But can’t you see it’s burning?

I’m not in the business of making my journal entries public, but this one on February 6, 2023 felt too important to keep under wraps.

“Misled,” “embarrassed,” “frustrated,” “disrespected.”

The words didn’t mean as much as how they said them.

There was no anger in their voice. No force. No accusation. It wasn’t even a complaint. They were asking for help. It almost felt like a final throwing up of one’s hands as if to say, “Does anyone even hear us?” “Do you hear us?”

The power imbalance that comes with money and privilege has never been directed so squarely to me — at least not that I’ve noticed. Standing alone on a stage with a microphone in my hand asking 50 frontier markets leaders a simple question:

“How do you feel?”

Their response came with the weight of years of neglect, underappreciation, and even dismissal from investors like me. The news wasn’t really that surprising to me. I expected it to go this way. And while it never feels good to hear you’re part of a group responsible for someone else’s suffering, it was also such a gift to be trusted with the truth.

Western investors and frontier entrepreneurs

I had never invested with anyone in the room — or even tried. None of what they shared has anything directly to do with the work I’ve been a part of. But knowing what I know now — feeling what I feel now — I have no choice but to confront the things in our own work I’ve lacked the courage to address.

“When a man is getting better he understands more and more clearly the evil that is still left in him. When a man is getting worse he understand his own badness less and less.” — C.S. Lewis

We call ourselves “impact investors,” a phrase I’ve grown to dislike more with each day I go around masquerading as one. We claim credit through newsletters, websites, and YouTube videos for impact we have almost nothing to do with and rarely spend that much time witnessing in person. And I’m worried we don’t understand our own “badness” anymore, because we’re not learning, and we think we deserve special treatment.

As a friend recently said, “What impact is made by moving resources from one place to another?” Are we more than mere conduits with kind hearts? Is it much of an accomplishment to be kind enough not to use our abundant resources for selfish gain and to maintain an exploitative system?

Surely, investors play a key role in economic development. In the four years I’ve been in the global venture capital space, I’ve seen new schools built, financial access provided, and entire agricultural supply chains reimagined. That is the result of committed entrepreneurs and investors working together.

When an investor uses the blessings entrusted to them to pursue justice and mercy instead of only selfish ambition, that is an act of obedience worth celebrating. At the same time, we must inspect the systems, processes, and measurements with which we invest to ensure they are fairly apportioning risk and reward through our investing activities.

Mini Case Study: Southeast Asia

My aim isn’t to criticize other investors. I’m just as responsible as anyone else for making the audience feel the way they felt that day. Just last week, I received a report from a portfolio business — a report of frustration. But it was veiled by kindness. Power imbalance strikes again.

The leadership team of this business in Southeast Asia was excited to receive an investment from us and had already made progress towards their next delivery of newly-minted products. That said, there were consequences from the lateness of our funding. An opportunity missed, a sacrifice made to acquire more expensive resources, and the whittling away at already slim profit margins. They got what they needed — the investment. But it was too late to capitalize the way they wanted. What a miss on our part.

How did that entrepreneur feel? My guess is “angry.” But the entrepreneur’s own kindness — combined with the simple fact that I’m a guy with a bank account full of investment dollars — softened the response.

Our investment metrics don’t work

While both investors and entrepreneurs are being kind and generous in this relationship, I think the entrepreneurs have a stronger claim on being impactful than we investors do. We simply move money from one bank account to another — money that often doesn’t even belong to us. If you run in my circles, we often say it never belonged to any of us in the first place, and we are just obedient stewards of it.

It is certainly a faithful act of stewardship to use one’s investment dollars for the flourishing of a fellow global citizen. I celebrate it every time I see it, and I pray this article encourages those investors who are already at the table to learn and grow, not walk away.

But let’s not kid ourselves. Western investors are present just for a moment in a story that lasts a lifetime. We may travel regularly to the same countries or spread out between several countries, but most of us don’t live and work in the same context our entrepreneurs do.

