Rocco Forino:

Okay. I’m so happy to be here with Morgan Simon. She’s an author, speaker, activist, an investor responsible for influencing over 150 billion dollars in the social impact investing space. Morgan, welcome to the show.

Morgan Simon:

Thank you, so much.

Rocco Forino:

So, you wrote the book real impact, and from the get-go, you mention two important words, transformative and palliative. Can you tell us why these words are so important to impact investing?

Morgan Simon:

Sure. Impact investing, in general, is often defined as the practice of trying to put your money where your mouth is, right? To invest in something that reflects your social values, and that there’s all different types of solutions, and just because you invest in a sector or geography, right, agriculture in Africa, or renewable energy in the south, it can be done in a way that’s transparentive, meaning really addressing the underlying structural problems and fixing it for the long term, or what I would call palliative, which is word we’re used to knowing in the context of palliative care, right, which typically means making sure that someone is comfortable before they pass away, and essentially if we are simply decelerating climate change but not actually stopping it or just making it slightly less miserable to be poor I would say that’s a form of palliative care, right, and that we really want to do what we can as investors to be as transformative as possible to address the root causes and really make systemic change.

Rocco Forino:

Right. So transformative is more getting involved and making sure things actually change for the positive rather than just painting a picture of positive over what you’re potentially investing in. Is that about…

Morgan Simon:

Right, so for instance that there has been a number of solutions that are about how do we replace the payday loan industry, right, that so many people pay massively high interests rates just when they need some extra dollars to fulfill basic necessities, and you could certainly create a cheaper loan product, but you could also be really considering why is it that people can’t pay their utility bills at the end of the month, and it’s not that poor people are bad budgeters, they’re simply not paid enough, right, so how do we create enterprises that actually follow within wage scales so that everybody can get their needs met and not need to have a loan at whatever price towards the end of the month, so that’s what we’re looking at. Are we making it easier to be poor or are we actually stopping poverty, and I think that’s the opportunity that we have with impact investment while also fulfilling financial goals, right.

I think that’s the exciting piece for people who are new to impact investing. We’re used to thinking that if you want to make personal change you have to just give money away, but with impact investing you can make a financial return through an investment in a for-profit business, but a business that’s taking care of its employees, that’s watching out for the environment, that’s really trying to create a much brighter future.

Rocco Forino:

And so, the investors who are engaged in impact investing are they seeing…what type of returns would you say as a percentage relative to the stock market?

Morgan Simon:

So, what we have found in some fairly traditional institutions, right, someone like Deutsche Bank, or Harvard Business have done numerous studies showing that businesses that take care of their employees and the environment actually do better on the market, so for instance, a Harvard study had shown that over 18 years companies that had higher social and environmental value had doubled the market cap, so a really substantial difference, in terms of the value they’re creating and that’s in part because…particularly for people who are long-term horizon investors.

If you’re not looking to retire this next quarter you’re looking to retire in 20 years, well, that means if a company only has 10 years of oil reserve that’s a problem, right, that we really need to be looking out for sustainability not just from the frame of wanting to protect the earth, which certainly motivates some people, but also protecting our retirement, right, of knowing that we need to invest in things that are going to be around for those 20 years, and I believe that’s why we see these companies doing so much better, because they’re really preparing for a long-term reality.

Rocco Forino:

Right. And with that, how would you define impact investing, like what’s a good definition, because when you search the internet it’s like this repetitive mission statement where I don’t think a lot of people can actually visualize what it actually means.

Morgan Simon:

So, it’s why an investment that has the intention of making a social or environmental impact, that’s the definition that would be provided by the Rockefeller Foundation and kind of initially termed the coin impact investing…coined the term. Pardon me. And just to go back to the…when you look at the Merriam-Webster definition of impact to impinge upon especially forcefully leads back to the idea that that impact can be positive or negative. For an innocent intention, an expressed intention, but that is up to us being perfect human beings to make sure that we get it right, and that’s why sometimes it can be a bit skeptical or see some challenges when you have people on the fortieth floor of Wallstreet saying okay, we’re going to move into impact investing. We’ll figure out how to change the world without really having that investors and accountability to make sure we’re actually doing things that people want, so as much as there is a lot of good intentions around impact there’s also a lot of concern about impact washing.

What are the questions that you have to ask to make sure that the impact is real, and that’s part of why my book is called Real Impact, right? It’s the idea that yes, there’s real impact to be had but that we actually have to make sure that it’s real.

Rocco Forino:

Right. Would you say it’s like the Warren Buffett meets Mother Theresa of investing?

Morgan Simon:

I would even say Warren Buffett at one point was asked, while speaking at a business school, should he make a bunch of money and then give it away, or should you do some type of social business from the start and express your values in whatever you do, and to the crier of the idea of make the money now and give it away he said, well, that’s kind of like saving bacterial waste and that’s really not a good idea, so I think Warren Buffett in his heart of hearts have shown this concern of how do we really start to think about integrating our social values and having that Mother Theresa mindset, and then you also see his descendants like Howie Buffett really move deeply into impact investing.

Rocco Forino:

Nice. Yeah, that makes sense. So, you started four organizations. Could you tell us about your current project now?

Morgan Simon:

Sure. So, I’ve been doing impact investing for close to 20 years and it’s part of overtime really trying to also build the infrastructure of the industry, and my current firm Candide Group, we work with families, foundations, athletes, and cultural influencers who really want their money working for social justice, and we’ve done over 65 investors over the last six years in companies that fund in our portfolios are over half women and people of color as well, so a strong diversity emphasis, and that goes…it’s drawn deep into low-income housing, to fuller for long-time communities, to worker co-ops. The types of businesses that you can be really proud to tell your grandkids about.

Rocco Forino:

Oh, so what are some co-op investments that you’ve made inside the US? What are some good examples?

