S2E4: Capital and Community with Lindsay Smalling
In Episode 4, The Move Podcast interviews Lindsay Smalling, CEO of Social Capital Markets (SOCAP). We discuss the relationship between capitalism and civic duty, the problem with venture capital, and forms of thoughtful investing that prioritize relationships instead of unregulated growth. Is it possible for money and markets to create local and meaningful connections?
Ayushi Roy: [00:00:00] What am I trying to do with my money? What am I trying to do socially? What am I trying to do financially? And there’s this false narrative around market rate returns. You are the market. Hi, Cesar, How’s it going? (laughs) Oh, sorry.
Ceasar McDowell: [00:00:19] I’m doing okay, actually. How are you doing?
Ayushi Roy: [00:00:19] (laughs) I’m… We’re both just excited to be here. (laugh)
Ceasar McDowell: [00:00:19] I know, it’s amazing. You know what I think it is, it’s like today we actually have someone from California. I’m always happy (crosstalk) that we’re in California. Oh, isn’t it?
Ayushi Roy: [00:00:19] (laughs)
We’re always here.
(laughs)
There’s always someone from California.
There’s always some Californian in the room, and they’re always obnoxious about it. You’re welcome, Cesar.
Ceasar McDowell: [00:00:36] Now there’s gonna be two of them.
Ayushi Roy: [00:00:37] (laughs)
I think I’m gonna go in another studio.
(laughs)
Actually, no, we’re really happy today. Today we have with us Lindsay Smalling from Social Capital Markets, uh, also known as SOCAP, which is a convener of impact investors.
I’m just so excited to have her today. I hope you enjoy it.
Lindsay Smalling: [00:00:53] When we first convened SOCAP, which was in 2008, and, and I say we, but it was the founders who, you know, predate me by 5+ years. But they were seeing these emerging conversations around using the power of markets, the power of investment, the power of entrepreneurship, to affect social and environmental change. And they would see it coming from a bunch of entrepreneurs that they would get together, who weren’t doing nonprofits, they were doing for-profits, but with a very clear social intention.
And then they’d see it from foundations who are realizing that sometimes a grant wasn’t actually the thing that their programmatic partners needed, their, you know, grantees needed at that time. They needed a loan guarantee, or they needed some other type of investment. And so there were all these, sort of, siloed conversations that were all talking about the same thing. And so SOCAP was Social Capital Markets. How do we bring a real market together and get all of you talking to each other, and, um, and what can happen from that?
And then that’s grown to now be 3000 people a year, from over 70 countries. Um, it’s been running for 12 years. But 3000 is pretty small in the scheme of things. (laughs) You know, there’s-
Ayushi Roy: [00:02:04] Yeah.
Lindsay Smalling: [00:02:05] … a really robust industry growing up around impact investing, social entrepreneurship, and really, increasingly, academia, government, corporates, global NGOs. Um, all just saying, you know, for too long, we’ve, we’ve understood things in a sort of false construct of like capitalism is this driver of wealth, and that’s what it’s used for. And anything that makes you more money, that’s the right way to invest. And then philanthropy is the way to make change in the world. And so if you care about social or environmental issues, you better make enough money that you have some extra to give away.
Ceasar McDowell: [00:02:45] (laughs)
And there’s like a whole lot of things in the middle of that-
Ayushi Roy: [00:02:48] Yeah.
Lindsay Smalling: [00:02:48] … that can actually use the really positive, um, aspects of markets. I actually think, you know, human-centered design was an interesting entry into the international development world that had for so long sort of parachuted in with solutions that weren’t actually designed by the people who were going to use them. And this feels kind of like those two things showed up in this international development philanthropy world at the same time, where it’s like, how could you use the dynamics of a consumer and a supplier to actually know is this something people want, would people pay for this?
If they wouldn’t pay for it, maybe it’s not the right solution. And there actually is that ability to pay at the margins that then gives whatever that solution is sort of more of a fly wheel to grow and to become a broader-based solution that’s driven by the consumers rather than driven by some top-down solution.
Ayushi Roy: [00:03:49] Hmm.
Lindsay Smalling: [00:03:50] And so, microfinance was an early example to, sort of, you know, teach someone to fish rather than giving them a fish. And, and so all of these are just, you know, there’s a lot of ev- evolutions over the last 15, 20 years of what it means to look at market-based solutions. There’s always gonna a role for philanthropy, there’s a really important role for government. All of these sectors still have their roles, but we just haven’t looked at the spaces in between-
Ayushi Roy: [00:04:18] Mm-hmm (affirmative).
Lindsay Smalling: [00:04:18] … as closely and, and seeing the solutions that are there. So to go back to your question, what are we doing in Seattle? We’ve just seen demand in different areas of the country. Not everyone’s gonna fly to San Francisco for three days to have this conversation. And there’s some really interesting local conversations. I think that’s actually where the work that we’re doing and some of the conversations we’re having in impact investing, most closely intersect with the move-
Ayushi Roy: [00:04:43] Mm-hmm (affirmative).
Lindsay Smalling: [00:04:44] … is at a local level. And where can we… In a, in a local context, you understand the impact that your money is having in a much tighter feedback loop.
Ayushi Roy: [00:04:55] You like see it directly.
Lindsay Smalling: [00:04:57] You see the problems in your community.
Ayushi Roy: [00:04:59] Yeah.
Lindsay Smalling: [00:04:59] You can see if the solution you invested in is working or not working.
Ayushi Roy: [00:05:03] Right.
Lindsay Smalling: [00:05:04] And so often, finance is really abstracted.
Ayushi Roy: [00:05:07] Mm-hmm (affirmative).
