Category: laudato-si


Capitalism 2.0

By Stephen Forte,

How a New Era of Business Reponds to Changes in Markets, Demographics, and Technolgy with Profits and a Mission

By: Stephen Forte and Gretta Whalen

Image courtesy of Nokero, Inc

Note: this is an abridged version, download the full white paper here.

Introduction

The monumental advances of the last century — the automobile, the airplane, the personal computer and mobile phone, and the Internet — can almost certainly be attributed to a regulation of supply and demand by Adam Smith’s “Invisible Hand.” The father of capitalism proposed the theory in 1776, positing that “enlightened self-interest” naturally produces the best outcomes for all. The notion of choice under scarcity (supply and demand) went unquestioned until recently, as the market has been experiencing a slow but cataclysmic shift. More products are digital and experiential; they’re comprised of bits and bytes and stored in the cloud, not assembled in factories and sold in stores. The march of progress has rendered our concept of supply and demand obsolete.

Even more recently, British economist Ronald Coase posited that it’s in a company’s best interest to expand and become a “firm” — a vast entity owned collectively by shareholders — in order to lower their costs and increase efficiency. Nearly four decades later, Michael Jensen and Dean William Meckling’s 1976 paper “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure” led, indirectly, to a period of corporate growth in which shareholders shaped the effects of capitalism and customers were often overlooked and underserved.

Consequently, capitalism — a system intended to meet demands and dispense opportunities — served the greater good with less and less efficacy. Management focused on increasing shareholder wealth (as well as their own) and societies eased into an era of abundance. Desperate to increase shareholder benefits and secure their positions, executives acted against their broader self-interests and ended up harming their customers, their employees, the world’s most vulnerable populations, and themselves.

Meanwhile, a massive decline in regulation (beginning in the 1970s and continuing in the 1990s) pshed society toward economic instability through a series of smaller scale booms and recessions. The steady evolution of technology protected society largely from a great depression, but since that same technology is rendering the theories of Smith and Coase obsolete, we’re approaching a tipping point. The decline of the spirit of capitalism is reverberating slowly, but surely, around the world, drawing the ire of its usual critics, and prompting the strong commentary of more unexpected voices, too.

Laudato Si’: On Care for Our Common Home

In 2015, Pope Francis wrote a groundbreaking encyclical entitled, “Laudato Si’: On Care for our Common Home.” It’s a detailed censure of humanity’s collective failure to care for the environment while pursuing capitalistic interests, the effects of which have only hastened a global, and potentially catastrophic, climate crisis.

His Holiness’s letter is somber, but not without optimism. He begins and ends with a plea to begin a new conversation about the future of the planet, one that includes everyone, because it affects everyone. It’s a clarion call, an appeal to the entire human family — and young people in particular — to cooperate in an effort to “redress the damage caused by human abuse” and offer solutions to the “sufferings of the excluded.”

“The urgent challenge to protect our common home includes a concern to bring the whole human family together to seek a sustainable and integral development,” he said. “For we know that things can change.”

Pope Francis wasn’t the first of his faith to plead with humanity to be more mindful of the planet and the human family that inhabits it. In the 1970s, Pope Benedict asked believers to “recognize that the natural environment has been gravely damaged by our irresponsible behaviour. The social environment has also suffered damage. Both are ultimately due to the same evil: the notion that there are no indisputable truths to guide our lives, and hence human freedom is limitless.” Bartholomew pointed to the ethical and spiritual implications of environmental problems, advising that we replace “consumption with sacrifice, greed with generosity, wastefulness with a spirit of sharing.

The Laudato Si’ coincided with a watershed moment: capitalism is at a crossroads. Previously focused only on shareholders and profit margins, not consumers, faltering businesses have required governments to intervene on behalf of children, workers, the environment, and businesses deemed “too big to fail.” With the new capitalism — Capitalism 2.0 — entrepreneurs are choosing to be driven by both mission and profit. The culture of the firm has been disrupted. The new Gig Economy, driven largely by freelancers, means the firm has a lower survival rate, which leaves more opportunities for startup companies to transform the corporate space.

