Impact Investing • Geoff Woolley

Summary:

How do we get more money for those who need it? Charity only accounts for less than 1% of all the money globally, and has stayed consistently flat over time. We need more ways to help people prosper.

Impact investing is a rapidly growing approach that uses capital markets to solve social problems. My guest this week, Geoff Woolley, is a pioneering impact investor with experience growing social impact companies around the world. He’ll change the way you think about traditional investing and about the good that business can do.

About Our Guest:

Geoff has been involved in impact investing and microfinance since he joined Unitus Labs as a board member in 2001. During his time as Unitus Lab’s Capital Markets Chair, he was instrumental in the launch of Unitus Equity Fund, the first commercially focused microfinance equity investment fund, and Unitus Capital, the first investment bank focused on serving microfinance institutions and social enterprises throughout Asia.

As co-founder and current board chair, Geoff launched the largest and most successful student-led venture fund in the United States—the $18.5 million University Venture Fund—and the University Impact Fund, which partners university students with top-tier impact investing firms, social enterprises, developmental finance institutions, and philanthropic foundations for real-time impact investing projects and investments. Geoff has been active in private equity investing for over 25 years, founding two successful venture funds in the United States and Europe. He pioneered the concept of venture debt and has invested in over 400 companies in his career.

Useful Links:

Unitas Capital facilitates access to capital for the business to scale, innovate, and deliver deep social and environmental impact.

Epic Ventures is an investment company working with driven entrepreneurs to build successful and lasting companies.

Patamar Capital We are a leading venture capital firm focused on South and Southeast Asia’s mass market.

Muhammad Yunus His objective was to help poor people escape from poverty by providing loans on terms suitable to them and by teaching them a few sound financial principles so they could help themselves.

Merit leadership.com Help your team make good decisions in tough moments. With flexible delivery options, and customized versions for Health Care, Law Enforcement, Military, Cyber Security, and more—it’s easier than ever to help people make good decisions.

Pleasant Pictures Music

Join the Pleasant Pictures Music Club to get unlimited access to high-quality, royalty-free music for all of your projects. Use the discount code HOWTOHELP15 for 15% off your first year.

Transcript
Chester:

I was just reading an article, actually sent over by my

Chester:

Vietnamese office on one of the reasons Vietnam has been so successful with

Chester:

the COVID-19 is that they're using kind of their state spy apparatus.

Chester:

And so whenever anybody gets the virus, they can kind of track exactly

Chester:

who they come in contact with and a third contact and the fourth contact.

Chester:

So it finally makes sense.

Chester:

You know, there's spine network is so good that they can track everybody down.

Aaron:

Oh man.

Aaron:

You know what though?

Aaron:

It's like at times like this, they kind of like, Hmm.

Aaron:

Spy network.

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Hi, I'm Aaron Miller.

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And this is How to Help, a podcast about having a life and career

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of meaning virtue and impact.

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This is season one, episode 10, Impact Investing.

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How to Help is sponsored by Merit Leadership, home of The

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Business Ethics Field Guide.

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Money makes the world go round.

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Or so it said, of course the earth doesn't actually need money to keep spinning.

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In fact, it's a funny phrase when you think about it, because all

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the money in the world couldn't even stop it from spinning.

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The only thing that's saying reveals is how bad human beings

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are at thinking and scale.

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Let me illustrate another issue of scale as it relates to money, we really

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have no effective way to appreciate how much money there is in the world.

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Part of the problem is in how we define money, but part of it is also that

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the numbers are mind numbingly, big.

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For example, all the money invested in equities like stock ownership

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of a company was $95 trillion.

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numbers of stars in the galaxy bonds.

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Another common way to invest money accounted for $106 trillion.

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Global real estate is more than double either these, and debt generally

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is many times more than that.

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So if there's so much money out there, why do so many people go without, well,

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there's no simple answer to that question, but part of the problem again is how

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badly we understand the scale involved.

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There aren't good measures of how much money is donated to

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charitable causes globally.

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But, in the U.S.

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Last year, people gave about $450 billion.

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That's a lot of money, but it's not nearly as much as it seems.

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For example, that number is only 0.5% of what's invested in equities.

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Put another way.

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The amount donated to charity each year is almost certainly less than 1/10

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of 1% of all the money in the world.

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How do we get more money to the people who need it?

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Well, one idea is just to try and convince people to donate more, but

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for as long as we've measured, it, Americans who by the way, are among

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the most generous donors globally.

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Donate an average of 2% of their income wars, taxes, inventions, and recessions

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tend to not move that number very much.