Lindsay Smalling: [00:05:07] You invest in this stock market thing, and who knows what’s working or what’s not?
Ayushi Roy: [00:05:11] Right.
Ceasar McDowell: [00:05:12] When I think about this, and, you know, there’s, f- from the people that I mostly work with and connect with, you know, there’s always like capitalism, “Oh, go away, please, you know, so we can have a better society,” you know? (laughs) “Whenever you are, die.” Uh, but, uh, you know, we know it’s a lot more nuanced than that, you know? Uh, but one of the things f-, that I know we, people struggle with that, and we try to… that I’m wanna ask you about, which is, a lot of times, there’s a sense that around capitalism and when you try to do things and make them work in the market, that you’re always faced with this issue of how do I scale and grow. And yet, at the same time, part of what you’re saying is things need to be local and connected. So how does, how does that tension work?
Lindsay Smalling: [00:05:51] It is a tension, but I think it’s a tension in narrative, not in reality.
Ceasar McDowell: [00:05:57] Oh.
Lindsay Smalling: [00:05:58] So-
Ayushi Roy: [00:05:58] Hmm.
Lindsay Smalling: [00:05:58] … I, I guess there’s always been mom and pop businesses, those have been a good source of wealth accumulation, those have been stable income. It feels like sort of a narrative of more as venture capital became a thing. Like, someone I was talking to this morning was talking about the podcast, how I built this.
Ayushi Roy: [00:06:17] Mm-hmm (affirmative).
Ceasar McDowell: [00:06:18] Yeah.
Lindsay Smalling: [00:06:18] And that when you get the stories from the ‘80s and ‘90s, it’s a lot of like hustle, and bootstrapping, and sorta getting a run around you. And when you get post ‘90s, it’s all venture capital money and equity fundraising.
Ayushi Roy: [00:06:29] (laughs)
And so there’s this relatively recent dynamic that that type of money demands growth.
Hmm.
Lindsay Smalling: [00:06:35] That type of money, because they take outsize risk and give you, give a lot of equity financing in big chunks, means that one of those has to be a total runaway winner.
Ayushi Roy: [00:06:48] Hmm.
Lindsay Smalling: [00:06:49] So they push all of them to have really high returns on investment, because only 1 out of 10 will actually survive.
Ayushi Roy: [00:06:57] Mm-hmm (affirmative).
Lindsay Smalling: [00:06:58] And so, but that’s become the narrative because that’s sort of sexy and that’s, you know, the big tech companies. You need that big investment up front in a lot of cases, and so the venture capital is the right type of money. If you’re opening a barbershop or you’re opening, you know, a catering business, you don’t need venture money.
Ayushi Roy: [00:07:20] (laughs)
Because it’s never gonna grow at the rate that venture demands, and there’s other types of money that don’t require that. And so I think there’s also this short-termism in the market right now that sort of says, “What are you doing next quarter? What are you doing next quarter?” And I think we all know that things that matter take longer than a quarter most of the time. And so there’s these sort of interesting narratives that I fee-, I think are relatively recent.
Lindsay Smalling: [00:07:47] And some of the local investing is actually going back to an earlier time, but not, not that long ago, saying, “Invest in the people you know. Invest in your neighborhood businesses.” And I think you’re able to make better decisions about these factors of risk, return, and impact when you can see all of them.
Ayushi Roy: [00:08:05] Mm-hmm (affirmative).
Ceasar McDowell: [00:08:06] Right.
Ayushi Roy: [00:08:06] So there’s a couple of things they feel like I’m noticing here, right? So there’s this skilled difference we’re talking about, in terms of it being, um, like global, highly scalable, versus very local. And then that second… you know, that’s the first piece of the localism of it. The second that I’m hearing coming out of it is then, because it’s local, it kind of breaks down the barriers between consumer and supplier, which I think is really fascinating and I’d love to hear (crosstalk) more about.
And investor, right? And then the third piece of that is, when that sort of transaction gets broken down and becomes maybe more than just transactive, there’s a sort of impact element here, right? And that kind of brings it back to what SOCAP’s mission is all about. And I’m just… I know there’s so many… Okay, I have so many questions into these categories. But I wanna hear more about this sort of piece about the transaction being more than just a transaction, especially when you can see the feedback so directly.
You know, at the local level, what does it mean that you’re breaking down or like you’re building up relationships between consumers and suppliers and investors? Like what does that actually look like?
Lindsay Smalling: [00:09:17] So on the investor to sort of business side, I think what it looks like is a more nuanced conversation around what is the, the deal we’re getting into here, and a more face-to-face conversation of what do you expect your business to do over the next 12 months, over the next 5 years? Do you wanna own it for 20 years? Do you wanna sell it eventually?
Ayushi Roy: [00:09:40] Yeah.
Lindsay Smalling: [00:09:40] Um, what… How much capital can I offer you? What do I need from that capital? I need it to return this much, or it’s more important to me that, um, if I invest in you, you promise not to, uh, that you promised to hire a diverse workforce.
Ayushi Roy: [00:09:59] Hmm.
Lindsay Smalling: [00:10:00] Or, you know, what are the, the sort of things about your business that are appealing to me on other dimensions other than just that financial dimension?
Ayushi Roy: [00:10:08] It sounds a lot more honest and transparent (laughs) than when you have like, you know, a venture-
Lindsay Smalling: [00:10:14] Yeah, like a-
Ayushi Roy: [00:10:14] … company.
Lindsay Smalling: [00:10:15] … standard term shit.
Ayushi Roy: [00:10:15] Yeah. (laughs)
Ceasar McDowell: [00:10:16] Yeah.