The entrepreneurs — and those who mentor them — labor for years in faithful obedience with limited resources in pursuit of transformation in their communities. They have a vision for their countries, and they won’t let the reality of global economic imbalance or the lateness of our funding stop them.

The sad reality is that investors like me hide behind metrics that don’t even make sense for emerging economies. Honestly, the metrics probably only make sense for developed economies because we all decided they do.

We don’t know how to quantify risk, so we say it’s too high. We don’t know how much reward is right, so we say we want more. The longer the money is out of our hands, the more uncomfortable we get, so we say we need it back sooner. We don’t even know what to compare our performance to, so we exploit Wall Street benchmarks to justify our demand for more return at the lowest risk possible.

Our unwillingness to ask, “I wonder if that’s true,” and even attempt to creatively inspect our vetting processes ultimately leads to someone else’s dream diminished. It’s not a keen deployment of resources to rely on Silicon Valley math to invest in emerging markets. It’s ignorance — ignorance that leads us to disqualify a great number of capable, investment-ready entrepreneurs based on flawed and flat-out wrong metrics.

When we reject them, we probably won’t even explain why they didn’t pass the test. We’ll send them back to their communities, once full of hope for a chance at attaining the one missing resource they need, now full of dismay at our hands.

And even if we do say “yes” to an entrepreneur, our deal-vetting process may take months, and it will be confusing and painful. The investment qualifications will be unclear or completely unknown to the entrepreneur ahead of time, and even if they do meet all the qualifications, we may still say “no” because of a gut feeling we can’t fully explain. It’s wrong to do in markets where capital is abundant. It borders on evil in places where capital is scarce.

Can we stop contextualizing and instead be part of a context?

What if it’s not that our investment structures need to be contextualized, but that they actually need to be thrown out and replaced by something homegrown in the context within which they will exist?

When it comes to structuring the actual investments, we again lack any sort of imagination, relying on the same western financial structures which were created for markets made up of different stakeholders, different incentives, and different policies. Then we force the entrepreneurs to take that structure or walk away, when in reality this structure may not even be any good for them. In most cases, we haven’t done the work to check.

If the entrepreneurs don’t cave to our demands, then we have the audacity to fund a western entrepreneur living in their context, because the westerner feels safer to us. We may even provide them with a below-market interest rate and patient repayment terms, something some of us call “compassionate capital.” How compassionate is it to provide an advantage to a westerner who is at least wealthy enough to move their families across the world when we haven’t provided the same advantage to locals in the same context? All because we simply haven’t taken the time to build new relationships.

Mutual submission in investing

If we don’t take the time to mutually submit to a trusted intercultural relationship, the western entrepreneur living abroad might actually be the safer investment for us. It takes vulnerability, shared experiences, and time to establish a relationship that can cross cultural barriers and power imbalances.

But instead of spending our time building bridges, we do what’s safe, because we can feel good about job creation metrics and call it our impact. And people will believe it. Won’t people say it’s good to invest in a western entrepreneur living abroad if they are creating jobs for those in frontier markets who don’t have them?

In fact, I think it is good for a westerner living abroad to start a business, create jobs, and live among their new neighbors authentically. But as the investor, if I’m overlooking local founders and providing advantages to outsiders just because it’s hard or takes time to build intercultural relationships, shame on me.

Really, shame on me specifically. I’ve held a pretty loud megaphone in my inner circles about the harm of prioritizing American founders overseas, yet I’ve still allowed it to happen in our own portfolio. I’m the Managing Partner. It’s ultimately up to me, but I was too afraid to upset the apple carts of investors, board members, or strategic partners.

Don’t the entrepreneurs have to do their part too?

At this point, the impact investors reading this are boiling because I haven’t addressed the fact that frontier entrepreneurs may not always have all their stuff together. Yes, sometimes entrepreneurs in emerging markets need help with things like three years of statements from a mature financial reporting system. But most western entrepreneurs I meet lack basic financial fluency as well, yet we don’t seem to hold it against them.