The principles of Capitalism 2.0 are currently unfolding thanks to The Laudato Si’ Challenge (named by His Eminence Cardinal Turkson and inspired by the November 2016 Right Now! Conference), which is assisting startups as they expand their solutions to the world’s boldest challenges. The challenge includes a call-to-action for businesses to lead the way in care for our common home by protecting the ecological diversity of the Earth and humankind. The Laudato Si’ Challenge is one of a number of strategies to stimulate mission-driven efforts that are addressing threats to humanity like climate change, but is one of the only initiatives that prioritizes social enterprise efforts that are driven to achieve a mission and turn a profit.

The Past

Pope Francis’s encyclical touches on a number of problems resulting from the pursuit of progress that is unfortunately often accompanied by a general disregard for the planet. His holiness mentions the following scourges specifically: pollution, throwaway culture, climate, water, loss of biodiversity, decline in human life, breakdown in society, global inequality, and weak responses to the difficulties at hand. While we’ve made advances in technology, that progress has come at the expense of people living in developing countries. We deplete their natural resources and exports while making no effort to replace them. Meanwhile, the jobs we’ve relied on for generations are getting outsourced or dying out forcing many former workers below the poverty line. Experts such as Roger Martin, author of Fixing the Game, believe this gradual decline started when executives centered their attention on shareholders instead of consumers.

A pervasive emphasis on the expectations market has reduced shareholder value, created misplaced and ill-advised incentives, generated inauthenticity in our executives, and introduced parasitic market players. The moral authority of business diminishes with each passing year, as customers, employees, and average citizens grow increasingly appalled by the behavior of business and the seeming greed of its leaders. At the same time, the period between market meltdowns is shrinking, Capital markets — and the whole of the American capitalist system — hang in the balance.

Thus, the corporate world is plagued by continuing scandals. Executive compensation has increased while corporate performance has declined, and many executives have lost sight of the psychologically and economically rewarding business of creating value.

But that’s all starting to change.

The Present

In its relatively short lifespan, Capitalism 2.0 has emerged with two promising strains: the cross-subsidy model (or 1:1 model), in which consumers can effectively donate a product for every purchase they make, and the mission-driven model.

The 1:1 enterprise model, espoused by TOMS, Warby Parker, Bombas, WeWood, and so many more, has endured its share of criticism for giving humanitarian aid at the expense of economic advancement in the developing world. Still, this model launched a broader interest among business owners in social entrepreneurship, even carving out space for businesses that are not just socially conscious, but propelled entirely by a belief that sustainable solutions for problems like hunger, waste, water, and climate change can be as lucrative as foot-, eye-, and wrist-wear — perhaps even moreso. Enter the mission-driven enterprise, typified by companies like Tesla and the nine startups who are participating in The Laudato Si’ Challenge. These are the representatives of Capitalism 2.0 who embrace double sustainability and are pioneering models that enable solvency for businesses and for humanity as a whole.

Auxiliary virtues of Capitalism 2.0 include transparency and accountability. Johnson & Johnson demonstrated these values during the Tylenol crisis of 1982. Within a week of the first death that came as a result of tampering in the Chicago area, Johnson & Johnson ordered a recall of every single bottle of Tylenol in existence. They put an immediate stop to all production, all advertising. Undoubtedly, the moves came at a tremendous profit loss, but the company credo explicitly names the “first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services. In meeting their needs everything we do must be of high quality.” Putting customers first allowed Johnson & Johnson to survive a devastating tragedy and continue to serve the people who rely on them to manufacture impeccable products.

Similarly, Proctor & Gamble has long abided by a customer-first credo:

We will provide branded products and services of superior quality and value that improve the lives of the world’s consumers, now and for generations to come. As a result, consumers will reward us with leadership sales, profit and value creation, allowing our people, our shareholders and the communities in which we live and work to prosper.