Lindsay Smalling: [00:10:16] There’s nothing about the sort of, uh, VC term sheets that sacred.
Ceasar McDowell: [00:10:21] Right.
Lindsay Smalling: [00:10:22] It doesn’t need to be.
Ceasar McDowell: [00:10:23] We treat them that way.
Lindsay Smalling: [00:10:23] It’s a model-
Ceasar McDowell: [00:10:24] Yeah.
Lindsay Smalling: [00:10:24] … because they’re churning through so much. And they’re like, “If it doesn’t hit this, we’re not interested because that’s the kinda business we’re in.” And I’m obviously speaking in generalities-
Ceasar McDowell: [00:10:33] Sure, of course.
Lindsay Smalling: [00:10:33] … but, but that’s what local investing… And you think of local investing, that’s, I usually deciding to start a business and asking the, you know, friends and family, “Would you invest in me? And here’s what I commit to you. Like, I will be able to return your money in two years, five years,” however many years.
Ayushi Roy: [00:10:50] Mm-hmm (affirmative). So when a company will take that approach, right, like this, maybe like a throwback approach or a, a now probably less traditional, uh, way of raising capital, do you feel like that creates a greater sense of community among the people that are putting their money towards this business? Like how does it impact the actual, you know, group of investors, if at all?
Lindsay Smalling: [00:11:13] Well, I think, you know, what I’ve heard you talk about is this public discourse.
Ayushi Roy: [00:11:18] Yeah.
Lindsay Smalling: [00:11:18] And so, sometimes these different spaces just create different conversations. So when you’re able to invest in your own community-
Ayushi Roy: [00:11:27] Yeah.
Lindsay Smalling: [00:11:27] … one, you know where your money is and what it’s doing while you sleep at night.
Ayushi Roy: [00:11:31] Right. (laughs)
Lindsay Smalling: [00:11:31] You know? And two, you have a relationship. So you might go to that pizza parlor more because you, you know, you’re an investor in it. You might send your friends there, you might help them do their annual, you know, bike ride or whatever the thing is. So that sort of community momentum around it is like another sort of social capital piece. And then, and then, I think as a business, you just feel this true obligation to the people who have invested in you because they are your community.
Ayushi Roy: [00:12:03] Mm-hmm (affirmative).
Lindsay Smalling: [00:12:03] And that’s a different relationship with the way you steward that, you know, that money, and that responsibility, and, and your ability to ask for help, your ability to, you know, mitigate risk as it comes up, because you have these real relationships around you.
Ayushi Roy: [00:12:19] Right.
Lindsay Smalling: [00:12:19] And so, um, so that’s where, you know, capitalism is seen as a bad thing because of the ways that it’s perverted in a lot of ways. But there’s, there’s really positive underpinnings there about relationships around money. And I think I don’t personally think it’s going away anytime soon.
Ayushi Roy: [00:12:38] (laughs)
And so, trying to draw out the best of it-
Right.
Lindsay Smalling: [00:12:41] … uh, feels like a worthwhile pursuit to me.
Ayushi Roy: [00:12:44] Right.
Ceasar McDowell: [00:12:44] It was listening to you, hearing, you know, if you really see how it starts to work and the relationship, particularly around small businesses, things that are local. But I’m also thinking like, okay, so you live in the Bay area, we live in Boston, and you’re in Seattle. One thing those three things have in common is an incredibly tight housing market, like, where it’s getting harder and harder for people, middle income, that are going with the margin, to actually live in these places.
Those things are driven by real capital investments and return. So when you bring together f-, you know, folks that are having conversations from government, and philanthropy, and, you know, from investors, how do they, how do they grapple with something that’s so, that is an engine of its own, to kind of solve a problem that everyone admits is there. But how do they… I mean, what are those conversations like, when they… you have these big system things that are in place, and you realize you’re not getting you what you want?
Lindsay Smalling: [00:13:44] Yeah, well, those are bigger institutions in those conversations, and a totally different scale of capital. So, um, but that is where I would say more of the impact investing conversation is focused, because we’re trying to move big pools of capital.
Ceasar McDowell: [00:13:59] Right.
Lindsay Smalling: [00:13:59] I think the local stuff is where real normal people get involved and can be investors and we sometimes forget that. But at that other more institutional scale, I think some of the really interesting work, that feels very integrated, is being done by anchor institutions, like universities, hospitals, um, that are huge employers in our region, that have real reasons to care about the health of the population, uh, that influence the food systems. They’re huge purchasers of, you know, food and labor and other things.
And so even those getting a more nuanced understanding of do I source this locally, or who am I sourcing from, how does this whole system work together? And then specific to housing, I think, not thinking of housing on its own. So thinking of, okay, for a market rate real estate developer to do this, they have to build luxury condos, because otherwise they can’t get the return on their investment that they need.
And so some of the ways that you can solve those problems is by getting all these stakeholders around the table and seeing that there’s different incentives. And so in Seattle, there’s a project called Othello Square that’s, uh, driven by a community sort of activist at the margins, um, group that’s brought all these groups together. It’s an area that was very underdeveloped. They brought in some philanthropic money, some private capital, some debt. They’ve pieced together all of these groups that have different appetites for risk, different needs on their return, all of these things.
Um, and it’s hard.
Ceasar McDowell: [00:15:39] (laughs)
It takes a long time. It requires everyone to sort of step outside of their comfort zone of this looks like something we invest in. It looks different. And so you have to take the time to sort of break it down. Why would I say no to this? What is it really that’s holding me back? And maybe that’s… Whatever that thing is. Maybe it can be alleviated by bringing in a different partner, who can take down the risk, or who can take the first loss, or who can subsidize in some way. And so, you know, philanthropy can’t solve the housing crisis.