Morgan Simon:

So, there’s a fund called the Working World, out of New York, that supports co-ops all over the country. One of them is a factory called New Era in Chicago. It’s the only minority-owned manufacturing facility in the whole state and it sells environmentally sustainable windows, and this is the case where a firm has bought the window manufacturer and was going to shut it down even though the factory was profitable, it was that this family was struggling with their finances in other areas and were going to make these workers essentially pay for it, and instead the workers came back and said no, we’re going to buy the factory from you and we’re going to keep running it profitably, and that’s precisely what they’ve been doing, and that’s the sort of thing where we provided finance into the working world so it then provides financing and support to the co-op.

Rocco Forino:

Great. That’s an awesome example because you don’t really see lots of local community banks or investors helping to engage that type of investment for employees to take over the company.

Morgan Simon:

Right. You don’t, and I think that’s part of why for those who are excited about getting into the impact investing, it’s really critical to find an advisor who actually knows the field, who is going to have a line of sight into those operations and into those opportunities, because as they say in financial management, no one gets fired for buying general electric. That often those managers are not familiar with impact, they might say it’s a bad idea, but it’s often that they just don’t have the relevant expertise, but what’s great is that now within most traditional advisory firms you can always even just ask to be referred to the social impact department and see what they already have on the platform, and if you’re not impressed offer to be the person to do more.

Rocco Forino:

Right. Yeah, that was a great example. Did the employees of New Era reach out? How did they find you guys, or did you find them, because that’s…one of the reasons why I wrote my book is to help connect people who don’t know how to raise money with investors because they don’t know what they don’t know. How did the New Era employees…did they reach out to you or was it the other way around?

Morgan Simon:

In that case, they had connected with the fund, with the Working World, and that’s part of…as investors you can’t be everywhere and do everything, so there’s some deals that we do directly and other times that we work through funds, so other examples of direct deals we’ve done recently with utility-scale…we’re actually in the process. Utility-scale solar on the Navajo Nation with the majority native-owned entity is a project we’re really excited about, and I guess I would say that at this point I’ve been in market for so long that companies that have that social mission will often know to reach out to Candide Group, so that goes back to be successful in the field you really have to have the depth of connection to be in the pathway of these sorts of companies or, you’re right, they won’t know that you exist.

Rocco Forino:

Right. Nice. What would you say…

Morgan Simon:

And that’s also where…I’m sorry. I was going to say that investor networks like Tonic, like Investor Circle, can be really helpful as well in helping to bring together deals and help individual investors find new opportunities.

Rocco Forino:

That’s good to know. What would you say the number one rule for social justice activism is?

Morgan Simon:

Now, one phrase that partners in the Global South would often say is nothing about us, without us, and the idea that it’s very easy, whether in philanthropy or impact investing, for people to make presumptions about what other people in the world want. There’s a really simple example. We presume that any community would want a well if they don’t have access to a well, or running water in their house right, but sometimes in a village the women might say you know what, that two hours a day that I get to go walk and fetch the water is the one time that I get hang out with my friends and nobody bothers me and I would much rather do that, right, so it really depends case by case and making sure that if you’re going to do an intervention in the community you actually have talked to community members about what they do that’s fair and proper, and that is a step that investors often skip, right.

We’re busy people. Ability to kind of have time on the ground, so for instance at Candide Group we make sure that we do an in-person visit to any company or fund that we invest in, and that’s both to not just ignore them, but we feel like if we haven’t really gotten to talk to the people then there’s just no way to know if we’re doing the smart investing or not.

Rocco Forino:

Yeah, it makes sense, because it’s almost like creating a product or service without actually seeing if the customer that you are targeting would actually use it, so that’s good research.

Morgan Simon:

Exactly. I was going to say that one of the stories that I told in the book, right, was that entrepreneur when I asked how they tested their solution, which was a solar stove for consumers in the global south they noted that had gone down to Mexico to test it but no one on their team spoke Spanish, so it was this question of okay, you say you’re doing product testing but if you can’t even understand what people are telling you about it how is that possibly valid, so it really takes a thoughtfulness and discipline to make sure that you really are getting that user feedback and not making assumptions for people, and then the final piece is that too often we’re just treating people as consumers and not as the protagonist, and I think this is another really critical point that part of why we have such incredible inequality is this divide between who are the owners, and the entrepreneurs, and the consumers, and the more that we can create opportunities for broader ownership the more that we can really level the playing field, so that’s something that we also look for a lot in our investors.

Rocco Forino:

Nice. That’s great. Now, I’m not sure if I know how to pronounce this correctly but Swarthmore. How do you pronounce that particular…

Morgan Simon:

Now, if you’re from California like me you say Swarthmore. If you’re from Pennsylvania you say Swathmore.

Rocco Forino:

Swathmore. Okay, so I’m…

Morgan Simon:

There a lot of people who say Swathmore, yeah.

Rocco Forino:

So a student Swarthmore College what was the lightbulb moment that went off in your mind where you connected the ability to leverage the school’s billion-dollar endowment to fight social injustices, and how easy or hard was it to convince the VP of finance to make it a reality?

Morgan Simon:

So, I was an activist from the time I was literally in middle school and started running tutoring programs in Los Angeles, and I did a lot of work with homeless and formerly homeless children and started to really see how so many problems facing families were really just an extension of the economy, whether it was difficult to getting a job, or having to do with immigration status, with the challenges in securing affordable housing, right. It all kind of centered back on economy, and when I went to college that got me really excited to look at what are the ways that I could think about my relatives economic privilege.

Not that I was from a high network background, but the fact that I was going to be a billionaire for the first and probably only time in my life, in terms of being connected to this institution. How could I really use that as an opportunity for social change, and I joined the schools committee on investor responsibility that was really the entrée point to the investment field, and was lucky to have, in the administration, people who were really supportive of the idea of students taking strong action, so we filed the first shareholder resolution since the apartheid era asking Lockheed Martin to add sexual limitation to its nondiscrimination clause, and after presenting at the meeting they ultimately did decide to change that policy, and was kind of part of the wave that we saw of companies making these changes on their own, leading up to national legislation, so really part of that long-term social change effort, and for me it was really this opportunity to see that as an individual you could have power over a corporation and that you could come together to really make a difference, so that very much inspired me, and then inspired hundreds, thousands of students across the country that came together in the responsible endowment coalition, which at its height was over 100 campuses across the country looking at the 400 million that colleges and universities manage nationally.