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There's likely not a lot that we can do to increase donations.

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So what if we instead found a way to use invested money to help people we could,

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for example, invest in companies that improve conditions for the poor or deliver

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healthcare to hard to reach places.

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This is called impact investing and it's a field that's growing rapidly.

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My guest today is Geoff Woolley known as Chester to his friends and colleagues.

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He's the managing partner of an investment firm called Patamar.

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And a pioneering impact investor who has seen firsthand the growth of

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this field over the last two decades.

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He and I served together on the board of university impact where

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students learn the ropes of impact investing with real money and deals.

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To get to know Chester it's important to know how he got his start.

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Being a great impact investor means being good at understanding the

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things that drive impact, but it also means being a good investor.

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And that's where Chester got his start.

Chester:

Right out of college.

Chester:

I went to work for a big financial services company

Chester:

and make a long story short.

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I was supposed to do kind of white papers about fixing different divisions.

Chester:

And the first division I looked at was a equipment leasing company, which.

Chester:

You know, is it a terribly exciting industry?

Chester:

And then the portfolio wasn't doing well and make a long story short that it was

Chester:

supposed to be a triple a portfolio, but there was quite a few startups in it.

Chester:

As part of the due diligence that went to go see these startups, and it turned

Chester:

out that there were deposits to do with these deaths, but, but all the CEOs

Chester:

had said, if you release these deposits that you have, cause we need the cash,

Chester:

we can give you equity in the company.

Chester:

And to make a long story short, that basically became kind of impetus to

Chester:

what is now called venture debt and which I went in and said, maybe instead

Chester:

of just going equity, we should go into these venture backed startups and

Chester:

provide deadlines in this case, leasing lines, and basically by accident.

Chester:

Created called venture debt today.

Chester:

And I guess many people call me the founder of venture debt, which certainly

Chester:

was not what I started off to do.

Chester:

The six weeks into my career.

Aaron:

If your not familiar with the finance world.

Aaron:

You'd be surprised to learn how very young professionals can quickly

Aaron:

control quite a bit of wealth.

Aaron:

That was the case for Chester too.

Aaron:

It's a world where good ideas and hard work can get you pretty far pretty fast.

Chester:

And actually, it was a very funny story.

Chester:

One of the venture capitalists that I work with all the time, said to me,

Chester:

Hey, I'm going to go ahead and do this deal with one of the portfolio companies

Chester:

that we've been working with, but I don't understand why you work for this company

Chester:

and just don't do this on your own.

Aaron:

Right.

Chester:

And that was, and I was a bit confused and I said,

Chester:

well, what's the question?

Chester:

And he goes, why do you work for them?

Chester:

And I said, well, because they pay me.

Chester:

He goes, well, I know, but I mean, why don't you just start your own firm?

Chester:

You know, that's how all of us have our own firms.

Chester:

You know that, I know all the other guys know you also pretty well.

Chester:

I've talked to him before.

Chester:

And I said, yeah, but you know, being 24 and going out to go ask for money

Chester:

from New York life and metropolitan life, probably they're not going to be

Chester:

really keen on just giving me a, you know, 20 and $30 million chunks of money.

Chester:

And he ended up in giving me a long story short at half a million dollars.

Chester:

And I went out and raised my first fund that with a partner

Chester:

who should have been working with.

Chester:

That got me even further into venture where we didn't do just venture debt.

Chester:

We also did equity and that kind of lasted through another 20 years in a firm.

Aaron:

That sounds like the kind of career that you could just ride into the sunset.

Aaron:

Why did Chester change to impact investing?

Chester:

Becoming the managing partner, a CEO of your own firm when you're 24.

Chester:

Sounds all very impressive and cool.

Chester:

But as the firm grows bigger and the more assets you manage,

Chester:

your job gets kind of worse.

Chester:

If that makes sense, because instead of me doing investments

Chester:

and working with entrepreneurs, which is really what I love to do.

Chester:

I was getting to do cool things like talk to regulatory authorities and attorneys

Chester:

and limited partners or investors.

Chester:

And then we, you get to referee all the fights between all your partners

Chester:

and your associates and all your staff.

Chester:

As you open more offices.

Chester:

And pretty soon I figured out, uh, you know, let's say 15, 20 years

Chester:

later that I spent 90% of my time doing stuff that I didn't even like,

Chester:

I probably wasn't terrible at it, but I didn't, I just didn't want to do it.

Chester:

And by that point I had enough money for McDonald's most days, I then

Chester:

said, what would I like to do in life?