The customer-first philosophy, long considered optional by executives desperate to meet shareholders expectations, is becoming the rule rather than the exception because it’s better for people, and it’s better for pocketbooks.

The Future

Each technological revolution introduces a class of professionals that were unimaginable just a generation before. Workers in the Industrial Revolution couldn’t fathom a world that required automotive technicians, airline pilots, and telephone operators, and members of the Greatest Generation are mystified by professional titles like “Growth Marketer” and “Data Scientist.” Our grandparents came of age in a society that still factored farming into the GDP. Today, there aren’t enough people doing farm work to factor it into unemployment statistics.

Just as farmers from the 1850s couldn’t predict the factories of late 19th century, and how turn of the 20th century manufacturers could foresee changes that would result from auto and aviation industries would, we similarly can’t imagine the jobs that will exist in 25 or 50 years. The Information Age will usher in more jobs than ever before; the nature of those jobs remains to be seen.

As it has for centuries, this turnover will likely produce a painful cycle wherein jobs are lost, replaced, and lost again. The magnitude of the economic turmoil will depend on how disruptive the new technologies are. Artificial intelligence, robotics, and machine learning are profoundly disruptive, which means our communities are experiencing, and will continue to experience, financial discomfort, political unrest, socioeconomic uncertainty. A laid-off coal miner West Virginia can’t fill a software engineering position in Silicon Valley, for instance. These are the people who will need our financial, educational, and emotional support as they gain the skills they need to compete in a new economy.

Nevertheless, history will show that the Information Age was much more constructive than not — and actually became one of the biggest job creators of all time. Moreover, if we place our focus on what consumers need, we can ensure that our entrepreneurial endeavors will be relevant and profitable, and that laborers will find meaning and fulfillment in solving problems for a living, whether on a small or grand scale.

This is the vision of The Laudato Si’ Challenge. Nine startup companies, selected from a set of more than 300 applicants, traveled to the Vatican to refine and accelerate their mission-driven enterprises. Each one endeavors to combat one (or more) of the devastating threats to the world today, at an affordable price.

  • Mandulis Energy — Renewable energy that turns agricultural waste into electricity and clean cooking fuel.
  • Nokero — Efficient solar powered lights to decrease indoor air pollution from kerosene.
  • Smart Yields — An app that allows farmers to have insights into how to grow crops and improve efficiencies of current crops.
  • Rise Products — Upcycles waste from breweries into high protein, low carb, cholesterol free, artisan flour.
  • Aqus — First income-generating water filter that is designed to be affordable to people in developing worlds.
  • Innov8tia — Patented microwave technology that changes toxic sludge into clean water and energy.
  • ProTrash — Pays people for recyclables with cash cards that can only be used for food, medicine, or other necessities.
  • Scooterino — The only ride-share service using scooters in Europe.
  • papr — Creates paperless workflows for enterprises using “File > Print.”

Conclusion

Capitalism 2.0 is just that: capitalism. But instead of prioritizing shareholder value at the cost of efficiency, transparency, and accountability, the new generation of entrepreneurs will prioritize the customer experience first and their broader mission (a close) second. This is not just the most moral way to run a company, it’s also the most profitable.

The ushering in of Capitalism 2.0 will not be without turbulence. There will be disruption, as there always is when society moves from one technological phase to the next. Some jobs will disappear. Some workers will be displaced. But as the New Era of Business supersedes the shareholder driven status quo, it will find novel ways to serve its customers, and better ways to educate, train, and utilize its workers.

Meanwhile, The Laudato Si’ Challenge will provide funding and mentoring for the young entrepreneurs who are answering the Pope’s clarion call to care better for our common home, Earth, and its most vulnerable people. Today, this approach to business is still novel. In ten years, it will be standard practice. And hopefully, the next generation will never imagine that Capitalism was done any other way.


Capitalism 2.0 was originally published in Fusion by Fresco Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

Report From #HackathonPune

By Stephen Forte,
We took over Twitter

A year ago Fresco Capital and e-Zest organized the first ever Hackathon to take place in Pune, India. It was such a great success that we decided to do it again. This year’s Hackathon was September 23–24th and and it was incredible.