So, just to end that point, I think we often as individuals if we…you might have 10 dollars, or 100, or 10 million, or 100 million in your bank account. We tend to always feel like it’s not enough and that we don’t have economic power, and what I’ve learned is that we’re all connected to money somehow, right. I call it being an accidental billionaire, that maybe it’s your retirement plan, maybe you’re a teacher that’s part of a much larger retirement plan. Maybe you’re an alumnus of a university, but that if you kind of do the math you’ll find that you’re connected to numerous billion-dollar institutions, and then it just becomes the question of how can you leverage those connections to do something positive for the world?

Rocco Forino:

Right. Now, was it easy or was it hard to convince the VP of finance to actually go after a corporation, because I would see someone from a university just not taking it serious like they don’t want to make waves. Did you get that?

Morgan Simon:

Actually, it was quite easy, and I’ll tell you why. One is that we made sure to pick an issue where the social and the environmental consequences…pardon me. The social and financial consequences are so closely aligned, right, so the VP finance, their primary responsibility is to make sure that the school is solvent, right, and managing its funds well, and the things that companies were funding, given that it was more or less 10% of the US population is projected to be LGBTQ that if you as a company have a policy that basically tells those people that they should feel unwelcome you’re shutting out 10% of your applicant pool, right, for whatever reason that you might do it, right, but that is a poor business decision, right, for whatever criteria.

So basically, as a financial steward, as a fiduciary for the school he was very much behind the idea of we should absolutely make sure that companies are doing the best by their shareholders, and let’s add to that the fact that we’re a mission-based institution and that we believe deeply in the safety, and security, and rights of people regardless of their sexual orientation, that both of those wound up being very deeply aligned, so from that perspective they were really happy to do it, and we flew out to San Diego together to present to the board of Lockheed Martin.

Rocco Forino:

Nice. And then you filed a shareholder resolution?

Morgan Simon:

That’s correct. So basically, if you own stock in a company over 2,000 shares for at least a year then you can file a statement with the company basically saying we don’t like what you’re doing about x, or we want you to change x behavior as long as it doesn’t fall within what they call ordinary business practices, and then all of the shareholders come together to vote, and it’s a non-binding vote but it is the strongest statement that investors can make, and it can be deeply embarrassing for companies because you’re essentially notifying all of their shareholders that this company has a problem, so often, there’s a time period between when you file requisition when it comes to a vote. Companies will try to negotiate with you to essentially make the resolution go away before they have to send it out, and that becomes an opportunity to really make some tangible change within companies.

Rocco Forino:

So, that’s an important lever.

Morgan Simon:

Absolutely.

Rocco Forino:

Nice. Well. There was a section in your book that I personally connected with, and that was a story about you visiting a friend…or an entrepreneur in downtown LA who raised about half a million from friends and family, and part of the driving force behind writing my book is to help close the enormous gap that exists between wealthy investors and entrepreneurs who have limited access to startup capital. Could you explain your experiences working in the United States, what struggles you have witnessed from entrepreneurs with limited access to investor capital?

Morgan Simon:

Sure. So, I believe this is correct, that less two percent of venture capital has gone to black or Latino people in the US, and under 10% to women and that means that there is a massive lack of funding for certain populations, and there’s often a presumption that even to get a company to the point where it could be venture funded is that you’re supposed to have this round that they call friends and family, which is really quite laughable, because for some of us…and the story that I told in the book was that I took one of my mentees who was Latina, grew up in downtown LA, both parents extremely hard working and scraping to get by in the US. That when I took her to see this entrepreneur who was able to very casually say oh, I raised 500,000 from friends and family.

I know that if he walked up and down her block these people love her death, but she would maybe be able to collect 50 dollars, right. The idea that your friends and family would be able to get you enough money to start a company is pretty preposterous, right, and it sort of makes entrepreneurship more of a privilege than a birthright, and we often talk about that talent is equally distributed by zip code but opportunity is not, and that’s why we need to be thinking more about how do we get people that first risk capital that they need to even get to the place where a venture capitalist would consider them.

Rocco Forino:

Right. Yeah, so part of my book…or actually most of it is teaching men and woman from opportunity zones, or the most distressed cities in the United States, what they can do to prepare themselves to raise money, to participate in the opportunity zone economy now, and when I was growing up…I grew up in an opportunity zone and that was my first business in 1999, was a tech-related company. My town had an information technology zone, which stated that they were going to invest in a tech company or draw on tech companies to the city, so I put together a team of myself and a couple of Harvard graduates and a couple of coders from India. Well. Despite me only raising about 20,000 dollars I still needed another 100, and despite we had the best business plan, we had a really good team, still couldn’t raise 100,000 bucks, and that was my experience in trying to start a business in the opportunity zone or distress type of city, and it’s just…there’s just…one, there’s not a lot of support, especially if you don’t know anybody who’s had a successful business, and if the opportunity zone doesn’t have a good ecosystem set up you’re really going to start spinning your wheels and get frustrated, so that’s how I connected with that particular story because I was like yeah, I was in the same situation.

I probably couldn’t raise 100,000 dollars back then and I did it, but it was hard, and the…

Morgan Simon:

Exactly.

Rocco Forino:

The point of the story is there’s…now we have this program where they’re looking to get people to invest in the opportunity zone, but we actually need deal flow to be able to invest in entrepreneurs, so they need to know how to raise capital.

Moving on.

Morgan Simon:

Absolutely.

Rocco Forino:

Go ahead.