Let’s be honest, our brains make shortcuts. When there is “likeness” we are influenced by what psychologists call “ingroup favoritism.” We tend to favor people who are like us. I’ve seen it on our own screening calls with entrepreneurs. We gravitate to entrepreneurs who know how to speak “American Christianese.” We have a harder time relating to those who don’t.

If you’ve seen this in your own investing, don’t pull away because it’s hard. You’re wanted at the table, and your stewardship can be part of something special. But do take the time to confront the biases you might be carrying with you. We all have them, and Lord knows I’m discovering new ones in myself everyday.

Reorienting the power imbalance

If entrepreneurs don’t have the things we require of them, maybe we should actually help them. I know, it’s hard to find the time to help everyone who isn’t ready. So find local people who will. Trust me, they are there if we look for them. Maybe we’ve even met them, but we don’t value their contribution or don’t want to spend money on it. Chances are, we’ve maybe even alienated the very people who are there to fill the gap we left behind.

We also have to stop demanding that emerging entrepreneurs achieve some unreachable combination of financial and impact metrics that we would never ask our own businesses to accomplish. What impact do we have if we don’t get to claim their impact for ourselves?

Let that sink in. What impact do you make as an investor if you strip away the impact made by the businesses you invest in? Without that, are our own businesses half as successful on both impact and financial return as theirs are?

As impact investors, we should feel fortunate to have a front row seat to the transformative impact made by local founders in their communities. But instead of showing gratitude to our local founders for inviting us into their stories of transformation, we ask them to perform for us, demanding impact reporting and stories, so we can tell our peers and potential new investors that our investments “make an impact.” That’s not generosity. That’s pride.

God, forgive us.

Navigating the imbalance of our context and theirs is the baseline reality of this kind of investing…maybe all investing. And it’s not because our country is better than theirs. Sure, we can’t ignore that we have an overall higher standard of living, which affords the average American more buying power in the global economy. And that should motivate us to act. Those of us with resources absolutely should desire to sustainably move them to places that have them less abundantly.

But averages are deceiving, even for Americans. Even with a higher average standard of living versus other countries, half of Americans (49%) don’t have $400 to cover an emergency. The buying power of the top 1% hides our neglect of the bottom 20%.

Yes, there is plenty of imbalance right at home in my own city of Chicago, and if I’m being honest, it is easier for me to ignore it if I can claim that I’m helping people in some other country that “needs it more.” Building bridges across cultural barriers and power imbalances home and abroad isn’t necessarily easy, and sometimes it might not be welcome. That’s ok. But it is so rewarding when authentic relationships are made that reflect the beauty of cultural diversity and shalom.

Note: We may be called to build intercultural relationships through investing at home or in another country or both. It may ebb and flow throughout our lives, and I don’t mean to prioritize one over the other. As the global marketplace gets more connected, the tension between choosing our own communities for investment or others throughout the world will likely expand, and I haven’t yet observed a one-size-fits-all answer for this.

In science, matter is neither created nor destroyed. But in business, leadership is. What I see from the local founders we meet is multiplicative — leaders training leaders how to grow their businesses, navigate the capital markets, and love their neighbor. Each new leader pours into the next until geometric — not linear — growth transforms communities through generosity and shalom beyond the walls of the company.

But the circus of investors marching into their communities, dominated mostly by traditional investors, is having the exact opposite effect. Years of putting entrepreneurs and the people who mentor them through hoop after hoop just for a chance to access investment dollars that we can find relatively freely has taken a toll on them. And on this day — after four years of “impact” investing — I think I finally get it. In this circus, I’ve been right at the front of the parade with everyone else.

What can we do to bridge the gap?

What can we do as entrepreneurs, investors, or capacity builders to bridge the gap today? Hit the comments with what’s on your mind.

“But can’t you see it’s burning?”

Those were the words that put the final imprint on my soul that will never leave me. “But can’t you see it’s burning,” she said.

The sad reality is — I don’t. I don’t see that it’s burning. I don’t have to. Most of the time, I won’t even know about the fire, because I hold too much power as an investor for some entrepreneurs to tell me the truth. And when they do, I’m only exposed to the harsh reality for a hot second, and then I jump back on a jet to return to my place of comfort. After a few weeks of Starbucks and Netflix, I won’t have to face the truth, no less remember the way it felt.

