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Alma C. Gutierrez Toledano

Degree:

MBA

Location:

Mexico

Industry:

Private Equity

Year:

2018-19

By Alma C. Gutierrez Toledano

The hardest thing of the MBA so far: Learning to unlearn to understand the Impact Investing space

“What type of MBA is the one in Oxford? Do you guys specialise in Finance, Business Management or Social Impact?” The truth is that fortunately there is no specialisation in the Oxford MBA, all of us come from such different backgrounds that the whole class and the resources available in Oxford make it a rich experience to learn about or improve on whatever you would like to. There is something for everyone, from consulting, private equity, and investment banking to marketing and social impact. My personal curiosity to learn more about how to make a positive impact whilst doing business has led me to get involved in every opportunity I find around the impact investing space.

In addition to choosing electives such as “Rethinking Business”, “Impact Investing”, “Circular Economy” and “Global Sustainable Business”, I also was particularly close to the “Impact Lab”, attended the “2018 Oxford Saïd Impact Investing Bootcamp”, and I was a member of the teams representing Oxford in two of the biggest impact investing competitions amongst business schools: “IESE 2019 Impact Investing Competition” held in Barcelona at the beginning of March, and the “2019 MIINT Competition” to be held in Wharton Business School in mid-April.

So, what does “Impact Investing” mean? It can be tricky to come to a unique definition, but a common approach would be that impact investors are those who consider social and environmental impact as important as financial returns when they are taking investing decisions. And just as financial performance is measured on a regular basis through financial statements, internal rates of returns or investment multiples, impact should also be measured to assure that the projects are performing as desired. Impact measurement still represents a big area of opportunity for the Impact Investing space because it hasn’t yet come to a standardised way of reporting as the financial performance side is, and because many of the impact measurements can be subjective to the own personal perspective of the people benefiting from a particular project.

Coming from a financial background (Private Equity investing in infrastructure), I thought I had covered everything I needed to know about the finance side of Impact Investing, therefore I just needed to understand the impact side. But my participation in the two impact investing competitions so far made me realise how hard it is to unlearn and be creative to solve financial challenges that this kind of companies face and that I thought were clear.

It all started in Barcelona during the 2019 IESE Impact Investing competition. A group of 5 Oxford MBA students went there to represent University of Oxford, which had won that competition for the last three consecutive years. We were two finance experts (I was one of those), two impact people with experience on the field, and one lawyer with experience in venture capital. The challenge was to select 2 companies out of 5 prospectus real business ideas to perform a 24 hours due diligence and present one investing proposition to an investment committee formed by judges with experience in private equity, corporate banking, venture capital and investment management.

After performing our rushed due diligence with the founders of the companies, the five of us agreed to incorporate impact as a fundamental part of our analysis and our investment approach. We proposed a financial valuation higher than the one originally proposed by the founder for three reasons: first, even with a higher valuation, financial returns were still attractive, we were not proposing any kind of trade-off between impact and financial performance, second, we truly believed that the potential impact achieved had to be rewarded, and third, we thought that the higher valuation was a good incentive to align the company’s managers to track and measure impact. This was quite different from what I used to do in Private Equity, where usually the solution is always to get the most financial return out of the least capital possible. Something that apparently might be hard to unlearn for all of us coming from the finance background, including part of the judges in the competition. There were some sceptical laughs from the judges in the room when we were explaining to the founder that we believed in the impact he was pursuing when we were presenting our final investment proposition to him.

Bad news: Oxford didn’t win the competition this year. Good news: some of the judges and organisers of the competition came to us after the winners were announced, to tell us that our approach hit deeply in the old-established mindset of most of the judges, and that a big debate and discussion was held when it came to decide the winner, especially because they all realised that even though this was an “Impact Investing” competition, there were no impact metrics in the scoring criteria, making it hard for them to correctly assess our approach.

On the other hand, the preparation for the MIINT competition in Wharton next April 13th has been a bit different. When we started the MBA program, 4 teams of 5 people were selected to get access to the MIINT courses and training, and to be part of the Oxford internal competition to select the winning team to represent Saïd Business School in Wharton. For the MIINT competition, both the sourcing and the due diligence relied on each of the teams. We had to look for a potential company seeking for investment and perform a due diligence and investment decision to be presented to the investment committee in Wharton, jointly with more than 24 other companies selected by different Business School’s teams around the world.  The winning company get $50,000 USD as equity investment from MIINT.

The investment process that I performed with my team so far has also made me realise that there is a lot that I need to unlearn and rethink to really understand the space. So far, we just did what I used to do for the last five years of my career: selecting a company, performing due diligence, building a financial model and putting together an investment memorandum to present to an investment committee. The difference this time lies in the focus on the impact side, where the social and environmental impact of the company becomes a priority throughout the before-mentioned process.

We received some feedback from the judges in Oxford (before we head to the actual competition in Wharton) suggesting that we should build our selected company’s story as any other traditional venture capital firm would, so that it can be competitive to any potential investor we will be presenting at, which means aiming for high financial returns and investment multiples. And even though I agree all companies should be assessed with the same type of metrics, I also believe that impact businesses need to be somehow compensated for the positive impact they are producing. It makes me glad to know that some impact investing funds such as TPG are already developing a technical approach to monetise this social and environmental impact so that impact companies can have an opportunity to compete against traditional businesses.

There is still a long way to go, experts in finance need to unlearn traditional ways of assessing companies to make investment decisions. Experts in impact need to unlearn the unilateral perspective to assess organisations where they mainly focus only on the impact achieved whilst diminishing the huge importance of financial statements and profit generation. Unlearning is not easy, and as Kate Raworth mentions in her “Doughnut Economics” book: “The difficulty lies not in the new ideas, but in the old ones, which ramify, for those of us brought up as most of us have been, into every corner of our minds.” I am glad that the Oxford MBA continues challenging me inside and outside the classroom to both learn and unlearn to better understand the space I am passionate about.

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