Morgan Simon:

They need to know how to raise capital, but it’s a two-sided market. It’s also that investors have to learn how to look at businesses differently, right, so whether that’s different ways of evaluating creditworthiness, or experience, right, that you don’t have to have an Ivy degree to be a really phenomenal entrepreneur. I recently was talking to a friend from a low-income community who landed a job at Goldman and in the compliance department, right, which is very specific resolutions and you would presume you’d have to come from a fancy school and background to do that work, but this friend of mine is absolutely obsessed with motorcycles, and the person who hired him said when I heard you talk about motorcycles and that you clearly knew…memorized in and out every spec, every number, every letter I knew you could do the same for efficacy compliance, and it’s really thinking about what are the comparable skills that a person can have, right, and how do you learn to evaluate that differently and give people real chances.

Rocco Forino:

Good point. In your book, Gary Field states that we have a global problem in that jobs create…jobs that are created are precisely what are keeping people poor. What do both surveys and those who create low-paying jobs don’t fully understand? What should be the correct key performance indicator?

Morgan Simon:

Sure. This goes back to…it’s one thing to create a job, and that we often think about that as a positive force of society, but most working people…most poor people are working, so it’s not just an issue of people not working hard enough it’s that they can be working even two, three jobs and still be poor, right, so it’s really thinking about if it’s impact investors we want to create real opportunity for people we need to think harder about what a quality means, right. That it’s not just minimum wage it’s living wage, that it’s providing health insurance, and retirement, that there’s opportunities for advancement, right, that there’s all these different pieces that, by the way, aren’t just about helping people’s lives, which is a great thing to do. It’s also about having better workers, right, of having people who are loyal to you, who are going to stick around longer, that don’t need to be trained.

There’s one study that’s one of my favorites is that not only will employees steal less but they collude less to steal, right. When you think of why even so much theft happens in things like grocery stores is that people don’t feel invested in the places that they work, but when people feel like they are being invested in they are going to have that loyalty, right, and we really should foster that.

Rocco Forino:

Yeah. No, you definitely see that, especially with Starbucks, Costco, Home Depot. I think those particular publicly traded companies are heavily invested in their employees and actually look out for them, so yeah that makes sense.

How can people interested in social impact investing build profitable investment funds without actually extracting too much cash out of the community? How do you balance that?

Morgan Simon:

One of the principles that we try to follow with finance is the idea very simply that you want to leave more value in a community than you take back out, because if we’re supposed to be impact investors, right, then whoever we’re calling the beneficiary should, in fact, be the primary beneficiary, so that’s often a mathematical equation, right. That’s really looking at what’s the rate of return that that community is receiving versus live rate of return, and I’ll note that that doesn’t mean that I can take a submarket return, right. I just want to make sure that everybody in the transaction is being treated fairly, and it goes back to that example about the payday loan and then the interest rate. It’s not just about making something better than the really terrible alternatitives, it’s how do you actually figure out what is fundamentally fair and structure an investment coming from that place.

Rocco Forino:

Now, do you have any examples, even in the US, of any social investment organization that has been successful with not taking out as much out of the community?

Morgan Simon:

So, even going back to that example in Chicago, the New Era co-operative, which I also profiled pretty sensibly in the book, that that is under a non-attractive finance structure where the company has to profit before they pay back investors, and that was a way of making sure that if the investor is advising them to buy certain infrastructure or equipment that they have to be equally invested in its success, right, and not just putting all of the risks down onto the company and the owners, so through that sort of blended structure you really kind of align the incentive that the investors want to make sure that the company is as productive as possible verse what you see in, for instance, private equity firms like Toys R Us, right, where they’re really just extracting as much value out of a company as they can until they literally sucked it dry, right, and the impact that that had on thousands of employees across the country.

So, I think there’s a better way to really create long-term sustainable investing return and create value for families.

Rocco Forino:

Okay, because in the long run that’s only a…it’s only simpleminded and it only makes very few private equity firms rich, and pretty much bankrupts a lot of other people, right?

Morgan Simon:

Absolutely, and I mean what’s really amazing when you look at whether the market crashes in 2008, or the fact that over the last decade take out the top three firms and venture capital returns go to zero. That sometimes when people critique impact investment of saying well, there’s no way you could make as much money as traditional investing. Well. Guess what? People aren’t making that much money in traditional investing, so it kind of points to this idea that something’s not working in that system, and I guess what is it? You can make any error once but once you do it twice, you’re a fool, right. What’s that expression?

Rocco Forino:

Fool me once.

Morgan Simon:

The definition of insanity is doing the same thing and expecting a different outcome. I feel like that’s what we’re constantly doing in the stock market.

Rocco Forino:

Right. Yeah. No, that makes sense, because even with tech companies that are just blown up with excessive valuations. They’re not filled with that, but they’re just filled with excessive equity, for example, WeWork, and because it’s blown up with so much equity valuation, I just don’t see it being that much of an impactful company going down the road, so you’re right. I mean…

Morgan Simon:

And less than, also, security right, that less than two percent of REITs are actually willing to own properties that have a WeWork lease, right, because of that concern of short-term versus long-term outcome, so I think it goes back tojust because something was in a traditional market even claims to prioritizing financial value that often if we ignore the social and environmental consequences you’re not going to mastermind the financial value, and that’s not a bleeding heart in the world thing to say. That’s just reality.

Rocco Forino:

Right. So, let’s talk about how you source deals and what you look for in a good social impact investment deal. Do you prefer to specialize in a specific niche in geography, or are your investments more broader-based?