Chester:

And so I guess you could call that your classical midlife crisis instead

Chester:

of buying a red Corvette or something.

Chester:

I decided that maybe I should get a little better karma.

Chester:

And that's kind of where I started saying, you know, I'd like to do something

Chester:

philanthropic, but to be honest with you, I don't know how to dig a ditch very well.

Chester:

I don't speak a foreign language.

Chester:

And then those things to me, it was all about the peace Corps and you

Chester:

know, going to do something like that.

Chester:

And I said, I really don't have any skills.

Chester:

You know, it's kind of going back to when I'm in college, it's like, I don't

Chester:

know anything I can do in the nonprofit world that people would think is good.

Chester:

And so that kind of led to this whole search about, you know,

Chester:

getting karma into, you know, maybe the skills that I had.

Aaron:

Talk about that search because I've known a lot of people who have come

Aaron:

to that stage in their life where they, they sort of have this first career.

Aaron:

Being successful at something that's much more traditional.

Aaron:

I mean, not that the pioneering you did was traditional,

Aaron:

but, but it was in finance.

Aaron:

Right.

Aaron:

And it was a, it was a path that became well-trodden with time.

Aaron:

How did the search go for you shifting from venture capital into what now has

Aaron:

become a pretty robust career in impact.

Chester:

To be honest with you.

Chester:

It was a little bit serendipitous.

Chester:

The good thing about venture capital, which I love is that it's almost like

Chester:

going to university every day because everybody who it comes to visit

Chester:

you, or generally the entrepreneurs are the experts in their fields.

Chester:

And it's over the period of years, you get to know all sorts

Chester:

of people that are unrelated.

Chester:

Just as a funny aside, I always say that I can always do well in any kind of cocktail

Chester:

conversation, because at one point or another, almost every object in the room.

Chester:

I probably know a little bit of something about, because someone has

Chester:

presented a business plan to me on how has a pen made or, you know, what's the

Chester:

economics to framing business, or how do you get HPAC systems to work, etc.

Chester:

It almost becomes a little bit spooky because I have a pretty terrible memory.

Chester:

So I just know enough to be dangerous about it.

Chester:

And I always used to joke that it was kind of like the for-profit.

Chester:

University of education.

Chester:

And I mean, I was very fortunate.

Chester:

I mean, early on, this is a great story that when I didn't know a lot about

Chester:

semiconductors and Gordon Moore was actually raising some money for a startup.

Chester:

He ended up sitting in a room with me on, on a Blackboard for two hours describing

Chester:

to me how semiconductors worked.

Chester:

A little, a little at the time.

Chester:

Did I know that he is the father of the modern semiconductor in many ways.

Chester:

And I would just use those as, as some of those great experiences that

Chester:

you have as a venture capitalist.

Chester:

I find that the people who know things the best can teach you very quickly.

Chester:

Things that are essentially very difficult and nor by the way, would

Chester:

I ever tell you that I can design a semiconductor because I can't even really

Chester:

understand one, but that's that's there.

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So I love this idea that Chester just turned to experts who

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could teach him what he needed to know the truth is that when it comes

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to the social impact, far too many people assume that they know how very

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complicated things work and then they charge in and make a mess of things.

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Of course, this makes it sound like Chester just talked to some

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experts and got to work, but it was a more circuitous path than that.

Chester:

Honestly, my first foray, I was kind of led towards the politics, which

Chester:

at the time I knew very little about, it seemed like an interesting concept via

Chester:

some of the contacts and some friends.

Chester:

I ended up knowing the chairman of the Gore campaign.

Chester:

And then when he found out that I was going to step back from my venture

Chester:

firm, you know, before I know it, I was the vice chair of the Gore

Chester:

campaign for some period of time.

Chester:

Now there's 24 vice chairs, so that's not a big deal.

Chester:

And I had a very specific job in corporate endorsements, but it became

Chester:

very clear to me that politics was not something, no offense to any of

Chester:

those folks, but it's just, wasn't something I was terribly interested in.

Chester:

It seemed to be, everything was about compromise and about, I

Chester:

don't know, mediocracy sometimes.

Chester:

And to me, I like to kind of just see ideas and get them

Chester:

accomplished and move on.

Chester:

So thereafter, I met up with this group of like-minded people

Chester:

who were kind of searching for.

Chester:

Not the second part of their lives, but unless they, in addition to their

Chester:

lives and that actually led to a group called Unitus, which has become

Chester:

quite well-known within the impact.

Chester:

And then particularly in the micro finance fields.

