Impact Hustlers - Entrepreneurs With Social Impact

10: Daniel Epstein of Unreasonable Group - Scaling Unreasonable Impact

October 05, 2018 Maiko Schaffrath Episode 10
Impact Hustlers - Entrepreneurs With Social Impact
10: Daniel Epstein of Unreasonable Group - Scaling Unreasonable Impact
Chapters
Impact Hustlers - Entrepreneurs With Social Impact
10: Daniel Epstein of Unreasonable Group - Scaling Unreasonable Impact
Oct 05, 2018 Episode 10
Maiko Schaffrath
In this episode, I talk to Daniel Epstein, the Founder of Unreasonable Impact. Unreasonable is on a mission to empower entrepreneurs to solve the world's biggest problems and is working with partners such as Barclays to radically drive the transformation to an impact-driven economy.

Support the show (https://www.buymeacoffee.com/impacthustlers)

Show Notes Transcript
In this episode, I talk to Daniel Epstein, the Founder of Unreasonable Impact. Unreasonable is on a mission to empower entrepreneurs to solve the world's biggest problems and is working with partners such as Barclays to radically drive the transformation to an impact-driven economy.

Support the show (https://www.buymeacoffee.com/impacthustlers)

[0:21] Maiko: In today's episode, I talked to Daniel Epstein, the founder and CEO of Unreasonable Group. But before we get to this, I'd like to really thank you for listening to this podcast. It's been an amazing journey. We're now releasing weekly episodes, where very diverse and very interesting entrepreneurs from all walks of life, sharing their stories on how they are solving some of the world's biggest problems. To make sure that you kept up to date and that you receive the newest episode every Friday onto your device, make sure that you subscribe to it. Please subscribe to this podcast on any of the podcasting platforms you're using. Whether it's Spotify, Apple podcasts, Google podcasts, or any other platform that you might be using, make sure that you subscribe, and we'll make sure that you'll be able to listen to this podcast every week. 


[01:15] Maiko: And with that, we go back to Daniel, Daniel Epstein, the founder and CEO of Unreasonable Group. Unreasonable is on the mission to enable entrepreneurs, solve what they call BFPs, Big Fucking Problems, such as global poverty and climate change. Unreasonable has been the driving force of developing a global ecosystem for impact driven entrepreneurs and has convinced massive organizations such as the US State Department, Nike and Barclays, to join them on the journey to fix the world's biggest problems using technology and entrepreneurship. Unreasonable also invest in entrepreneurs across the world through its Unreasonable Capital Fund. It's great to have you on the show, Daniel, thanks for joining me.


[2:00] Daniel: Yeah, it's a pleasure, privileged to be on the show with you.


[2:02] Maiko: How did it all start with Unreasonable? What was the massive problem that you saw needed solving before you started Unreasonable?


[2:12] Daniel: You know, it's funny, I've never been asked that question. I think, yeah, if you go back to actually how we came up with the name, that'll probably paint the clearest picture. The name Unreasonable is inspired by a quote by George Bernard Shaw, the Irish playwright, who's famous for saying that, "the reasonable man adapts himself to the world, the unreasonable one, persist in adapting the world to himself". Therefore, all progress depends on the unreasonable person. And in essence, in our belief, if George Bernard Shaw is right, then we can't afford not to bet on unreasonable individuals. And so, I think what makes us quote and quote, unreasonable is I, we scoured the globe. And, we search for the world's most unreasonable individuals who are trying to define progress. 


[03:01] Daniel: And that's probably the edge, is trying to define progress in our time, you know, the entrepreneurs we support, though, you know, localized initiatives are very important. Their ambition is to, this might sound hyperbolic, but bend history in the right direction. You know, the fact that 758 million individuals are functionally illiterate, you know, the entrepreneurs we work with want to solve that statistic. In fact, that 1.2 billion people don't have electricity, the entrepreneurs we work with want to solve that. So, it's probably the ambition of the individuals that we support that makes Unreasonable, unreasonable.