As the prize was sponsored by the Laudato Si’ Challenge, the theme of the Hackathon was “Chasing a Billion Dreams — Building uncommon apps for common people” and the guidance I gave at the beginning of the Hackaton was the seven categories of the Laudato Si’ Challenge.

Explaining the Laudato Si

After we did the opening and set the ground rules, e-Zest CEO Devendra and I had to go and personally sign the 250 certificates of completion for the attendees. It took a while for us to sign all the certificates, but we had a lot of fun doing it. We joked and said this is what it must be like when the president takes office and immediately has to sit down and sign a bunch of stuff.

No event in India is complete without the certificate! 😉

As the day started to turn to night, I went to visit as many of the 100+ teams as I could. The standout teams to me where:

  • Emergency response: increase ambulance and police response time via location services, GPS, etc (the goal was to get an ambulance faster than an Uber)
  • Job and skill learning/improvement using machine learning (ML)
  • Augmented reality social media like Pokemon Go for social activists
  • Crop health app via image analysis of drone photos
  • Car lane sensor and software for the masses
  • A Firefighting robot
  • Wheelchair automation and navigation
  • Governmental services for the masses
  • Solar power installation chatbot
  • Farming automation and instrumentation via Industrial IoT

As you can see there was a healthy mix of software and hardware solutions. The trends were around some of the major problems in India: traffic, farm yields, competitive job market, and governmental services. It was great to see the Laudato Si’ values being implemented at a Hackathon in India.

We have a problem with not enough women in IT jobs in the United States. That is not the case in India: about half of the Hackathon participants were women. 50% of the winners at the Hackathon were women as well.

About 12 hours after we started, the developers started to get tired. That is when we took a break and had the live band come out and play. We temporarily turned the office into a nightclub.

Developers getting down

After midnight the sleeping bags came out and some people crashed for an hour or two. I was struggling with jet lag and cheated and went back to the hotel for about 4 hours of sleep.

Its not a hackathon without sleeping bags

At 6:30am the judges started to arrive and talk to each team, taking a few hours to narrow the field down from 100+ teams to a short list of about 10.

Final presentations

The final teams made their presentations and we chose the top three winners. While there was a lot of impressive hardware, all the shortlisted apps were software apps with the themes of: farming, social activism, governmental and emergency services, and traffic.

Looking forward to next year.


Report From #HackathonPune was originally published in Fusion by Fresco Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

Why is a Silicon Valley Venture Capitalist Running a Developer Hackathon in India-Again?

By Stephen Forte,
Presentation of the check to the winning team at Pune Hackathon 2016

A year ago Fresco Capital and e-Zest organized the first Hackathon in Pune, India. It was such a great success that we decided to do it again. This year’s Hackathon will be on September 23–24th and you can register here.

Besides having a lot of fun, we have three goals for organizing another Hackathon in India:

· Engaging with the developer ecosystem

· Learning about new technologies

· Seeing the Laudato Si’ in action

Engaging with the Developer Ecosystem

Spending a weekend side by side with the most motivated developers in an ecosystem for a weekend is best way to engage. We did the same last year and learned things that you can only learn by hanging out with the developers (what technologies they like, what technologies their customers like, how Agile is embraced, what companies are the best to work for, what companies are based in an area that is hard to get to, etc.) Looking forward to the full emersion experience again.

Learning about new technologies

Last year, we learned a lot about the bot market and hope to learn just as much as last year. This year the tech theme is a little more focused on Cloud, so we are excited about what kind of applications 150+ Indian developers will unleash. I usually find the most creativity at Hackathons and expect the same here.

Laudato Si’ In Action

The non-tech theme of the hackathon is “Chasing a Billion Dreams — Building uncommon apps for common people” and the guidance given at the hackaton will be the six categories of the Laudato Si’ Challenge. As Fresco Capital is one of the organizers of the Laudato Si’ Challenge, we’re eager to see how the Indian market responds to Pope Francis’ call to action.