Aaron:

Unitus us has a very interesting history.

Aaron:

It's one that reflects Chester's interest in trying out new ideas.

Chester:

This is just a great story of a bunch of people who said we

Chester:

love non-profits, and we love that they really help people, and we give

Chester:

checks to them sometimes as donors, but there's something missing when

Chester:

it comes to accountability of whether they're going to fulfill those promises.

Chester:

And so we kind of said, you know, we'd love to have the intersection of where

Chester:

the philanthropic side and the for-profit side kind of meets where you could have

Chester:

that accountability, but still have those great people and all the cool ideas too,

Chester:

you know change the world's climate or help people or do whatever it might be.

Chester:

You said as a group couldn't we did basically take our skills, which tended

Chester:

to be on the business side and then combine them with some great social

Chester:

folks who had been doing great projects and just make them more efficient.

Chester:

And hopefully then they could affect the lives of more people.

Chester:

And that's really how consider what my main focus within this field, which

Chester:

has become known as impact investing at the time we did this, by the way.

Chester:

Impact investing wasn't even a word yet.

Chester:

And you know, later I think it's only five or six years later that when I first heard

Chester:

it in some interview with me, I said, wow, that's an interesting term, I guess.

Chester:

I guess that's kind of what we do.

Aaron:

The group at Unitus is decided to work in the field of micro finance.

Aaron:

If you're not familiar with it.

Aaron:

The idea of micro finance is to provide small loans to low income people as a

Aaron:

means to help them grow businesses or otherwise improve their livelihoods.

Aaron:

The idea was pioneered by groups like Finca and the Grameen bank.

Aaron:

Dr.

Aaron:

Muhammad Yunus, who founded the Grameen bank, went on to win a Nobel peace prize.

Aaron:

It's for his work.

Chester:

Yeah.

Chester:

The day we then choose micro finance, which it's time, interestingly

Chester:enough, there was almost:Chester:

which we were fascinated to learn.

Chester:icrofinance and this is about:Chester:

And then when you look closer at them, They were run by terrific people.

Chester:

I mean, people who you'd love to spend some time with and things, but

Chester:

then when you looked through them, they didn't do very many loans.

Chester:

I mean, they might've had a few hundred or a few thousand, but

Chester:

these loans were a hundred or $200.

Chester:

And you were kind of realized that the interest rates on loans had to be pretty

Chester:

high because they would have overhead costs, but not that many clients per se.

Chester:

And so we actually said, you know, maybe what we should do

Chester:

is to say to them, why don't.

Chester:

We kind of use you as the entreprenuers, but if we can give

Chester:

you good capital and good people to advise, if you want to just grow.

Chester:

And so that you have, you know, hundreds of thousands, if not millions of

Chester:

clients and all these people would be helped through micro finance, and you

Chester:

could basically lower your interest rates because your money is cheaper.

Chester:

And that's really the whole concept of what we did for the next 10 years,

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So Unitus is became one of the world's first microfinance accelerators.

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They would find well-run microfinance institutions and help them grow

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with money and management help.

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It was not unlike venture capital in the world of startups.

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The problem with this idea is that the culture of venture capital mixing with

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non-profits is like trying to mix oil and water Chester and the Unitus team.

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Consistently saw a culture backlash within the nonprofit space.

Chester:

Well, to be honest with you, I didn't really know that, you know,

Chester:

there were these cultures and people from a social background and a nonprofit

Chester:

background I've found were oftentimes very skeptical of somebody that was a venture

Chester:

capitalist, probably rightfully so in many ways, but they kind of viewed us as kind

Chester:

of carpetbaggers, I guess you could say.

Chester:

So it took us.

Chester:

Uh, some time to kind of address many of their issues and kind of earn their trust.

Chester:

I remember being on a panel and some conference in Switzerland and the

Chester:

other three panelists essentially had non-profit backgrounds, you know, or

Chester:

with some kind of development agencies.

Chester:

And then there was me.

Chester:

And one of the guys very nice guy.

Chester:

We actually became friends later, basically had said, well, you

Chester:

know, my worry is that you have now capitalists coming into the markets

Chester:

and taking our ideas and corrupting them through that whole basis.

Chester:

It was clearly a swipe at me, you know, standing there and, and he then went

Chester:

on and then they kind of piled on.

Chester:

And at the very end of it, I said to them, well, I just want to, first of

Chester:

all, tell you that I am probably the only person here that doesn't get paid.

Chester:

So if you're worried that if you worried that money is what's motivating

Chester:

me here, you know, I'm not getting anything economically for this.

