Venturing and investing on the frontiers: Intial observations…

Having been doing nothing but early-stage venturing from all sides of the table for more than a decade I decided to start a series of conversations to explore what works and what doesn’t.

From this initial set of conversations, primarily with investors working on ‘the frontier’ (social change and social tech) here are some of my initial observations.

1. Being on the frontier increases “complex ambiguity” (we don’t really know what we are doing, and if we think we do it’s probably a false sense of security)

  • At the frontier, complex ambiguity emerges in each of these areas:
    • The ultimate goal/objective is difficult to clarify in conventional quantitative terms
    • The approach needed to accomplish that goal is unsure/unconventional/untested
  • This leads to challenges in measurement and therefore tracking progress. It also has something to do with why stories are being found to be more effective in describing impact, progress, and learnings.
  • Complex ambiguity is a source of opportunity and risk, can and should be focused, but reduction/minimization results in a corresponding reduction in potential
    • There is a strong connection to the notion of ‘requisite variety’ in general systems theory and it’s application to organizations that is worth pursuing
  • The root questions then seem to lie in what we need to understand in terms of goals, approaches, and measures in order to be able to determine our interest, track performance, and orchestrate support.

2. Effective handling of complex ambiguity requires particular attention on requisite competencies and internalized responsibility.

  • Competencies required to handle complex ambiguity are not of the conventional functional variety
    • What they are is an important question going forward
  • Complex ambiguity should in no way confuse or obscure the need for the conventional competencies required by the venture
    • E.g. Just because you’re trying to change the world doesn’t mean you don’t need to get the accounting done.
  • Responsibility for handling the ‘complex ambiguity’ can be carried only by those that are committed to sorting it out AND are sufficiently connected to the fields related to it
    • E.g. a conventional business partner is not likely to strive to achieve anything beyond what is specified and required – which implicitly means they are not actually dealing with the ‘complex ambiguity’
    • Commitment to ‘sorting it out’ is strongest in the person(s) that is (are) deeply connected to the purpose/values of the organization
  • ‘Sorting it out’ is accelerated through explicit attention, should be oriented around taking action, and cannot be at the expense of the viability of the venture
    • This critical balancing point is the key determinant of the ultimate success of the organization. Too much of a focus on the ambiguity and nothing happens, too much focus on viability and the potential impact is diminished.

3. Successful investing on the frontier is subject to the same challenge of handling complex ambiguity.

  • Considering the points in 1 and 2 above in the context of managing a fund on the frontier is another stream of inquiry

4. Successful investment practices on the frontier address complex ambiguity among investees.

  • Some examples include:
    • Actively building networks of connections around and among investees. A network of venturers on the frontier are more likely to share and have access to appropriate competencies for venturing on the frontier and are inherently all engaged in exploring complex variety. Optimization of this is a significant opportunity.
    • Focusing the ambiguity down on core goals such as employing the unemployed (e.g. partner with those that have/run complementary businesses that could benefit from that employment). What does this do the potential and how where/how is the responsibility internalized?
    • Minimizing/simplifying legal agreements helps to internalize responsibility for the relationship between investee/investor (encourages greater dialogue)
    • Supporting entrepreneurs to make time for exploring their purpose/goals/approach.
    • Creating events to bring together venturers on the frontier.
    • Mixing conventional and mission-based investment team members.

Going forward I want to probe further into:

  • where risk is most often perceived going into a deal?
  • where does risk actually end up coming from?
  • what activities have led ventures on the frontier to success?
  • how did those activities come about?

From there I’m eager to dig into exploring potential areas for practices and shared services that could improve the success in investing on the frontier. Possibly framed by this matrix, the goal would be to find one thing to start experimenting with:

  • Investor Axis
    • Exploring complex ambiguity
    • Requisite competencies
    • Responsibility allocation
    • Deal process
    • Venture support
  • Solution Axis
    • Internal practices affected
    • Internal practices envisioned
    • Outsourced/shared services affected
    • Outsourced/shared services envisioned

This sure has been fun so far and I’m curious to see where it goes… particularly as it turns to action.

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