See you in India!


Why is a Silicon Valley Venture Capitalist Running a Developer Hackathon in India-Again? was originally published in Fusion by Fresco Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

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The Rise of Capitalism 2.0

By Stephen Forte,
Photo via StockSnap

For the last 200-plus years, capitalism has essentially been guided by one central tenet: delivering the most value to shareholders as possible.

Capitalism, of course, is not perfect.

So while companies scrambled to increase value for their shareholders, they did all sorts of atrocious things — forcing the government (or unions) to intervene on behalf of the citizenry.

In 1938, for example, the Fair Labor Standards Act became the law of the land, ostensibly outlawing child labor. In 1970, along came the Occupational Safety and Health Act (OSHA), which was designed to improve workplace conditions. The Family and Medical Leave Act became law in 1993, enabling workers to take extended breaks from their jobs for medical and family reasons without having to worry about becoming unemployed. There have also been laws passed to regulate the environment and prevent securities fraud.

The list goes on and on.

Focusing on the Wrong Thing

When companies are guided solely by maximizing shareholder value, management tends to focus on the wrong thing.

This is why you get Enron-style scandals, the collapse of Lehman Brothers, the tech overlords spying on you and other booms and busts that end up wiping out everyone’s savings.

This is also why you get United dragging people off of planes.

There must be a better way forward.

Something Needs to Change

Capitalism, as it’s currently conceived, is far from perfect. Something needs to change — and everybody understands this.

This is why Bernie Sanders and Donald Trump — who actually had very similar messages — were so popular last election cycle. Both were a reaction to what is broken with the traditional model.

Capitalism is great — don’t get me wrong. But the misguidedness of focusing exclusively on maximizing shareholder value is what is broken.

Here’s where Bernie and others at war with capitalism get it wrong: Instead of focusing on the entire philosophy, they should be focusing on the shareholder value part of the equation.

Capitalism 2.0

I believe we’re in the middle of a defining moment. Capitalism is evolving into what I call Capitalism 2.0.

Capitalism 2.0 is straight up capitalism — but with a twist. Instead of focusing solely on shareholder value, companies operating under this model will prioritize the customer experience first and their contributions to society second.

By focusing on these two areas, shareholder value will automatically increase.

This is the philosophy of the Laudato Si’ Challenge accelerator, which I’m happy to be a part of.

We accepted nine startups that not only are going to get rich by focusing on the customer, they will add enormous social value doing so.

It’s truly a win-win-win for everyone involved — and even those who aren’t.

Ultimately, I envision a world where all companies operate this way.

Right now, it’s mostly just the startups built by the younger generation that are focusing on more than mere profits.

But give it 10 years.

Don’t be surprised when you look around and see that every company — even the ones that have been around forever — is operating similarly.


The Rise of Capitalism 2.0 was originally published in Fusion by Fresco Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

Why I’m Running an Accelerator in Rome

By Stephen Forte,
Photo via flickr

Got an awesome for-profit startup idea? You’ll get funded.

What about a great mission-driven idea? You’ll get funded, too.

How about a for-profit, mission-driven idea? Not so fast.

Typically Sand Hill Road venture capitalists in Silicon Valley frequently balk around mission-driven companies. Similarly, social impact investors rarely pour money into startups that emphasize the “for-profit” portion of the equation.

Why can’t companies focus on both?

In an effort to change investors’ views of mission-driven, for-profit startups — which I’ve encountered regularly over the last four-plus years at my VC fund Fresco Capital — I’m happy to announce that we’re running an accelerator in Rome this summer. It focuses on raising awareness about the importance of investing in companies that are aiming for huge profits while also caring about doing good in the world.

The Vatican cares deeply about mission driven for profit companies and has been part of the global conversation on impact investing and the future of impact investing. Also, in his recent TED Talk, His Holiness Pope Francis challenged tech companies to do better.