[3:40] Maiko: I'd like to talk a bit about your partnership with Barclays and Unreasonable Impact Accelerator, where you have supported entrepreneurs across the world in America, Asia, Pacific and Europe. Why would a bank like Barclays joined forces with you to develop that program?


[3:58] Daniel: Yeah, with Unreasonable Impact, you know, that it's truly co-founded. We didn't go to Barclays, and say, hey, we have this idea, do want to fund this initiative? We spent years, together, our teams trying to find the real source of trajectory alignment for both organizations. And it came out of a very genuine relationship, where actually we had written a white paper together on impact investing from the entrepreneur’s perspective, not from the investor's perspective, around what was effective, what was ineffective. And it was over the year of writing that paper that our teams got really close and realized we could do something bigger together. 


[04:43] Daniel: The theme for Unreasonable Impact is looking at entrepreneurs, we can have two lenses on top of it. The first one is looking at entrepreneurs as job creators, so every company we aligned with, we believe is positioned to create at least 500 jobs within five years. The second lens is the green economy, which in essence, means that the companies who are supporting, are profitably solving a key challenge related to the environment. And mind you, that spans almost every industry in every sector, because that's the future of foods, the future vantages, future transportation, smart city design, you know, closed loop manufacturing, intelligent supply chains, that goes across everything. And I think that was where the alignment really happened between organizations. 


[05:30] Daniel: Barclays is, I used to say they had the creative courage to co-found Unreasonable Impact, I now believe that they had the intellectual foresight, to co-found it. Because when we had first sat down, I remember asking them, why does the green economy matter to them. And the team at Barclays, you know, in essence, said that if we look at the Internet and how it's permeated every sector, every industry, soon to be every geography, that green is going to do the same, that green is the future of business, because at the end of the day, it's just going to be more profitable. So, for Barclays, they want to become the smartest green bank in the world, because they believe that the new economy will be sustainable. But they also want to get close to these, you know, fast growing growth stage entrepreneurs, because they believe that they're the future titans of industry. And, and they would love to work with them on their journey as they go from, you know, kind of scrappy growth equity stage company to ideally through an IPO. And eventually on that, you know, fortune 100 list.


[6:31] Maiko: So, for them, it was an initiative that's less driven by CSR and more really, by the core of what Barclays was doing?


[6:40] Daniel: Yeah, I think it's a, both, it's not an either or, right, you know, there's the concept of shared value, this is either kind of the perfect embodiment of it, either, there's--And this may also be what makes us unreasonable as an organization, but we really have a belief, the world is finally starting to say, hey, you can you can do well and do good at the same time. And our belief is to take that one step further. Our belief is that actually, you'll do better than anybody else, you'll produce financial alpha, if you go after trying to do as much good as possible in the world. And I think that that is shared value and that's what this partnership is really about. Because it is, you know, it came out of the community investment team, and then went across the entire bank and whole of the organization of Barclays. But it is both, its impact first, and in the long term, it's a really smart play for Barclays to help future proof the company.


[7:43] Maiko: How did you first start close these partnerships, did they approach you? Or did you really have to work hard to close these partnerships with these prominent companies?


[7:53] Daniel: How this all began, was an important shift in our approach to impact as an organization, I think it's important to backtrack a little bit. Originally, Unreasonable work with, much earlier stage companies, we were an accelerator and we supported entrepreneurs who you might have a team of 2, 3, 4 people, they have a really compelling prototype, they're trying to get it into market. And ultimately, we were trying to help launch companies that could profitably impact a million lives. That was kind of the baseline. But they weren't necessarily doing it yet. And what happened was an evolution in our thinking, where we began to feel that when it comes to solving these BFPs, you know, these seemingly intractable social environmental problems, that impatience is a virtue. And we started to scratch our heads and say, Well, how might we do this faster? You know, how do we move the needle on these global challenges more quickly, because, you know, our future depends on it. And the situation is pretty dire right now for a lot of people. 