Chester:

So if that was your definition of capitalist, that's not

Chester:

really what I'm here for.

Chester:

And that then of course, made the audience laugh quite a bit.

Chester:

And they said, I think that more people should basically say that the

Chester:

good thing about people with business skills is that we know certain

Chester:

aspects and we certainly rely upon other people to have other skills.

Chester:

And that's really what a good venture capitalists does is really, it's more of

Chester:

a conductor of an orchestra rather than actually playing all the instruments.

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Unitus became very successful.

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It's an investment in a group called SKS was among the most

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notable based in Hyderabad India.

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SKS with help from Unitas went from just 50,000 borrowers and a net worth of

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about 3 million to millions of borrowers and a net worth of about $1.5 billion.

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And this was all in about eight years.

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Making this happen involved converting SKS from a non-profit to a for-profit.

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They could take investor money.

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And this is because the amount of available investor money is as we

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noted at the beginning, many, many times larger than the amount of donor

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money out there, and more dollars can mean more good work is done.

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The challenge is to get more investors thinking this way, even small changes

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in investing behavior could make a huge difference in the world.

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Well, Unitus is experienced trying to get investors to think this way

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continues to be a challenge today.

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Chester has ideas on how this can change for the better.

Chester:

But to us, I think the main issue here was instill remains.

Chester:

That we need to make impact investing as an asset class.

Chester:

And when I say an asset class is that if you look at the world's money, only

Chester:

about 10% of it goes to donations.

Chester:

The other 90% are in the capital markets.

Chester:

And the way that the system works, I learned from venture capital very

Chester:

quickly is that you have these very smart, intelligent, You know, in boards

Chester:

and endowments and pension funds, insurance companies, and whatever.

Chester:

And they always say, okay, how much are we going to put in to public equities?

Chester:

How much are we going to put into bonds?

Chester:

How much into real estate, how much of the gas in oil, how much into

Chester:

forest, how much into venture capital.

Chester:

But if you, if you don't have an allocation.

Chester:

Then that's the one way not to get money from them, I guess

Chester:

you could put it that way.

Chester:

I said to people, we have to get to the table to get one of those

Chester:

allocations, because even if you were allocated, you know, from CalPERS,

Chester:

the state of California's pension fund, even if you were allocated,

Chester:

let's say one or 2% to impact, you're talking about billions of dollars.

Chester:

And at that point, the way that these institutions work is that you go from

Chester:

having to ask them for money to them, having a staff that says, hey, we have

Chester:

to deploy $4 billion this year in impact.

Chester:

Tell us who you are and we'd like to invest.

Chester:

And what we haven't been able to do yet in, impact is we haven't

Chester:

been able to create this demand from institutions that they need

Chester:

to basically invest in this area.

Chester:

And I do think that that will actually occur, but it's actually going to much

Chester:

slower than I would have, would have hoped for, you know, 10 or 15 years ago.

Aaron:

Yeah.

Aaron:

I want to talk about that more, but I wanted to reflect for a

Aaron:

minute on the SKS IPO, an IPO is short for initial public offering.

Aaron:

It's where a company starts to sell its shares on a public stock exchange.

Aaron:

In this case, SKS decided to sell its shares on India's national exchange.

Aaron:

And they ended up raising $350 million from investors.

Aaron:

It was a historic, but divisive moment in the history of micro finance, this

Aaron:

moment reflects some of the resistance that impact investing still confronts.

Aaron:

Now.

Aaron:

I mean, after it happened, It got a lot of press.

Aaron:

And like you indicated, there were a lot of people who are disappointed.

Aaron:

In fact, Muhammad Yunus who won the Nobel peace prize, came out with a New

Aaron:

York times, editorial criticizing it.

Aaron:

From your perspective, there are all these borrowers now who have

Aaron:

access, who wouldn't have, if we didn't do this, how did it feel to

Aaron:

have inductor units coming out as a critic of what you guys were doing?

Chester:

Well, I understand the New York times on not taking my

Chester:

credibility comparative to Dr.

Chester:

Yunus' personally, but I had to get over that quite quickly.

Aaron:

Peace prize is coming.

Chester:

I know my Nobel peace prize is on this way.

Chester:

No, I think that what we actually had learned, and I think not just we, but

Chester:

maybe a whole industry, is that, the thing that they were worried about, was

Chester:

had this basically just become a bank.

Chester:

What we have learned.