The Laudato Si’: On Care for our Common Home is His Holiness Pope Francis’s second encyclical that focuses on addressing the climate crisis. Pope Francis has challenged the world in Laudato Si’ to act.

When the perfect opportunity presented itself, I knew we had to act. This accelerator is our response to the challenge laid out in His Holiness Pope Francis’ edict by focusing on for profit mission driven companies that focus on the challenge and values of the Laudato Si’.

Why I’m Doing This

First things first: some definitions. A mission-driven, for-profit startup is a company that has a social mission at its core — compared to a solely for-profit company that is singularly focused on selling ads. Think of Aspire Foods vs Pinterest.

Currently, founders are caught between creating companies that solely exist to make profits and creating companies that are more concerned with social causes.

This ambivalence makes it next to impossible to raise capital. So, more often than not, founders are forced to turn to NGOs or a non-mission-based business model (you know, like Pinterest).

This is unfortunate.

As a five-time entrepreneur turned VC at Fresco Capital who has run accelerators in Hong Kong and Palo Alto I’ve seen this problem first hand. I’m motivated to start a global conversation in the investment community on the value of for profit mission driven companies. As a global citizen with young children, I’m called to respond to His Holiness Pope Francis’ challenge.

What does success look like with respect to this particular endeavor? Incubating several mission-driven companies that deserve VC dollars and eventually provide a handsome return.

Investors and companies in this mission driven space have done some great work and seen a nice return in the past. This list includes our investors: Ibrahim Al Husseini — Founder, The Husseini Group; Chade-Meng Tan — Co-Chair, One Billion Acts of Peace; Caitlin Sparks — Partner, FullCycle Energy Fund; Thomas Ermacora — Founder, Clear Village; Andrew Mangino — Founder, The Future Fund; Lola Grace — Founder & Chairman, Middle East Children’s Institute.

We intend to follow in their footsteps and make a difference.

How It Works

This unique accelerator starts virtually — right away founders chat with the program director on Skype about what metrics are needed to grow and mentors are assigned (we’ve got 100 mentors lined up) to help. Then from July 13th to September 9th, there is an in-person accelerator program in Rome focused on business development, growth (we have a “growth hacker in residence” as part of the program), and customer development. As part of the program, a $100,000 USD equity investment (6%-8%) is made (via our investors listed above). After September 9th we will continue for a few months virtually and finish with a Demo Day at the Vatican in December.

This accelerator is primarily seeking startups that have already enjoyed some traction but are pre-Series A.

In the spirit of the Laudato Si’, we’re looking for startups in the following domains:

  • Energy. Transform our energy systems to mitigate the most severe consequences of climate change. Preserve our common home.
  • Food. Reengineer our food systems to minimize their contributions to greenhouse gas emissions. Make them resilient to a changing climate. Guarantee food security for all.
  • Water. Adapt our governance, resource management, and technological systems to spatial and temporal changes in quantity and quality of freshwater to protect the well-being and livelihood of everyone.
  • Urban. Restructure our urban communities for carbon neutrality and resilience to climate change impacts in ways that are inclusive. Value local knowledge and culture regardless of income level or identity. Provide the opportunity for all lives to flourish.
  • Human potential. Minimize human suffering resulting from the migration, health, and humanity security impacts of climate change. Build bridges — not walls.
  • Conservation. Protect the world’s most fragile ecosystems. Preserve global biodiversity. Maintain healthy and thriving ecosystems across the globe.
  • Finance & industry. Reshape verticals, business models, and finance to mobilize $10 trillion by 2030 to invest in a carbon-neutral economy. Create a new ecosystem of businesses providing products and services to help individuals and communities adapt to climate change.

This is your opportunity to get in on the ground level of a multi-year, global initiative.

You can apply during the May 5–June 5 period. Be ready to take part in an in-person accelerator in Rome — taking place from July 13–September 9. Check out our website for some more info: http://www.laudatosichallenge.org

Join us this summer. Do it. We’d love to have you. One more time: Apply here.


Why I’m Running an Accelerator in Rome was originally published in Fusion by Fresco Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.