[08:52] Daniel: And that's when we decided that rather than working with very early stage companies, as an accelerator, let's scour the globe, let's find the most of effective solutions in the world. Let's back the CEOs and entrepreneurs of companies that are already in market, that already wielding technology that is working, and that is ideally already profitable and let's scale what works. You might be bringing clean drinking water to 2 million people, it's profitable, it's measurably effective, how do we help you go from 2 million to 200 million faster? And in that shift, we realized, kind of two challenges to the model, one was we couldn't have a call for applications, because the best entrepreneurs in the world at a growth equity stage of their development would never apply, because they're too focused and too busy. But the second one was, we need to change our funding model, because we couldn't charge those entrepreneurs, right. Most accelerators that exists charge the companies they support and rightfully so. And whether that's an equity, or that's intuition, in some form, they're charging them. We realize that we can't do that because be antithetical to the design principles of this model, which is we just wanted the most effective entrepreneurs on the planet. 


[10:03] Daniel: So, not only can we not charge them, we need to cover their costs of driving support to them. I had realized that, which one of our good friend, one of our mentors, his name is Pascal Fuye, he basically said, hey, the business model here, is if you can actually do that, I think that the R&D departments and multinationals would kill to have proximity to that level of innovation, to you know, these growth stage entrepreneurs. And so it took a long time to make it work. We ended up initially partnering with Microsoft, Nike and SAP, around an initiative that was looking at kind of transnational entrepreneurship. So how do you take a technology that's effective, and you know, one country or maybe three or four countries and move it intercontinental and, you know, really around the world, and that was very hard to get off the ground. 


[10:56] Daniel: And but once we had shown the value to brands and to large institutions, then they started to reach out to us, and so, that was, you know, that was that was a two-year slog of trying to, you know, figure out, is it the chicken or the egg first? We had to align with some companies who were, you know, I don't know if it was foolhardy enough, or had enough foresight but I think that, you know, maybe this model can really work. Maybe we could get the most effective entrepreneurs out there.


[11:28] Maiko: What's the sweet spot for you? What's the type of company that you're looking for? You mentioned, it's mainly scales ups, but what's the type of startup that would benefit most from this program?


[11:39] Daniel: Okay, great question. Just a couple things, in terms of type of company, one is, we look at the intention of why it was created. So, you know, there's a big difference between profiteering and profit. And we do not look to align with entrepreneurs who are in the business that they're in, solely for a profiteering motive. We want to align with entrepreneurs who started the company because they desperately want to solve a seemingly intractable challenge, social or environmental, and they believe that this company was the best tool towards that. First, kind of, first thing is understanding their intention. The second one is understanding their ambition, which is we look for nonlinear growth trajectories of the companies that we align with, and we look for an ambition within the senior leadership that they want to solve a problem full stop, that they're not going to be satisfied the until, to quote Muhammad Yunus, "the statistic they're going after is put in a museum". 


[12:44] Daniel: So, we'd certainly look for companies that have global ambition, around solving a problem, we look for a line of logic that we feel like we could be convinced that this team and the technology that they're leveraging could actually get there. And I'd say third one is that the impact they're seeking in the world is baked into the DNA of the profit model. Thereby ensuring that the more profit they make, the more impact they have, that it's not tangential that the impact is not a nice to have, that it's actually the core offering of the practice server. And when you look at all of that, if all of that's there, then we start to look at stage. You know, the average company that we're working with across all of all of our cohorts has raised or made about 40 million US dollars, when we induct them into the fellowship and that varies upon regional focus. Occasionally, we'll run a program that's focused on smaller region and when they're smaller region, there's a smaller pool of entrepreneurs. And so, there'll be a little bit earlier stage, but most of what we do, is looking and building a portfolio, at least across one continent, if not, you know, worldwide.