And since the way they feel — and the way I feel as a result — is all I have to go on, I have to commit to change before the feeling dissipates.

In communities like the investor community, it can be scary to make waves. There are a lot of loud voices that are incentivized by money, twitter followers, or relationship capital. They all want the same thing — to maintain the status quo. So when it’s revealed to me that something is wrong, I’d rather just make the changes to my own approach and stay silent as far as any other investors are concerned.

But on this day, on a stage alone with a microphone in my hand in front of 50 people, I wept. In my mind, I played back all the changes I wanted to make months or even years earlier but was too cowardly to do anything about. And in my heart, I felt remorse for causing their suffering — not directly, but by being a part of something that was ultimately hurting them.

I can’t just be silent about the very real and severe consequences of the power imbalance between western investors and their frontier entrepreneur counterparts. As long as I show up as a participant in global capital markets, I can’t keep maintaining the existing paradigms by staying comfortable.

I don’t know yet exactly what criteria and metrics we need to use in emerging markets. And that’s not because I don’t know about metrics. I’ve spent most of my career at competitive levels of the capital markets. Having command over investment math is entry level where I come from, which started 16 years ago as an analyst and ended in 2019 when I walked away from the leadership of a fixed-income analytics desk to join the global VC community instead.

Deconstructing investment metrics and building new ones that measure the real truth and lead to better outcomes isn’t scary to me. It’s what has been graciously taught to me by my mentors my entire career. And taking on the establishment might still be scary, but it’s exactly what those same mentors did, when they took on the big banks in 1994 to defend Main Street from Wall Street. And they’re still doing it today, so I know it can be done.

What I also know — not from ignorance but from experience — is that the process and metrics most of us use today isn’t helping. It’s hurting.

For example, overly high valuations of businesses in emerging economies by outside investors distorts markets and leaves local investors unable to participate. Think about that for a second. The only way these markets will grow beyond “charity” is for their capital markets to function properly. And just when it starts getting formed, outside investors come in and undermine them by overpaying for the good opportunities. Shouldn’t we invest in local funds, rather than come in to compete with them?

Additionally, investor demands for businesses to “scale at all costs” forces the founders to outsource talent to other countries. Following traditional models of investing doesn’t seem to lead to the flourishing of the local economy, so why keep using them?

And lastly, charity — an important tool for aid — used for economic development often serves to perpetuate the systems of imbalance that got us here.

Where is the positive impact in any of that?

I honor those who came before us, whose work laid the foundation for what we now have the opportunity to do today in emerging markets. But I’m also here to invite us all into something new, unwilling to repeat old mistakes and eager to create a new system.

The good news is that we have all the creativity we need within us to build new plumbing, metrics, and measurements for the capital markets if we only listen to, resource, and work alongside the people the plumbing is for — the local community.

Before leaving the stage, I asked the group to hold me accountable to speak up. I confessed the sad truth that some investors won’t care — not even if they were here to hear it for themselves. But I also shared the good news that we don’t need them all. There are plenty of investors who are eager to join the community and just need to be shown where to plug in.

In my family, our word and our handshake has always meant more than a contract. As uncomfortable as it may be to confront a powerful — yet broken — system, it doesn’t compare to what I will feel facing the same group a year later with no answers, knowing I didn’t keep my promise.

So today, February 6, 2023 is my last day as an impact investor. The truth is, I’m not really impacting anyone with my investments. Money only holds the perceived power to make an impact, because some people have it and some people don’t. And even if money can’t move without making some impact because of the social construct we live in, the real impact is made by the entrepreneurs and teams building their local economies through business. My part is stewardship, which is also a great thing! But to me, it’s not impact.

From this day forward, I’m just an investor investing in impact — impact that will be made by local people in their own context, whether I’m there to see it or not.

And make no mistake, it will absolutely be my joy to be there to see it.