Right.
Lindsay Smalling: [00:16:14] But philanthropy could potentially make it easier for market rate developers to come in and build something that looks and feels different. Uh, there’s another group that came out of that Pacific Northwest convening… or didn’t, you know, was part of it, a group called Forterra, that actually started. And, and a big piece of their mission is preserving wild land, natural land, you know, not overdeveloping the Pacific Northwest. And they realized if they didn’t start working in urban areas, they wouldn’t be able to preserve the urban sprawl.
And so they’ve started working on these really interesting housing projects that are, say, an old strip mall, but there’s a large refugee population there that’s actually very entrepreneurial. And how could they support them with business financing so they can all start businesses? But then they wanna live there. And then what would it look like to add housing units in proximity to where they’ve started their businesses? And just looking at the whole system rather than thinking of housing on its own.
Ayushi Roy: [00:17:16] So I feel like this, uh, sums understanding, right? The system’s approach to work is… or can be, sometimes, op-, contrary to the, like, human-centered design approach that we initially started with. Because one has a very, like, individual micro-perspective, and one has this very systematic or structural approach. So how does an organization that is, like, you know, on the impact investing side of things, or maybe a philanthropy, I don’t know, you can…
I’m happy to pick any organization. But w- w- why would an organization bother? Right? Like why would it make sense for an organization to take on more thoughtfulness, for lack of a better word, than they need to, to make money? I mean, I know this question sounds… what it sounds like. But I’m asking it because I think there’s this skepticism a lot of people have, right, is why, uh, why would it matter to them? If it’s not for a better return, why would they do it?
Lindsay Smalling: [00:18:15] So I think there’s a couple ways to make the case for impact investing. And I’ll talk about this from kind of an individual, like from an investor perspective, but I think it, it will help you see this. So there’s a values alignment piece, where, as an individual, if I’m horrified by gun control and gun safety in this country, and then I realized that I own and I’m profiting from gun companies in my portfolio, that doesn’t feel great.
Ayushi Roy: [00:18:46] Mm-hmm (affirmative).
Lindsay Smalling: [00:18:47] And a lot of times, we’re just not looking. And sometimes just knowing that your assets are doing things that are aligned with your values-
Ayushi Roy: [00:18:55] Yeah.
Lindsay Smalling: [00:18:56] … is a step that doesn’t dramatically decrease… or, or it doesn’t decrease your financial returns. And if you’re like, “Okay, I could make 20% off oil and gas,” or I could make 18% and only on things I care about, does that feel like a worthwhile trade offs to you?
Ayushi Roy: [00:19:14] You might as well do the 18, right. Yeah.
Lindsay Smalling: [00:19:16] Yeah. ‘Cuz it’s not zero.
Ayushi Roy: [00:19:17] Right.
Lindsay Smalling: [00:19:18] You know? (laughs)
Ayushi Roy: [00:19:19] Right. And not going from 20 to 0.
Lindsay Smalling: [00:19:20] Yeah.
Ayushi Roy: [00:19:21] Yeah.
Lindsay Smalling: [00:19:21] The other is risk.
Ayushi Roy: [00:19:22] Yeah.
Lindsay Smalling: [00:19:23] And so, as much as you say, you know, why would we care? I think, a lot of times there’s been major backlash to not caring. So you think of a supply chains that were irresponsible, and there’s a huge fire, and all of your workers die. You think of Enron-
Ayushi Roy: [00:19:41] Right.
Lindsay Smalling: [00:19:41] … you think of, you know… And so there’s these very material risks of not paying attention to your environmental, your social, your governance. These pieces don’t always flow back, but-
Ayushi Roy: [00:19:54] Yeah.
Lindsay Smalling: [00:19:54] … they do.
Ayushi Roy: [00:19:55] Yeah.
Lindsay Smalling: [00:19:55] Um, and then, the third is… uh, it sounds like values, but value. Um, one of the earliest pioneers of impact investing is a guy named Jed Emerson, who, sort of, didn’t use that term impact investing, but used blended value.
Ayushi Roy: [00:20:11] Hmm.
Lindsay Smalling: [00:20:11] And saying that if we’re not looking at the financial, social, and environmental value of each investment, we’re working at cross purposes with ourselves. And you see that in that sort of two-pocket thinking that I explained before, make as much money in your investment portfolio, give it away in philanthropy. Again, if you’re invested in Exxon and then you give a bunch of money to Green Peace, you’re working at exact cross-purposes to yourself. And that’s not being a very smart investor-
Ayushi Roy: [00:20:41] Right.
Lindsay Smalling: [00:20:42] … in either category.
Ayushi Roy: [00:20:43] Right.
Lindsay Smalling: [00:20:43] And so thinking about these things on the front end rather than on the back end just helps you make better decisions that incorporates this more integrated, holistic view of what am I trying to do with my money, what am I trying to do socially, what am I trying to do financially? And I think, again, there’s this false narrative around market rate returns.
Ayushi Roy: [00:21:05] Mm-hmm (affirmative).
Lindsay Smalling: [00:21:06] You are the market.
Ayushi Roy: [00:21:08] Hmm.
Lindsay Smalling: [00:21:08] You know, what do you need to retire?
Ayushi Roy: [00:21:10] Wow.
Lindsay Smalling: [00:21:11] What do you need (laughs) to feel comfortable, you know? And that’s a very different question than what your financial advisor’s gonna tell you.