Morgan Simon:

So, at Candide Group we’re quite broad. We do about 70% domestic, 30% international, and we really also try to not just do that from the coast but to have investments throughout the country. We speak six to seven languages throughout the team and really try, in general, to invest in places where we do speak a language, and that means part of that community accountability element is can you actually communicate with the reported beneficiaries to make sure you’re getting their Candide interpretation and that it’s not just intermediated by the company. That’s something that’s also very important to us, and then we’re very cross-sector because we believe that social innovation absolutely needs to happen in so many different areas of society, whether it’s agriculture, or housing, or energy, or education. It does mean we’re also careful to not invest in things that we really can’t understand, so we’re not going to be, for instance, in the really deep end of the tech pool, for instance the clean energy development, but once there are proven innovations, right, then we can be the ones to step in and scale them.

Rocco Forino:

Right. So would you say it’s harder or more complex when it’s more broader-based when you invest more broadly than if you just focused on a specific geography, and say just solar energy somewhere?

Morgan Simon:

It definitely can be easier if you’re really just going deep into one area. I mean, I think…one of the things I would say is the thing that makes you a successful investor period is not about knowing everything about everything it’s knowing who to call who actually knows something, right, and will they take your call, and will they give you more feedback, so I think that truly more than anything our expertise is keeping that broad wide network, and that does mean even if…you might miss some stuff, obviously, but the other thing that’s so important in investment is diversification, right, so I was not wanting to only have investments in clean energy in South Africa, for instance, or in California for that matter. That you want to make sure that you have a really diverse portfolio that whether it might pass it in the market, so I think that it’s something that we see as core, not just from a social strategy perspective, but also in terms of our efforts to minimize risk.

Rocco Forino:

Right. So, what financial modeling tools and strategies do you use to gauge potential return targets?

Morgan Simon:

I would say that companies are always going to have a number of different desired endpoints, right, so if you’re playing it backwards from an acceptable wage of exit, right, which is that I’m looking to make a certain multiple of my money. Now, what’s interesting, if I’m venture capitalist, I might be trying for at least a 10x on a reveal if they look at is as one or two unicorns per portfolio, and then the rest of your companies can flop, and it doesn’t matter. Social investors tend to think of it differently, that we would rather have a broad portfolio with more doubles than triples than just fully after the whole run, and that’s actually important because if you have a bunch of flopping businesses that’s not good for people in terms of whether it’s job stability, products in the market, so we want to have that longevity.

We also know that those companies tend to be more sustainable. Not every business is trying to be a billion-dollar business nor should it be, but if you have a particular region or a sector expertise build the size company that’s right for you, and we see often that people take on too much venture money it’s pushing them into a model that’s not right for them, so I would say that our financial underwriting is always built on what is the sector, what is this particular company, what is the desire of that entrepreneur? Do they want to stay here forever, do they want to sell it, and therefore how do I work backwards from that apply the outcome evaluation to what is the type of growth that I’m going to need to see, and what’s the likelihood that they’re going to get there, right, so really trying to be realistic about what the market asset and opportunity is.

Rocco Forino:

Right. How do you describe how you select the difference between impact-based return versus impact?

Morgan Simon:

Sorry. You said the difference between impact-based on return? I want to make sure I understand you properly.

Rocco Forino:

In your book, you mention you either go with high-impact, high-return and you don’t…for example, don’t consider medium return medium impact.

Morgan Simon:

Got it. So, one of the things that we know…going back to that idea that not every company is going to be a 10x company, but that that some might be really reliable 3x company. That in the case where something is a lower return vehicle, I may be looking to make sure I’m getting the absolute most exceptional impact that I can, or I want something that’s high-return and high-impact. If something is not that exciting financially, or from an impact perspective it might just be a bad investment and I don’t want to make it, right, so I think it’s being very clear that there are times where we will accept a lower rate of return than what might otherwise be offered on a market but that we’re doing it for a very specific purpose, and that goes back to…one of the initiatives we organized this year was called Real Money Moves, which is working with a number of cultural influencers, NFL players, cast members of Orange is the New Black who committed to keep their money out of the private prison financing family detention, and then some collectively committed 10 million to social investing, and in that conversation of well, if I do that am I going to lose return there is also this question of well, hypothetically let’s say that you were making a 10% return by profiting from locking up children and separating them from their families, or you might make eight percent through renewable energy, which would you choose, right?

And that sometimes we use this kind of arbitrary what the market says as if that is the gospel as opposed to more of the bottom-up assessment of what do I and my family need, and if I have to harm someone else’s family by supporting my own do I want to make that tradeoff, right? Could I actually look in my grandchildren’s eyes and say you know what? That two percent was more important to me than the idea of seeing other children like you separated from their families, right, so I think there’s a certain point where we have to redefine what the market needs, and that the market has to be a place where we’re actually taking care of our fellow human beings.

Rocco Forino:

Right. How would you define impact washing?

Morgan Simon:

So, impact washing is sometimes the idea of greenwashing, which you may have heard of, which is essentially when companies were trying to show that they were on that environmental bandwagon, and therefore talking about things like clean coal, right. There’s no way to make clean coal. The whole point is that fossil fuel is not clean, but by putting that label, right, as a way to try to show that you’re doing something, that you’re painting it green but it’s not really green, and in a similar way, particularly as you’re seeing more traditional financial institutions coming into impact who really don’t have the history or the on the ground connections to know if that impact is real or not can wind up sometimes calling something their impact portfolio, but then when you look under the hood it’s just a reorganization of the Fortune 500, right, so there has definitely been concern, and I think an opportunity for us to really be conscious consumers of impact investing.

That if you get offered an impact portfolio take the time to really go through and question that advisor, so why is this company being included, or if it is, are you engaging in shareholder activism to try to improve its practices, right. So, social change is always a work in progress. It’s not that you’re going to have the most beautiful perfect portfolio on day one, but are you really showing that progress and that commitment. That’s what we have to safeguard against.

Rocco Forino:

Right. You had an interesting deal on the Mountain Cacao deal. How’d you come up with the deal structure and what did you consider when conducting financial due diligence, impact diligence, and negotiating terms?