Chester:

And what I have learned personally is that if you basically try to

Chester:

make things, quote, unquote social at all at times, then oftentimes

Chester:

the good thoughts, oftentimes turn into more expensive thoughts.

Chester:

So I'll give you an example within micro finance.

Chester:

Is that many of microfinance banks said, yes, we'll give everybody a $500 loan.

Chester:

But along with this, we also want to provide with them all sorts of learning,

Chester:

whether it be an inclusive finance or whether it should be legal advocacy.

Chester:

We also like to teach kind of like children rearing and etc, etc.,

Chester:

all really good purposes to kind of particularly teach a lot of

Chester:

the women of what they need to.

Chester:

From a financial perspective, each one of those things that

Chester:

you teach has a cost to it.

Chester:

And so what was happening was that instead of their, their interest rate,

Chester:

being competitive with what a regular customer I E, class for an upper-class

Chester:

person would have their interest rate with the poor would always be,

Chester:

you know, 10, 15, 30, 50% higher.

Chester:

And then what I learned from the poor was when I was speaking with

Chester:

them is that they just liked to be treated like everybody else.

Chester:

And why can't they have an interest rate?

Chester:

That's the same as everybody else.

Chester:

And, and later on, as I was talking with some of these women, I just

Chester:

realized that maybe we're being a little bit too ivory tower about this.

Aaron:

Yeah,

Chester:

Why don't, why don't we concentrate on making their loan

Chester:

and the interest that's charged the lowest possible as most banks would.

Chester:

And then, maybe bring in non-profits to teach them these other things.

Aaron:

Now listen closely to this next part because it's chock full of wisdom,

Aaron:

everyone non-profit leaders and impact investors need to internalize this lesson.

Aaron:

That Chester is about to teach.

Chester:

And I think that that's really the best of both worlds in my perspective,

Chester:

is that have the experts basically really work on driving down the cost.

Chester:

And this comes to a point Aaron that I always make to people, is it the poor

Chester:

always basically get the worst products at the highest prices and they almost always

Chester:

have the most disrespectful service.

Chester:

And I learned that over and over again.

Chester:

And if I was going to say that I learned anything in my life as I

Chester:

went into impact, it was that these people are smart and they might not

Chester:

have the education, but everything is stacked against them all the time.

Chester:

So if you basically just want a cup of rice, why does their rice always

Chester:

have to be more expensive than I get, you know, down to Safeway?

Chester:

It's just essentially not fair sometimes.

Chester:

And that's really how I then become a much bigger believer in impact is to say

Chester:

to entrepreneurs, anytime you can make a product that is high quality, that it

Chester:

is a fair price that I E comparable to.

Chester:

Anybody, you know, rich or poor, and that you treat the people as a customer,

Chester:

not as somebody who is taking something for you and should be grateful to you,

Chester:

then you're going to be very successful because there are literally billions of

Chester:

people in that category that want that.

Chester:

And that's really what I would say is the, is the impetus to how I define

Chester:

impact investing is, is to basically find products and services that are

Chester:

great, that the cost of them are fair.

Chester:

And then the last one I think, is the most important is that people be respected.

Chester:

And I cannot tell you how many times I have learned by thinking, you know, That

Chester:

these people should just be grateful for what we're giving them, but they're

Chester:

very proud people, just like any one of us is they don't want to have a handout.

Chester:

Most of them, they basically want to earn their own way and be

Chester:

treated just like everybody else is.

Chester:

And so that's something I really tried to emphasize to people is that

Chester:

treating people with decency and a service mentality from a business

Chester:

perspective that they are customers is really, I think some of the most

Chester:

philanthropic things you can do.

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Aaron:

The SKS story was not a simple success.

Aaron:

The bank faced some big challenges soon after its IPO with government

Aaron:

regulation and a crackdown on microfinance lending generally, but

Aaron:

it survived and has continued to grow.

Aaron:

It still helps millions of borrowers get access to the funding that they need.

Aaron:

And it's still a success story of impact investing, even if it was a bumpy one.

Aaron:

But despite big accomplishments like this, impact investing and its power

Aaron:

to accelerate change is still obscure to most people and misunderstood by

Aaron:

many of those who do know about it.

Chester:

I actually think that perception is perhaps the largest one, which is

Chester:

kind of strange to think about, but.

Chester:

Impact is still in this strange world.

Chester:

First of all, I would say a majority of people don't know what impact investing

Chester:

is, but if you've been asked the average person who knew what impact was, I

Chester:

think they would probably think it was, was either philanthropy, but just

Chester:

kind of had entrepreneurs associated with it or something similar to that.