Ayushi Roy: [00:21:18] I’ve never heard that ever before. Like I am the market, that’s insanely empowering to think of it that way. To be like, “Oh, everything I put my eyes on, like, you know, every app I use, or everything I put my money towards is-”
Lindsay Smalling: [00:21:34] You may choose to pay more for organic produce-
Ayushi Roy: [00:21:37] A choice, yeah.
Lindsay Smalling: [00:21:37] … because it matters to you.
Ayushi Roy: [00:21:39] Right.
Lindsay Smalling: [00:21:39] So that’s like-
Ayushi Roy: [00:21:41] Trying and determining the market in some way by doing that.
Ceasar McDowell: [00:21:43] I wanna say something about that. But before I get to that, I wanna go back to something else you just said, which I… I’m really curious about the morphing of the language from blended value to impact investment.
Ayushi Roy: [00:21:55] Hmm.
Ceasar McDowell: [00:21:56] Because it seems like they’re really centered around different things. They rely on different things. So blended values is, is I was saying like, I wanna pay attention to what I wanna do, and I know I have value sets. I’m making value tradeoffs all the time, and I wanna make sure my value tradeoffs are much more aligned, so I’m living the kind of life, doing the kinds of things I wanna support in the world.
When you shift that to something as simple as say, well I say with impact investment, it’s almost like the ROI language-
Ayushi Roy: [00:22:24] Yeah.
Ceasar McDowell: [00:22:25] … took over-
Ayushi Roy: [00:22:26] (laughs) Yeah.
Ceasar McDowell: [00:22:27] … took over that concept, right? And th- those (crosstalk) gotta have impact now, you know, as opposed to your values are aligned.
Ayushi Roy: [00:22:35] (laughs)
I mean, how did that happen?
Why isn’t it value-based investing or something, right? Like why is it-
Ceasar McDowell: [00:22:37] Yeah.
Lindsay Smalling: [00:22:37] It’s kind of been all of these things, like there’s (crosstalk) (laughs) The, uh, the jargon, like, definition thing is probably… way more time has been spent on it than it deserves. But I take your points.
Ayushi Roy: [00:22:50] (laughs)
(laughs)
And, and it was, uh… The funny thing about “impact investing” is that there’s actually a time, a place, a date. It was coined at the Bellagio Institute, which is part of the Rockefeller Foundation, (laughs) in 2008, as a way to catalyze the field. So because there was all, there were all of these different conversations floating around that we’re calling it social capitalism, that we’re calling it, uh, venture philanthropy, that, you know, there were all of these terms that we’re essentially talking about the same thing.
Lindsay Smalling: [00:23:22] They basically brought a bunch of people together and said, “Okay, can we all agree to just call this impact investing?” And I’m probably messing that up in some way, but that’s the basic idea. And, um, so it was kind of decided, in 2008, that the field would move forward, and just, really… Because it’s still such a fringe conversation-
Ceasar McDowell: [00:23:41] Yeah.
Lindsay Smalling: [00:23:42] … and it can’t be. We to think about how we are using the power of investment. Um, and so what is the impact of those investments? And I think blended value does incorporate more and incorporates the full spectrum of capital. So it also includes philanthropic capital more so than this impact investing conversation. But the piece that was sort of under-resourced, under-popularized, etc., was how are you using the power of investment capital to have impact? And so that’s, that’s really what (crosstalk) . Yeah.
Ceasar McDowell: [00:24:20] Really fascinating. Uh, I was just thinking about it like, you know, we’re here at MIT, and MIT is an educational institution, and it has a set of values. And it struggles with this, too, because it also has an investment (inaudible) , in Timko, which has just all these resea-. And there’s always this push about which value is gonna be driving if Volpe center gets built versus housing, you know, for students. And there’s…
And one of the things, I think, what’s instructive about that here is how important transparency is in these conversations. So I’m just wondering… y- you said a little bit about how that’s, you know… ‘Cuz I can imagine… And I mean transparency in relationship to the people who are impacted by what comes out of this. So even if there’s a notion of think about, okay, we really wanna do more impact investment, we can see this cooperation between the government and philanthropy and private investors to actually do these sets of housing.
For me, there’s something really important about how can you make what happens in that conversation more transparent to public so people can start to have trust, that institutions are actually, you know, moving in the directions that they think, you know? Uh, and where’s the role for that voice to come into that conversation to kind of say, “Yeah, we aligned in some sense.” So, and actually have a, a blended value of saying, “I actually really believe that I really wanna do good within the context of, uh, people who are living below the poverty line. I may have a concept of that, but then do I just act on that and feel, “Okay, well, I’ve done this with this institution players, but whereas if people who are impacted by this having a voice in this, or at least seeing us being a little more transparent about how we’re thinking about this, so we can actually test if it’s really…
Lindsay Smalling: [00:26:16] Yeah. No. Well, I think that that’s an area that there’s still a long way to go. Um, there’s not a lot of transparency in the financial industry. Um, and, and this piece of like knowing what you own is that same transparency question at, on an investor side. And then for an institution, honestly, I, I think the way… the decision criteria have not been considering always those voices. And there’s maybe a growing awareness that it should be, but how do you get that voice at the table? And it feels like they’re not ready to open the coat because they’re naked underneath a little bit. (laughs)
Ceasar McDowell: [00:26:59] I was wondering where you’re going with that analogy. (laughs)
Ayushi Roy: [00:27:01] (laughs) And like, I’ve never heard of opening a coat before. (laughs) Opening doors maybe.
Lindsay Smalling: [00:27:09] (laughs) Um, The Full Monty.