Morgan Simon:

So, in the book I talk about a number of deals that we’ve done, and one of them is now called Uncommon Cacao, which is an umbrella company for a couple of local entities including Maya Mountain Cacao, that sources cacao from various countries around the world, and that’s the primary ingredient in chocolate, and it’s an are where even if you buy that fair trade bar the farmer probably only got two cents more, so still not livable, not sustainable versus Uncommon Cacao that have been working to make sure that the majority of the value of any transaction was actually getting back into sellers associations, so in that deal we really wanted to make sure to balance the risk and return across multiple stakeholders, so going back to what I mentioned about non-extractive finance.

How do I make sure that the farmers are the primary beneficiaries while we also make an acceptable return because this is still a for-profit investment, and we’re able to structure a deal that provided some ownership to farmer organizations, right, so they’re not just the beneficiaries but are actually the protagonists, and then make sure that there is meaningful input from a governance perspective for what each farmer’s action form, so once again we’re not just deciding that many people’s futures for them, so that’s been a really exciting company to get to be a part of.

Rocco Forino:

And that was interesting. I liked the way you spelled it out from start to finish, and I just was curious as to the financial structure. I know there was a founder, a CEO, investors, and employees. How do you structure the deal so that the founder, and the CEO, and the employees actually come out ahead?

Morgan Simon:

Sure, so one of the things you have to understand that every decision you make makes an impact on those different stakeholders, right, so really being clear. What is, for instance, the living wage in each of their context, what’s the risk and return that each of those actors is taking on, right. There’s waves of that. For instance, because the farmers are paid first they have less risk, which is part of why they have less ownership than the founder, so really kind of evaluating what is everyone’s relative contribution, and then are they getting a fair take for that, and then that factoring in to how they’re actually structuring the company, and that’s one of the examples in the book that I really kind of go into in detail, and how that got structured.

Rocco Forino:

Interesting. So, let’s do a hypothetical. Let’s say we were to take Uber private making it a profitable company, how would you restructure the company so that it would fit in within your lens of impact investing seeing that…

Morgan Simon:

I’m sorry. You said the name of a company, that we were to take…

Rocco Forino:

Let’s say we were to take Uber private. It’s currently public, we take it…

Morgan Simon:

Uber. Okay, got it. Got it.

Rocco Forino:

So, that’s a company that is heavily…it has tons of equity, they rely on a lot of drivers and their own vehicles, and they don’t make as much money. I believe they make out less than minimum wage, so if we did a fun hypothetical. If we were to take Uber private and make it profitable how would you restructure the company so that it would fit within your lens of impact investing?

Morgan Simon:

Sure. So, first I would be really thinking about…right now one of the challenges in the ride share space is that there is reasonably not a lot of loyalty from the part of the drivers, and I’d have to disclose that I guess recently the idea happened that sort this is in the process of being activated but that I did support an investment in Lyft, so that’s betting on a different pony from that perspective, in terms of specifically how they were treating their drivers, and noting that you get drivers with much better loyalty when you’re making efforts to treat them better, so I think that would be a starting principle, that the drivers are the backbone of the company and therefore what do you need to do to make sure that their contributions are being addressed fairly, and then hopefully, right, that’s going to be part of what brings more users onto the platform, and then when you get that network density that holds the company accountable, so it goes back to…it’s not just about being the bleeding heart but it’s also looking at a business perspective.

How do you get the most value you can out of your most important resource, which is the people. So, at any rate, coming from that lens, which would probably require a pretty radical reorganization of the company, I would probably start with some sort of living wage provision, because if I have drivers that can’t afford their rent that are driving tired and putting people at greater risk then I’m not going to be successful, so I want to make sure that everyone reaches a minimum standard, and then I also want to make sure that they are loyal and contributing ideas for the company’s success, so I would want to, similar to Juneau, be able to create opportunities for them to own equity, and to be able to buy-in through their work, through their flood equity like anyone else in the company, So, it’s funny how in a traditional tech company you would never dream of investing company that hasn’t set aside significant equity for employees, because everybody understands that no tech worker who’s worth their dollar would ever work without equity involved, so why would a driver be different, right, of given the option and given that motivation, so I would want to create significant opportunities for them to be able to work their way into that equity pool and then shift some of the governance in the company to make sure that they’re feedback was really a substantial part of planning.

Rocco Forino:

Right. What’s interesting is they’re not only giving their time they’re giving their vehicle. I mean, they’re basically running it into the ground, putting the amount of hours and time on the engine, and just wearing it down, so they’re getting a double whack there, both in wage and their vehicle just depreciates much quicker.

Morgan Simon:

Absolutely.

Rocco Forino:

Yeah.

Morgan Simon:

And I think that raises a lot of questions as to whether that’s a sustainable model. It’s sort of similar to fossil fuel extraction, the idea that if you ever fundamentally extracted relationship with your primary cash cow then it may not be around forever for you, so these are some of the pieces that we need to really be a lot more intentional if we want to build a long-term company.

Rocco Forino:

I mean, it’s interesting you said you’ve invested in Lyft because I was out in Austin, Texas I think a year-and-a-half ago and I started using Lyft more than I started using Uber, and I started…I was asking the driver who do you like…because he had both emblems in the car. I said who do you like driving for the most? He says definitely Lyft because they treat their drivers better, so it was like that’s pretty interesting. That was a good interesting competitive advantage for Lyft to come into the market at the right time, because it enabled most of the drivers in Austin, that I’ve dealt with, either didn’t drive for Uber or limited their hours with them, so that’s interesting.

Morgan Simon:

Yeah, and I think that that’s a point that’s much broader than even the Uber/Lyft debate, right, which is just simply that if you treat people well, they will do better for you, and how od create those conditions. It’s a very, very simple equation.

Rocco Forino:

Yeah. What’s been your favorite investment to date, either high-impact or high-profitability, or both?