[14:01] Daniel: So, stage is important to us because what we want to do is work with entrepreneurs at an inflection point where they have something that works, it's ready for scale and our hope is that we can help get them to that next level of growth. They're not already validated by the market, now it's let's scale what works. I didn't hear second part of the question, which is the what do we actually do for the fellows? This is a magnificently important question. Yeah, there's an expression that I heard growing up, and I'd actually don't agree with it necessarily, but it's, "those who can't do teach". I like to say that, "those who can't do or teach, do what we do". In essence, what I mean by that is we have two jobs, first one is to be master conveners, we strive to convene the most effective promising growth, equity impact entrepreneurs on the planet, with the policymakers, the multinational executives, the family offices, the sovereign wealth funds, the private equity groups, you know, whoever it might be, that they need to get closer to the scale. 


[15:14] Daniel: And then the second part, beyond convenient, is creating the conditions, for uncommon, you know, highly productive collisions between ideas and people that wouldn't normally happen, where we're not convening them and creating those conditions. And so, what that looks like, most of the world thinks we run two-week programs for growth stage entrepreneurs, in those two-week programs, we wrap them with about the support of 50 mentors and will run the private funding gathering. The truth is, is that, that's only two weeks, there's another 50 weeks in the year, there's probably another 10 years in the life cycle of their company, and for the entrepreneurs that we induct into the fellowship, we actually back them for life, so long as the company they're working on is trying to solve the BFP. So, it could be, the company that we induct them with may not be the company that working on 10 years from now, we'll still support them. 


[16:09] Daniel: And so, the two weeks is the point of induction. The fellowship is into perpetuity. What that looks like, is every month, every Unreasonable fellow, can make one asked to the network. And that asked, maybe, you know, we're looking to raise $300 million, it's a pretty advanced technology, and we're looking to connect to sovereign wealth funds. And, you know, through the network, we'll be able to bridge relationships to the Managing Directors and multiple sovereign wealth funds. And another entrepreneur may say, hey, I'm looking to fill a board seat, and I'd like for them to be a former head of defit and through the network, we would connect them to ideally, multiple former heads of defit. 


[16:56] Daniel: And another entrepreneur may say that they're struggling to balance work and life, and that the family is actually most important to them, but they feel like they're not showing up for their team or their family properly. And in that case, we'll connect them to a top relationship psychologist, as well as give them a menu of vetted executive coaches. So, it's highly customized, but every month, every fellow can make one ask, to the network. I think that's the most tangible source of value, the intangible, which is probably more important, is that entrepreneurship is a lonely, hard journey, especially for growth-equity CEOs. Typically, the average age of company that we work with, they're seven years into their business when we induct them into the fellowship. And typically, they haven't taken a vacation in seven years, they've been hyper-focused, and only seen what's really in front of them. 


[17:48] Daniel: And if they meet other entrepreneurs, they meet them at conferences, and they talk about what they do. And they don't get to drop into, you know, the struggles and the vulnerabilities of how difficult it is to try to scale something that the world has before. I think that the biggest source of value for the entrepreneurs we align with, is a chance to, in essence, seek refuge amongst fellow misfits and to be able to drop in at a very human level with other entrepreneurs who are struggling desperately, you know, with their backs against the walls, trying to will this thing into existence at a level of scale. That really matters, and I think that's probably the biggest thing, is the peer to peer network that the entrepreneurs have with each other.


[18:31] Maiko: What is the focus of a program like Unreasonable Impact? Is it business development trying to access Barclays doing business with Barclays from the perspective of the startup or is it really focused on helping them through the entrepreneurial journey?


[18:45] Daniel: Yeah, it's both. So, Barclays is probably one of the most beautiful, brilliant partnership relationships that we have. Because Barclays is in the business of helping businesses, that is it, all they do as a commercial bank and as an investment bank. Yes, there's a retail bank side too but we're really aligned with the commercial and investment bank of Barclays. And so, arguably, there's no better partner for us to have, when we're trying to scale up growth-equity companies around the world. So, we've engaged hundreds of Barclays colleagues of the Managing Directors of the C-suite of the bank, around supporting these companies. And support comes in the fashion of, hey, we need to, you know, rejigger your financial model and yeah, transform how this is presented, if we're going to go out and raise a $300 million round of equity. Or it could be the Rolodex of the, you know, the managing directors at Barclays, they bank, basically every large company in the markets that they have presence in, which is over 50 countries around the world. They have boardroom access into all of those companies. 