Ayushi Roy: [00:27:12] (laughs)
So, uh, yeah, you know? I think because, traditionally, people’s wealth is so private, and people don’t talk about it, they don’t share it, they don’t say, you know… Maybe they talk about the one investment they did that did really well or something. But in the impact investing world, some of the work to show how this is done, a few big family foundations that have moved their entire endowment over to mission aligned investing-
Ceasar McDowell: [00:27:40] Right.
Lindsay Smalling: [00:27:41] … have done reports that say, “Here’s where we started. We were invested in hedge funds. We were invested in this. And here was our decision to first get the bad stuff out of our portfolio, the things that we weren’t aligned with. And then, some of the things, we couldn’t get out of for a few years. And so then here’s how long it took us to move this over into these things.” And then they’re showing what was the financial return of the original, very market-driven approach, and then what is their return now with 100% mission aligned. And, and all of those conversations help address these pieces around trade-off, around structuring.
Ayushi Roy: [00:28:19] Mm-hmm (affirmative).
Lindsay Smalling: [00:28:19] How do you potentially have to structure a portfolio differently that’s considering all of these values? And that’s sort of a wonky term, structuring, but I won’t go into it here. But, and so that transparency is helpful just partly from a learning perspective. So when there are these leaders that are being really thoughtful, that are con- considering community voice, how are they getting those stories out there more so that others can copy that, emulate it, figure out how it fits in their own context?
And on a different note, I think, did you have, um, Aaron Tanaka and Ujima fund on here?
Ceasar McDowell: [00:28:56] We, we haven’t had Aaron yet, but I know Aaron really well.
Lindsay Smalling: [00:28:58] Yeah.
Ceasar McDowell: [00:28:59] Oh, yeah.
Lindsay Smalling: [00:28:59] What they’re doing with Ujima Project is super transparent.
Ceasar McDowell: [00:29:04] Yes.
Ayushi Roy: [00:29:04] Mm-hmm (affirmative).
Lindsay Smalling: [00:29:04] And it’s very community-oriented. But they are so out ahead of really anyone else.
Ceasar McDowell: [00:29:11] Right.
Lindsay Smalling: [00:29:11] But it’s a model. And it’s a model that they’re… Aaron’s on lots of podcasts right now.
Ceasar McDowell: [00:29:17] Yeah.
Lindsay Smalling: [00:29:17] And he’s very eloquent, and he makes the case, and, um, they lay it all out on their website. “Here’s how this is structured. Here’s how we do our decision making. Here’s how we do this.” Um, and I think Aaron and a couple of others are really on the leading edge of this conversation, and Deborah Friezes at Boston Impact Initiative, around what transparency really looks like is giving up power.
Ayushi Roy: [00:29:40] Hmm.
Lindsay Smalling: [00:29:40] Because if you sh-, if you open the coat right now, it’s very, um, extractive, it’s very market driven, it’s not considering all of those factors in a lot of cases. And so when you actually start to give up power as the, the asset owner, as the person who’s making the investment, and say, “As a community, what’s your voice in this?” If you, you know, where would you deploy this capital? That’s, that’s a release of power. And that’s where, that’s probably the hardest, the hardest conversations right now. Because even impact investing has sort of reinforced these same power dynamics of if you have the wealth, you get to make the decisions about what’s right.
Ceasar McDowell: [00:30:23] Mm-hmm (affirmative).
Lindsay Smalling: [00:30:24] And that’s, that’s not how these decisions should be made.
Ceasar McDowell: [00:30:28] And that really is at the heart of what does it mean to actually have, uh, a kinda democracy working, right? That, you know, our forms are how we’ve traditionally thought about capitalism needs to shift something.
Ayushi Roy: [00:30:37] But I think the conversation around language here is really interesting. I mean, one thing that comes to mind, for me, that you were talking about, you know, you taking a corporate finance class while you were in your first job in Boston, and kind of realizing that there’s this wall. But that behind the wall, these are terms that we’re all familiar with by virtue of just being consumers or just living in an environment (laughs) that has buying and selling happening.
And I just find it interesting that we aren’t ever taught… and I think about this and the lament about this a lot with my friends, that we aren’t taught financial literacy, in any way, in our school curriculum. Um, I don’t even mean like waiting for college, I’m saying like K through 12. It’s not an integral part of our education, even though a lot of parents will have their kids even doing simple things like mowing the lawn or pruning the fence to get extra allowance money.
Like I’m familiar with the concept of allowance, but I’m not familiar as, you know, a sixth grader or ninth grader, how that fits in with like what my parents do, or how we even have money to put food on the table, or how we have a place that we’re renting, or, you know, living in, etc. And I don’t know, I just think that’s so poignant, like what you said about wanting to show people what’s behind that wall.
Lindsay Smalling: [00:31:56] Yeah.
Ayushi Roy: [00:31:56] And I wish that that was a part of the sense of responsibility that a lot of these companies took on, was not just transparency in their own portfolios, but also transparency with how it feeds back into people’s individual lives.
Lindsay Smalling: [00:32:12] Yeah.
Ayushi Roy: [00:32:13] So that we can be smarter decision makers and more empowered decision makers in the space. You know, one thing that you said later on was about how, um, I mean, we all kind of think about money as power, right? But the underlying conversation is, well, if you have money, then you’re a decision maker. And that’s really what then gets you that power. And the idea of being a decision maker shouldn’t have to rely on money. Oh, we all know that, at some level, and yet it kind of feeds back into that cycle.
And I’m thinking that like language, and literacy around this language, could be a really big part of empowering new actors and decision makers, having their new public to be a decision maker.