Morgan Simon:

I can’t choose between my children. I have too many of them. I guess there’s just so many and for so many different reasons. I love some of the funds like Impact America founded by Keisha Cash, which has been working with entrepreneurs across certain centers who were serving low-income communities predominantly, and her entrepreneurs are primarily women and people of color as well, so really looking at impact across that chain. I love the investment we made in Macro, which is multicultural media. It’s a massively growing market and it’s so important to make sure that people can see themselves reflected on screen the way that they want to be seen, and then we’ve also seen you know Black Panther and accrued on down how they’ve been tremendously possible in the background, but it also goes back to spaces where you have great social alignment and great financial potential as well.

So, obviously the jury is still out on many of investments, it takes time, but that so far, we are just so excited about what these investments are doing in the world, and even those last two stories. I think we’re so used to feeling like financial management is this chore, that I have check-in with my financial advisor maybe every quarter, maybe twice year, that maybe it’s a slightly uncomfortable conversation. I don’t always know really what I’m invested in, and the opportunity with the impact investing to have your quarterly meeting actually being getting to hear the inspiring stories about entrepreneurs and funds we’ve been able to support just create such a different dynamic, right, and a real way to get excited about your money, so I’m excited every day with the entrepreneurs that we get to work with.

Rocco Forino:

Well. I’m glad you have the ability to not be able to choose because that’s a good thing.

Quick question. What would be some lucrative industries in the United States who would benefit from co-ops? You mentioned in the book…do you see any industries that would be ripe for co-ops within the US?

Morgan Simon:

My short answer would say that I think every industry is right for co-ops, right, but you’re starting to see, particularly, a number of mid-sized different things where there a manufacturer and otherwise where the owner is aging, maybe the kids don’t want to take it over, and that there’s the opportunity to transition to a co-op, or even an ESOP, which can have tremendous tax benefits for that owner, so people are claiming that that’s an interesting solution to the succession challenge that we’re having given the baby boomer phenomenon, so we’re seeing lots of opportunity there, and lots of people saying if I can get significant tax benefits from this and at the same time be really comfortable with workers who I trust, right, who I’ve worked with for 20 years or more that they know how to run this business better than anybody, because they’ve being doing it, and that they can continue on with my legacy. That’s quite the win-win for people.

So, I think we’re seeing more and more opportunity and more and more recognition, going back to what I was saying earlier, that creating equity ownership opportunities just creates a much more committed team, so it becomes a viable option in any number of sectors.

Rocco Forino:

So, there’s a tax incentive to owners to engage in a co-op?

Morgan Simon:

There is specifically for ESOPs. I’m less confident in terms of the co-op environment. There’s a couple of different ways that you can structure them. It sort of depends on the induvial situation, but essentially, you’re able to make transfers tax free in an ESOP environment, so this really strong incentive, because essentially, it’s funding a retirement plan, so it’s how ESOPs work.

Rocco Forino:

Okay. Good to know. So, let’s switch to opportunity zones. Opportunity zones are supposed to rebuild over 8,000 US communities that seem to get left behind during every economic expansion, and the New York Times recently wrote an article criticizing the program as a tax loophole for the rich, and since most of the opportunity zone investments have been made in luxury hotels and property developments what should community leaders to get investors focused on investing in deals that can actually uplift communities through social impact investing rather than the typical hotel and real estate deal?

Morgan Simon:

Sure. So, I think it’s really critical to mention the name opportunity though I think tends to imply that it’s always going to create some beneficial opportunities for that community and that is not a given, which is why investors need to be extra vigilant when they’re looking at opportunity zones to ask the right questions, so for instance, the jobs that we create through construction or otherwise are there living wage, is this actually going to local people or are they coming to people from outside, that’s extremely common in the construction industry, and then also whatever is going to be built is it something that is acceptable and affordable for local community members, so one of the things that’s been interesting is have some projects that were already approved prior to the opportunity zone legislation getting attached are now getting grandfathered in are getting their tax benefits, and that includes things like a Ritz Carleton in Seattle, which is a mixture of hotel and luxury condos, right, and it’s hard to imagine that in that opportunity zone that lower-income people would be moving into those luxury condos, right, so if anything it’s actually displacing downtown real estate that could otherwise be used more for affordable housing.

So, that is where you start to see the potentially nefarious side and definitely, I would love to see the government create more pure guidelines around the use of that. You’ve seen that recently in California, actually, looking at limiting opportunities to low-income housing and green energy infrastructure. I think it’s important to also include local small businesses, minority-owned businesses as part of that as well, because people do forget that you can do equity in businesses not just in real estate as part of opportunity build, but at any rate, it’s just to say that there needs to be further guidance on how to make opportunity firms responsible, or with the lack of guidance from the government the onus is really on local investors to be choosing how they want to show up with a community member and how they want to be remembered for their legacy.

Rocco Forino:

Right. I’ve seen a lot of vertical farming being pitched at certain investor events. It seems to be a hot sector of urban America. If you were considering investing in a vertical farming startup how would you want to see these startups structured for social impact, because a lot of them have mentioned that they’re targeting the urban cities, like Austin and Brooklyn and to help local communities by paying higher wages, and by bringing decent-paying jobs like this to the inner city. How would you…so if you were going to invest in a vertical farming startup what questions would you ask? How would you like to see them structured?

Morgan Simon:

Sure. So, I think it’s a great example of Candide Group we often talk about the difference between the what and the how, so the what might be farming generally or physical farming, or some industry that on surface sounds really positive, but then the how is really critical, right. How are they doing that, and how does that impact local residents, or otherwise. How does it impact the environment, so when they’re creating jobs are those living wage jobs, who are they going to, does it match the demographics of the neighborhood historically or is it more causing people to move into this place. Then it also can be question of who is the produce going to, right. Often, particularly vertical farming tends to be micro grains, the type that you would get in a clamshell for six dollars a pack in a Brooklyn store, right, and who is that affordable and accessible to. Are there ways that you’re able to make your product really accessible to people who do not have stable food access, particularly access to produce and healthy food, so those are simple questions I would be asking.