Chester:

And what needs to change is that people need to view that we have these arguably

Chester:

four to 5 billion people who are not getting proper goods and services.

Chester:

And so entrepreneurs who focus on getting them better goods and services.

Chester:

Are inherently in my viewpoint impactful because they're now starting

Chester:

to get things that they couldn't, or they're actually creating income

Chester:

opportunities for these people to, you know, have a better life point forward.

Aaron:

So how does the world of impact investing now get more persuasive to

Aaron:

more investors where they see impact capital for what it is and what it can

Aaron:

do, not just for them as investors, but also obviously for the world.

Chester:

Well, the first thing that you have now, benchmarks.

Chester:

Going back to the example that you have SKS.

Chester:I went into raising money in:Chester:

the first question would say, well, has anybody ever exited from one of these?

Chester:

And aside from a small Mexican bank, there was literally no.

Chester:

No data that anybody could actually do this.

Chester:

That's always going to make it very difficult to do.

Chester:

I think in today's world, things have changed because

Chester:

there are now more benchmarks.

Chester:

So we now have data that says, yeah, impact funds oftentimes return just as

Chester:

well as traditional venture capital funds.

Chester:

Impact entrepreneurs have become just as viable and oftentimes as

Chester:

large as traditional entrepreneurs

Chester:

. And so those are some of the things that

Chester:

to this business that have the capital.

Chester:

Then the second thing is I think that we could also attract more people who

Chester:

basically want to do something in the world, but for some reason, believe that

Chester:

this is all about philanthropic issues.

Chester:

And so if we can kind of change that perception too.

Chester:

That's really going to help us.

Chester:

So it's kind of exits, benchmarks, and perception.

Aaron:

You only get strong returns on investments.

Aaron:

When you have strong businesses to invest in, and here we

Aaron:

confront another misconception.

Aaron:

Most people think that it all comes down to having a really good idea like coming

Aaron:

up with Airbnb, Uber, or Instagram, but good ideas are actually quite common.

Aaron:

What's rare is a good entrepreneur.

Chester:

Good venture capitalists, we don't really think about ideas.

Chester:

We think about entrepreneurs.

Chester:

And that could also go back to this idea.

Chester:

The thing that's holding back, not just impact investing, but all

Chester:

good venture capital is the amount of good entrepreneurs you have.

Chester:

Being an entrepreneur has become cool.

Chester:

But in my perception, there aren't that many real entrepreneurs in this world.

Aaron:

So finding the great social entrepreneur is really special.

Aaron:

Listen to Chester, describe a favorite company called Vendia.

Chester:

One of the great things is to find somebody who is, and in case of a

Chester:

company called Vendia, which is based in India, this was a, a married couple.

Chester:

And if you.

Chester:

Invest in venture capital.

Chester:

One of the first things that you generally know is, do not invest in married

Chester:

couples because you don't want to take on personal household issues into a

Chester:

entrepreneurial venture, but in Vendia case, this was a vision particularly

Chester:

of the, the woman in the relationship with Lisa is that she really wanted

Chester:

to basically work in India with people of what is called disabled people.

Chester:

Or she would say that there are differently abled.

Chester:

It became very popular and it still remains popular that in India, you have

Chester:

these things that we call BPOs, they basically business processing outsourcers.

Chester:

And so what they've said is why don't we take these people and turn

Chester:

their disabilities into strengths.

Chester:y have a little bit more than:Chester:

with some types of disabilities.

Chester:

For example, people that are deaf tend to see a lot better.

Chester:

Or particularly see detail a lot better.

Chester:

So many of the accounts that they've taken on for the death are people who work on

Chester:

websites and refocusing and re-imaging photos, etc, where candidly, they do a

Chester:

much better job than the average person.

Chester:

And people who are blind tend to be better listeners, than the average person.

Chester:

So those people actually do a lot of the customer in calling.

Chester:

Those service callers that you oftentimes have on the phones, in

Chester:

which they then take those calls and people that have physical disabilities.

Chester:

I see that they have a problem moving.

Chester:

They tend to be more patient, and we generally have them do a

Chester:

lot of the back office work that we do for banks and paperwork.

Chester:

The long and short of it is, is that in just a couple of three years, they've

Chester:

been able to build a company that has more than $10 million worth of sales.

Chester:

It's very profitable.

Chester:

Almost every one of their employees is this is the first time that

Chester:

they've ever been employee.

Chester:

And they'd gone from a net kind of burden upon their families.

Chester:

To being the primary breadwinners for many of them.