Lindsay Smalling: [00:32:59] Yeah. And that’s honestly kind of my-
Ayushi Roy: [00:33:01] This are all half-baked thoughts, but I just wanted to share, kind of, what my, where my heads at.
Lindsay Smalling: [00:33:06] That idea around language, that, you know, I picked up 15 years ago, um, is one that’s really stuck with me. And it feels like the role that I play at SOCAP in curating the content that shows up, is to make sure that we’re doing that education, um, because we all speak in lingo that we don’t even notice that we’re doing. Academia does it.
Ayushi Roy: [00:33:36] Yeah. (laughs)
Lindsay Smalling: [00:33:37] Everyone does it.
Ceasar McDowell: [00:33:37] We all do it.
Ayushi Roy: [00:33:38] Yep.
Lindsay Smalling: [00:33:38] And so, um, being able to just ask the dumb question of what does that mean when you say that? I don’t wanna assume I know what you’re saying, can you explain that a little bit more?
Ayushi Roy: [00:33:49] Hmm.
Lindsay Smalling: [00:33:49] I get to do that all the time. Uh, someone will pitch me something around housing. There is a whole lot about housing and the dynamics of housing that I have, do not understand. I’m like the constant fool.
Ayushi Roy: [00:34:02] (laughs)
And I just ask, like, how does that work? What does that mean? And then I feel the responsibility to do the very basic 101 of, um… Pretty much, any time I’m asked to talk about impact investing, I’ll somehow sneak in, “I don’t want to talk down to an audience that may know these things.” But more often than not, there’s someone in the audience who says, “Thank you for doing that. Um, I really needed that.” And I usually just say, “Just so we’re all on the same page-
Yeah.
Lindsay Smalling: [00:34:33] … let’s, here’s what debt means.
Ayushi Roy: [00:34:34] Mm-hmm (affirmative).
Lindsay Smalling: [00:34:35] Here’s what equity means. Here’s what public markets are. Here’s what private markets are.”
Ayushi Roy: [00:34:40] Mm-hmm (affirmative).
Lindsay Smalling: [00:34:40] And if you understand that they’re sort of those like public debt and private debt are two different types of investments with different dynamics, there’s public equity and there’s private equity. And these are terms that get, you know, your friends probably say like, “Oh, yeah, I work in private equity.” What does that mean?
Ayushi Roy: [00:34:57] I have… I don’t have an idea. (laughs)
Lindsay Smalling: [00:34:58] But you do know.
Ayushi Roy: [00:35:00] Sorry if I’m-
Lindsay Smalling: [00:35:01] You actually do. Um, if it just wasn’t… if said, there was some (crosstalk) basic framework set there. And so we just need to do that more. And I don’t know whether we do it in K through 12, I don’t know if we do it in college, we might as well do it with 60-plus-year-olds.
Ayushi Roy: [00:35:16] Yeah.
Lindsay Smalling: [00:35:16] I mean, everyone should know this, it’s never too late to know it. And it just helps understand that why you can’t access that small business loan.
Ayushi Roy: [00:35:26] Hmm.
Lindsay Smalling: [00:35:27] It’s not necessarily because of who you are, it’s because of the way that that money is set up to work. And so you may be able to change things so you can access that, or you may need to access money in a different way. And so, um, I think money can feel frustrating and opaque and like there’s these walls set up. And, and it is frustrating and opaque, but there’s a lot that can be done to increase understanding, eh, just by getting through that lingo.
Ayushi Roy: [00:35:56] Mm-hmm (affirmative).
Ceasar McDowell: [00:35:56] Yeah. One thing that I just do wanna say because it’s bouncing around, uh, in my head, you know, we’ve kind of started this conversation, and looking at big actors, went down to what happens, you know, really, when people are local doing things. And, you know, the, the, kind of, the concept of people who are part of the market, getting in the market, and as you saying, “We are the market.” And at the same time… and even this whole thing about financial literacy and how do people learn that.
At the same time, we also recognize we live in a world and in a country where there are so many people who are so pushed out to the margins, that this quite fundamentally impacts the quality of their life and their ability to have a life. At the same time, it feels like, like a foreign territory and a world that’s not open to them.
Lindsay Smalling: [00:36:45] Mm-hmm (affirmative).
Ceasar McDowell: [00:36:45] And I think there’s something about that, and we have to figure out how to work. And I think that’s the real, you know, piece around these kinds of large scale institutional things or things that are happening locally, is that, how, how does that happen, and what is the language that has to ha-, occur for that? Because the language that’s there, you know, at the margins, is, one of the languages are survival, not how to just kinda keep going.
And then there’s the languages of, of kind of resistance, kind of protest, kind of pushing back, having feeling like you have no control, because there’s so many other things that are assumed by, about you that determine what may be possible for you. So I don’t know how we have those conversations, but they’re, they’re out there, they’re real, we need to figure that out. Because I think that’s part of joining this work, you know, so that it actually has not only blended values, but it’s having impact in the places that we really needed to have impact, which is really, for me, is, is ensuring that everyone can have a quality life as we go forward.
Lindsay Smalling: [00:37:46] Well, and I think one of the biggest things undermining our democracy right now is the income inequality, uh, you know, wealth disparity, and then racial equity issues.
Ceasar McDowell: [00:37:57] Yeah.
Lindsay Smalling: [00:37:58] And both of those are so driven by systemic flaws in capitalism, in ways that we haven’t understood the power of money, asset building, all of these things, and really examine the ways that it’s flowing in completely in just their stats everywhere right now of round, you know, only 2% of VC funding goes to founders of color. 2%, that’s crazy. That the racial wealth cap means that the average African-American family has something like $100 of wealth. And that, by the year 2050, it will be 0. And that means that over 50% of the population of our country will have 0 wealth. That’s not a functioning democracy, like there is no way that will work.