[20:01] Daniel: And so, for entrepreneurs, if you are looking for a relationship with Siemens, or Johnson and Johnson, or Tata, or whatever it might be, Barclays has those relationships at the most senior levels and can connect to the entrepreneurs that we're supporting into those relationships. And in doing so, it's also really valuable for their clients, you know, those very large companies, because they're exposing their clients to breakthrough innovations that, if they don't align with them, they're probably going to disrupt them in the mid or long-term. So, it's a very symbiotic relationship, there are literally hundreds of colleagues that are actively working with the entrepreneurs that we're supporting with Unreasonable Impact. I think that that's only going to grow over time, because there is so much alignment between what the entrepreneurs need, and what Barclays can offer.


[20:47] Maiko: Let us talk a bit more about the impact of an ecosystem. So, the ecosystem of companies that you also help create, globally, companies that solve big global problems, what do you think is the biggest issue that these companies are faced? Is it a lack of funding? Is it on the other side for impact funds, that there might not be enough deal for enough good startups that actually could be funded? What are the key issues that we face with really growing this impact driven ecosystem?


[21:23] Daniel: It's interesting. I wouldn't say there's a lack of capital, certainly, you know, the world is flush with capital, there is a lack of, you know, probably, that educated capital, in terms of growth-equity disruptive companies, it's not an asset class that a lot of capital that exists, is familiar with. So, that'd be one comment. Yet at the same time, I would highlight the entrepreneurs we support, they've raised over $2 billion. So, they are raising real capital, it's just that oftentimes, it's hard. It takes an undue amount of time, and oftentimes, it feels like a distraction from the core business that they're trying to also operate and scale, but it is certainly there. 


[22:19] Daniel: Probably one of the bigger challenges, obviously, with private equity is the time horizon, right? So, typically, if you have a private equity fund, it's usually 8 to 10-year fund, which means that once they invest into you, they have to have you, they need a liquidity event within the timeline of that fund, or else they failed, and they can't return the capital back to the investors. And I think it's that pressure on short-termism, that is deterring so much money from being able to enter the space of private equity. That is because private equity by its very nature, right? It's an illiquid asset. And the only way that the investors can get liquidity is if that private company goes public or has an acquisition. 


[23:08] Daniel: And as we start to see investment vehicles be created, whether it's companies like Berkshire Hathaway, who are publicly traded, so there's liquidity in the stock, but they're investing into private companies, or it's leveraging technologies like block-chain, where we can actually launch tokenize security funds, where investors can buy into a token that then the proceeds from that get invested in private companies, but they could sell the token. You know, whatever it might be, I think that's the big challenge is the illiquid nature of private equity, and that it therefore needs short term exits. And when you're looking at, you know, the most compelling technologies of our time, the idea that success for them would be selling that technology in six years, there's not enough alignment there. At the same time that I will just emphasize, you know, the companies we're supporting, they are very viable investment opportunities, they have raised over $2 billion. But if we could solve this liquidity problem, I think that it would be 5 to 10 times that amount of funding that they would have received.


[24:18] Maiko: How do you actually measure your own impact on the website, on your website, you say that he impacted 400 million people's lives, how do you come up with these numbers? And how do you measure your success?


[24:29] Daniel: Brilliant question. The first thing I say is, we measure our impact humbly, because our impact is really the impact that our entrepreneurs are having on the front lines. They're doing the remarkably hard work to impact those lives but how we think about impact measurement, there's a number of indicators that we look at. We look at, you know, typical indicators of just business performance. So, standard, KPIs, we'll look at your growth in revenue, we'll look at your growth in team size, we'll look at that, you know, number of not just full time employees that you have, but the number of jobs that you're supporting as a metric of impact, we look at the gender breakdown of those jobs, we look at financing, of course, we look at geographic expansion. 


