Does Lateral Capital Target a Double Bottom Line?
There is no doubt that technology developed by Early Stage companies has the best chance of fixing society’s problems: Indeed, “saving the world a little bit at a time.” Big companies, like the ones we worked for, are just not going to get us there. They are rewarded for having a very short-term profit focus and thus very bad at taking longer-term risks.
The question is whether Lateral should invest with a larger purpose in mind; whether “saving the world” should be an investment criteria. We have considered this from several perspectives, including the idea that we should invest against a double bottom line: Doing well and doing good. In the end, we concluded we can’t do both at once.
Investors can’t have more than one master. That master has to be the potential for the investment to return a profit in excess of cost of capital. If the company does well by doing good, even better. But every time we have looked at an investment which lacks economic viability on its own merits, no matter how good the “cause,” we have concluded that it won’t succeed long-term. Said differently, if you want to save the world, the world will have to pay investors – and the companies they invest in – to do the saving.
So how do we ensure we don’t invest in the wrong things? Companies that might be unbelievably profitable, but which deliver no particular redeeming social benefit. We all know what we are talking about: Vapor cigarettes, computer games, online gambling, the next great dating site – or the next great strip mine. The rule we have adopted is this:
If our children wouldn’t be proud to tell their friends
about a Lateral Capital investment, we don’t invest.
In strategic terms, we have defined this as the fifth of our five core investing criteria: The invested company has to contribute to the greater good. This is amorphous and not specific. But it is a standard all of our Limited Partners support. Plus, we all know it when we see it.