Ceasar McDowell: [00:38:48] Exactly.
Lindsay Smalling: [00:38:49] And so it’s not anyone’s problem, it’s everyone’s problem. And it has been a blind spot for the impact investing industry for the first, you know, 10, 12 years. In the last two or three years, it’s become a topic you can’t… there’s no way to be talking about impact without talking about having a lens of racial equity and really understanding how these market-driven systems have completely excluded populations. And whether that’s access to capital, social capital, entrepreneurship…
There is an amazing entrepreneur named Jessica Norwood who started something called the Runway Project. And her… The reason she calls it the Runway Project is she says, you know, it’s not, uh, a pilot problem, it’s not a plain problem, there’s plenty of entrepreneurs with amazing businesses. They have no runway. There is no friends and family money in the African-American community because there is no accumulated wealth. There is, there is no uncle who has the money to loan it to you.
And so what she created with The Runway Project was a really innovative, um, financing solution that was basically a, a CD, which was a familiar… She wanted it to be her community who could invest in these enterprises. And so it’s a really secure, put in $50, get $55 back in 3 years or whatever that looks like. They have the certificate of the deposit. It’s a low investment level. But that the pool of money that can be aggregated that way is loaned out to entrepreneurs of color.
And so there’s these… There’s others doing, you know, these innovative financing things, but it’s really that, you know, you can’t get off the ground. And we sometimes forget how many benefits, uh, and opportunities are not equally accessible.
Ceasar McDowell: [00:40:48] Lindsay, thank you so much for being us.
Ayushi Roy: [00:40:49] It’s incredible, thank you.
Ceasar McDowell: [00:40:51] It’s been a really wonderful, uh, conversation. I, uh, I mean, things are aligned because we would not have found you on our own. And it just like something in the university is saying, “Okay, you need to be in conversation with each other.”
Ayushi Roy: [00:41:01] Yeah. (laughs)
Lindsay Smalling: [00:41:02] Yeah. Well, I hope the conversation continues, because I have a lot to learn from… I think we’ve also got a flaw of not properly g- giving enough credit to government, to civic design. It’s just been, its alm-… Some of this private capital has been like government’s not doing it, let’s work around it.
Ceasar McDowell: [00:41:20] Right.
Ayushi Roy: [00:41:20] (laughs)
And that’s a flaw. Like we need (crosstalk) more of these cross discussions because there’s so much wisdom in your ex-, you know, domain of expertise that should be engaged by the impact investing community. So really exciting we’re sighting it.
Ceasar McDowell: [00:41:36] Oh, thank you.
Ayushi Roy: [00:41:37] Thank you so much.
Ceasar McDowell: [00:41:39] You know, it was a great conversation.
Ayushi Roy: [00:41:45] It was really incredible to have her in the room.
Ceasar McDowell: [00:41:47] Yeah. And, you know, this thing about, you know, the last thing we were talking about, of just how our economic system is just really messing us over.
Ayushi Roy: [00:41:56] Mm-hmm (affirmative).
Ceasar McDowell: [00:41:56] You know, she talks a little bit about the national wealth gap.
Ayushi Roy: [00:41:59] Mm-hmm (affirmative).
Ceasar McDowell: [00:41:59] Uh, and actually, you know, at the Federal Reserve here in Boston, they did a study on this.
Ayushi Roy: [00:42:04] Mm-hmm (affirmative).
Ceasar McDowell: [00:42:04] Uh, and they actually stopped talking about it is the gap, they’re talking about is the divide.
Ayushi Roy: [00:42:08] Hmm.
Ceasar McDowell: [00:42:09] You know, and they said, it really is a divide. And I think here in Boston, it was the, uh, average, uh, white family had $253000 worth of wealth, compared to the average black family who have $8.
Ayushi Roy: [00:42:21] $8.
Ceasar McDowell: [00:42:22] $8.
Ayushi Roy: [00:42:26] And so, you know, I encourage folks, uh, listening today to continue digging into the work that’s SOCAP is doing, and into the way that the wealth divide, not just the gap, but the racial wealth divide looks. Even nationally, um, she said it was $100 for the average black family in the country. I’m not familiar, off-hand, uh, what the average white family’s wealth is, but I can only imagine with a gap like $253000 to $8. (laughs)
Ceasar McDowell: [00:42:51] We might as well look at nationally, yeah.
Ayushi Roy: [00:42:55] … dras-, yeah, similarly drastic. So thank you-
Ceasar McDowell: [00:42:57] We’ll have, we’ll have more information of this on our website, so please check this out. Also, if you get an opportunity, you can listen to our interview on Lindsay’s show, Money and Meaning, which aired in June 18.
Ayushi Roy: [00:43:08] Thank you for listening.
Ceasar McDowell: [00:43:10] Thanks again. We are a production of the Department of Urban Studies and Planning at MIT, with the support of MIT’s office of Open Learning.
Ayushi Roy: [00:43:19] Our sound is produced by David Lishansky, our content by Julia Curbera, and Misael Galdamez. I’m Ayushi Roy.
Ceasar McDowell: [00:43:26] I’m Ceasar McDowell.
Ayushi Roy: [00:43:27] And you can find us online at themove.mit.edu.
Ceasar McDowell: [00:43:32] And on our Medium site at-
Ayushi Roy: [00:43:33] Medium.com/themovemit. As well as our Twitter and Facebook. Thanks so much.