Rocco Forino:

Great. Now, if there’s an entrepreneur out there listening and is interested in setting up a social impact business in the United States what sectors do you see that need the most attention? Where would you direct entrepreneurs right now?

Morgan Simon:

I think in general it’s where…there’s so much work that needs to be done that really it is more about what is the expertise of that particular entrepreneur, and where could you apply it, right, so if you have an engineering background, or a mechanical background, or are a school teacher who sees an opportunity to really expand within the education field, right, so it always is this what do I know, and then where can I add value based on that, and what are the communities that might lack the skill or opportunity that I could potentially be providing, so I think if anything entrepreneurship is a tough road, and that means that whatever you choose has to be something that you are just deeply, deeply passionate about, right. I think people often forget, particularly if you’re going to raise money the expectation is that you are going to do, you’re darndest to be around that whole pot, right.

That you’re essentially making a 10-year commitment and sometimes, certainly for young folks, that may be the longest they’ve ever conceptualized doing anything, and that it means being prepared for that commitment is really critical, and therefore it…certainly, you want to be responsive to what the world needs, right, and how do we make sure to evaluate that responsibly, but it definitely has to intersect with where you’re skillset is and what you’re passionate about if you’re going to really stick with it in the long run.

Rocco Forino:

Well. Given that question, we could go into where it could be rooted from, and you mentioned that social education is not being taken as seriously as financial education. How would you design a social impact curriculum to encompass the most important aspects of impact investing? Some entrepreneurs might be interested but they might not have the depth to pick a direction, so how would you, basically, put together a curriculum on social impact?

Morgan Simon:

Sure. I think first and foremost is really even forgetting the curriculum. It’s just making that commitment, right, in a way that people might feel well, if I’m an entrepreneur then I have to go to business school, or I’m going to go to an investment bank first, and I’m going to spend those four years, or whatnot, getting that education and making sure I’m fully qualified, and then when it’s time to decide what social change is well, I can just read the newspaper and that’ll be good enough, and that’s literally an answer that I’ve heard sometimes from investment managers, in terms of them saying…when I’ve asked the question of well, how do you know what the world actually needs, right. What’s your data sources for that the same way you would collect other data towards an initial investment.

So, I think one…in order to make sure you’re getting that data you really have to make a commitment and that means times, right, so we really block out time on our team to make sure that everyone has the opportunity to get out in community, that they’re getting that sort of direct feedback and kind of keeping their eyes open and having significant relationships in community, and sometimes that can really result in things you never would’ve expected, so, for instance, there was a fire a couple of years ago in Oakland that decimated about 300 housing units for largely low-income black community members who…and it also had a number of special needs cases, so very, very difficult to replace that housing, and there was a church that was organizing the relief efforts and it was a black church, and I told the team okay, we’re going down and spent pretty much every day there that week, and it was also the opportunity and folded clothes, and getting to know community members to be building those alliances. Not even necessarily knowing if that would lead to a certain outcome, but then it turned out that some of those churches had these parking lots that they were no longer really using and were excited about the idea of developing housing, and we were able to connect them with a low-income housing developer to start working on some projects, right.

So, that’s the type of thing where I never would’ve gone into that thinking it would be a business relationship, but the fact that we invested time in community really led to a positive outcome, so I think you have to be open to spending time on community connections even if you don’t know what the outcome will be, so that’s point number one.

Point number two is to really think about what are the venues where our fractured communities are gathering, right, so in the way that you might go to a private equity conference or an entrepreneurship, or whatnot, can you find similar opportunities within the social sector even if people are looking at you funny and saying well, you’re an investor. What are you doing here? It’s like well, that’s precisely what I’m doing here, right. I want to make sure that I’m really integrating with thoughtful…in the book I definitely give some examples of the types of conferences and forums that we have spent the time in, whether it’s social justice or whatever, housing, or energy, or whatnot to make sure that we’re really hearing from voices all over the world, so that’s some of the ways that I would be thinking about it.

It’s really about putting yourself in the path of people who are doing innovative work.

Rocco Forino:

Great. That’s great information, and on the investor side, for those who are listening and are serious about investing in impact investing, where is a good source to find good social impact deal flow?

Morgan Simon:

So, if you’re looking for direct investments, right, then there are these networks like Tonic and Investor Circle that could help, and they generally are just providing a pipeline, right, so then there’s still the diligence, the execution, the management, and that’s where managers can be really helpful, looking for an impact investment advisor who could help to manage that profit for you and would help you figure out what your portfolio is going to look like. So, I think it’s important to decide how much of your life do you want this to take over, because as an individual investor it’s very easy to get caught up in companies and dealing with amendments, and reports, and whatnot, and all of a sudden it’s your full-time job, and if you don’t want it to be your full-time job but you still want to get to have some exposure to it, support companies, a lot of ex-entrepreneurs that want…they may enjoy the experience of serving their bank but they actually want to use their business skills, right, as the basis of their volunteering that this is a way to create those access and opportunities in working with an advisor but not have to be doing all of the day-to-day all the time, so there’s lots of different entry points to the industry.

Rocco Forino:

Any conferences in particular?

Morgan Simon:

So, SOCAP is coming up in the fall, and COCAP, which are both in the Bay Area. I will definitely be speaking at SOCAP, and I’ll be there with Derick Morgan and NFL veteran who we’ve been working closely with on his impact investment portfolio. There are so many, and in general the GIIN is a global impact investment network, giin.org, tends to have a pretty good wedding calendar of what are the conferences happening.

Rocco Forino:

All right. That’s great information. Again, Morgan Simon. Thank you, so much. I wish we could replicate more people like you…who do so much good in the world. I’m a big fan of you and your mission. If you haven’t picked up her book, Real Impact, go get it on Amazon today. The book is a must-read for investors and entrepreneurs looking to make a real impact in the world. Thank you, so much, for coming on the podcast. It was a pleasure.

Morgan Simon:

Thank you. Likewise.