First, apologies for being late to submit my post. It’s given me the opportunity to read all of the Module 2 posts that already are up. I noticed that many of them mentioned interest in Apis & Heritage. I also would be most likely to initiate diligence on Apis & Heritage, but I want to share my ‘why’ and examine its implications for racial and gender equity.
As asset owners, I believe we can agree that there is both a science and an art to making a deal. The science is evaluating the numbers, going through the data room, and following a diligence process. The art is the exciting part. It’s where we get to look a fund manager or entrepreneur in the eye and decide if we want to be in business with this person. It’s about instinct and building trust.
When I listened to the Apis & Heritage interview, Phil was hitting all the right points for a reserve or commercial investment. The fund believes it can make PE returns (based on tax savings & research indicating productivity improvements from worker-owners), the data room is full and ready, they have interest from multiple investors, there’s an exit, they already have deals lined up, the website is nice and has acronyms I feel comfortable reading, etc. I hovered over the 1-pager, and it’s saved in Box. I click on the 1-pager, and it reads well. It’s all looking promising, but I would probably have put it on a short-list of funds to look at later until I see the list of Managing Directors.
The first MD listed is Michael Brownrigg, and, all of a sudden, this fund goes to the top of the list. Why? Because diligence just became far easier. I know Michael. I’ve worked with Michael for over a decade. I trust Michael. What would have been hours and hours of scouring the data room, familiarizing myself with the co-founders, and searching for references before proceeding to full diligence, now becomes 2 quick calls. The first to John Simon at Total Impact Capital, where Michael is a co-founder. I want to know if Michael is working with TOTAL on this deal and whether they are investing in it. Plus, it will be nice to catch up with John. After getting that background, I can call Michael, and I trust that, even though he is an MD and is selling this fund, he’s also going to tell me the truth about the risks and potential upside. It’s informal and comfortable and all between 3 white people who have worked together for over 10 years.
This is the exact reason that I recommended hiring TOTAL as advisors on my first deals with the Aga Khan Foundation. AKF an organization that not many people know in the US, and the co-founders of TOTAL are well connected and trusted (and for good reason – this is not to take anything away from their experience and integrity). However, I wonder how successful we would have been in securing 20-30 year money at 1% for deals in Pakistan, Afghanistan, and Tajikistan without this group. My guess is not very successful. Which makes me wonder how successful first-time fund managers, Phil and Todd, would be without their MDs. When deciding to invest in a fund, first time managers are a big red flag. So, it makes sense that they would create a team with more experience. This doesn’t mean that all the MDs couldn’t be BIPOC, but I believe it would be difficult to find enough experienced team members for all the new funds and fund managers out there focused on women and/or people of color without pulling in a significant number of white men.
I don’t know exactly how to feel about this reality. On the one hand, it feels wrong that I would do my first pass at diligence without even speaking with the co-founders. On the other hand, if we are looking at transitioning power, it makes perfect sense to pull in those who have it to raise the visibility, experience, and connections of first time female and/or fund managers of color. I raise this example up because it comes from our materials. However, I’ve had the same experience with multiple (actually, most) funds that I’ve looked at, and I’ve heard from others on investment committees that they face the same reality when looking at funds. We tend to call the people we know and trust for references, and they are not first time managers and most are not representative of the fund’s or enterprise’s end clients.