just a few cities in the midwest and northeast where we are piloting the platform — we are looking at variables such as social stability, cultural literacy, ingenuity and skills acquisition as some of the core benchmarks for success, as well as scale. As we get into market, we will develop more and more ways to understand how we can empower local economies beyond traditional econometric, GDP or GNP constructs.
An Open Conclusion About Investing in Change
Change isn’t disruption or even transformation, per se. Anyone can disrupt an industry. Anyone can transform their own surroundings.
The real challenge is if one can actually seed change and stay with, then build upon, the ebbs-and-flows of what change actually brings into the world.
The real charge, therefore, is to see if a market player can actually create a market that is enduring, with benefits to more and more people. Why? Because the more people have to create and regenerate resources, the better off everyone is. We’ve seen this not only historically, but in the ways by which our current economy begs for new approaches to living and working.
So… are you ready to build the alternatives?
If you are, and you have a budding vision for the world you’d like to live and work in, and you want to share resources, drop us a line.
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Exile designs, builds and helps capitalize market ecosystems dedicated to supporting people + planet.
Higher Order VC is a next generation venture capital platform with a combined corpus of $244 million to invest in early-stage and late-stage technology + ecological ventures in countries including the US and India.