[25:18] Daniel: And then all of our companies, they track at least one leading indicator, that speaks to the impact that is specific to their product or service. And so, that might be, you know, the number of tons of carbon that you have sequestered from the atmosphere, or that might be the number of individuals, you've brought clean drinking water to, according to the WHO standards. Whatever that might be, it's typically very unique to the companies and how we've kind of standardized that is we looked at the sustainable development goals as set by the United Nations. There are 17 goals behind that, there's about 300 indicators, these are measurable outcomes that wind up to the 17 goals. Out of those 300 indicators, about half of them are relevant to private companies. And so, we have our entrepreneurs go into a database and say, okay, this impact, or this metric is the one that is most adjacent to my theory of change, I'm going to track this one.


[26:21] Daniel: Some of our companies will track 6, 7, 8, 9, 10 indicators, but we require at least one. And that's where we're getting that number over 400 million. That's the aggregate impact of all the entrepreneurs that we're supporting, as aligned with a sustainable development goal that they're tracking their progress on. The only other thing I'd mentioned is, you could make the argument that we just pick winners, and they were going to win anyways, right? So, what is the actual delta, you know, the change in the world, that's resulting from the support that we're providing, that Barclays is providing? And, how we look at that is every quarter, we ask all of the entrepreneurs we support, to identify the top five milestones that they achieved in the previous quarter. And we asked them if those milestones are attributable to being, a part of this partnership or not. 


[27:12] Daniel: Now, the other thing we look at, and it's easy to do on financing is, you know, every dollar that they've raised, do they attribute that financing, to the partnership or not? And so, we're able to look at attributable milestones and financing, and then paint a strong correlation between that and you know, the new levels of scale they're hitting, but it's not a perfect science, by any means. It is something though, that we take very seriously.


[27:36] Maiko: If you think about the next 10 years, what is it that you'd like to achieve with Unreasonable Impact? What are the big goals that you want to achieve?


[27:47] Daniel: Oh, 10 years is a long time. You know, our current underpinning-- Half of all the needs of our entrepreneurs, so those asks mentioned every month, they get to make an ask, half of those asks are tied to financing, which goes back to your earlier question, around the struggles of investment. We would like to see in the next 10 years that in an attributable way, we've driven $10 billion, I have financing into these, you know, wildly impactful, scalable solutions, to better support the entrepreneur. So, that's certainly a metric that we can point to, that we can claim attribution on. And that would really help move the needle. But, it is, 10 years from now is the collective impact of the entire portfolio of entrepreneurs that we're supporting, that has been most excited. It's not any individual company, necessarily, it's that, in 10 years, we'd be working with about 800, growth-equity entrepreneurs that we had hand-picked, because we believed that they were most likely to solve these problems and the aggregated impact of that portfolio couldn't be unmatched, but the amount of support that those entrepreneurs can drive into each other, peer to peer, I also think will become, you know, the most significant unfair advantage of being a part of this network will be the other entrepreneurs that are in it. 


[29:18] Daniel: And the cohesion that hopefully we can create across those entrepreneurs, because they are a rare breed, right? It’s kind of, you know, this idea, I really believe there's no shortage of capital in the world and there's no shortage of good ideas. But there's a true dearth of courage and that's where these entrepreneurs come in. And I think the biggest source of impact in division is that they could support each other along this journey. And once we hit a critical mass of you know, 500 of 1000 entrepreneurs, I do think that that network is going to fortify each other in a really beautiful way.


[29:55] Maiko: I wish you all the best on this journey. It's amazing to see how much you've already been able to accomplish with, corporates, such as Barclays and others. And I wish you all the best on that journey. Thanks very much for joining me today.


[30:09] Daniel: Yeah, thank you. It's my pleasure. And, next time, my only insistence is, I get to ask the questions and you do the blabbering. But really, you know, really appreciated the conversation of the call and you know, your curiosity in terms of what we're trying to do in the world.