Chester:

And today is the thing I love when you go kind of pitch this to a company that

Chester:

needs to do an outsourcing, how easy it is to say, why don't you use a company

Chester:

that uses people that are differently abled that will give you a better service

Chester:

that will actually change their lives.

Chester:

And you can even use it to know that.

Chester:

You're really, you know, giving your customer the best experience,

Chester:

plus you're actually helping people.

Chester:

So anyway, I actually love India, as you can tell.

Chester:

I think it's one of those areas that literally everybody wins across the board.

Chester:

And the company hopefully is going to be to another 5,000 people are going to

Chester:

be joining here in the next two years.

Chester:

And, you know, if you just think of the number of lives that it's

Chester:

changing, it's, it's amazing.

Chester:

So.

Narration:

Finding good entrepreneurs is the secret.

Narration:

Listen to the way Chester answered.

Narration:

When I asked him about the best opportunities that are

Narration:

out there in impact investing.

Aaron:

So I don't want you to give up any trade secrets with this question,

Aaron:

but is there any low hanging fruit out there and impact investing that

Aaron:

you think just needs more capital?

Aaron:

Like these are sort of deals that are.

Aaron:

Totally obvious to you that for whatever reason on attracting investors yet.

Chester:

I don't think that anything is, I would say low hanging fruit

Chester:

to me, the low hanging fruit is really, and I hate to do this, but

Chester:

just go back to the entrepreneurs.

Chester:

I think that there's not enough good entrepreneurs historically.

Chester:

And if you find a good entrepreneur, that's your low hanging fruit

Chester:

and what you're, what you do find is a lot more entrepreneurs.

Chester:

And this is something maybe for people here in the U S.

Chester:

And in Europe, but some of the people that are being educated in U.S.

Chester:

And European universities are going back and tend to be great entrepreneurs.

Chester:

This particularly is the case in Vietnam.

Chester:

Particularly the case in Indonesia, India is the same way.

Chester:

These people, you know, kind of have the best of both worlds.

Chester:

They've learned how to play the game and what's expected from investors,

Chester:

but they've also gone back with that zeal to do those things.

Chester:

If you can follow those people and see what they're interested in and changing

Chester:

that could be the low hanging fruit.

Narration:

This makes sense.

Narration:

The entrepreneurs who grew up in these countries who know the problems firsthand

Narration:

will know best how to tackle them.

Narration:

This is a challenge because social entrepreneurship is especially popular

Narration:

with American college students.

Narration:

They see the world's problems and they want to rush in and help.

Narration:

There's nothing wrong with this desire, but many of them lack the right kind of

Narration:

expertise that comes from living with the problems that they're trying to solve.

Aaron:

There are a lot of college age students, Americans, I should

Aaron:

say that want to go into, you know, they want to be social entrepreneurs.

Aaron:

You work mostly with international entrepreneurs.

Aaron:

What advice would you have for Westerners , that want to build the

Aaron:

next great socially innovative company?

Chester:

Well, I think that there's a couple of different things.

Chester:

If you're going to build a great company, no matter impact or not.

Chester:

And you said that you're just the typical American and you're going

Chester:

to Vietnam to set it up, that it doesn't matter that you match.

Chester:

The skin color or the ethnic background of the people that

Chester:

you're serving, but a majority of the people in your startup should.

Chester:

Not just because it's the right thing to do, but because they know the

Chester:

system better than anything else.

Chester:

So the first thing I would say to them is that don't try

Chester:

to come in and look colonial.

Chester:

It's fine to be there, but use the local talent and the people from there.

Chester:

That's one thing.

Chester:

The second thing that I generally advise most impact students is to go

Chester:

actually work at impact companies that are operating the news first and kind

Chester:

of learn from the things that go right.

Chester:

And from some wrong.

Chester:

That really helps me when I then look at people.

Chester:

Uh, and their backgrounds, if I'm going to invest in them to say, you know, aside

Chester:

from you being really intelligent, do you have any real experience in doing this?

Chester:

We used to kind of call it in venture capital.

Chester:

The old adage is that everybody can come and say, oh, I have this really

Chester:

cool boutique idea for a boutique hotel.

Chester:

But if you then ask the question, well, have you ever run a hotel before?

Chester:

And they say, well, not really.

Chester:

You basically said, well, it's completely fine to have this idea,

Chester:

but go find somebody who's actually run a hotel for the last 20 years.

Chester:

And together as a team, you could really build it.

Chester:

And so I always basically just say that.

Chester:

People should always interconnect with others, whether it be from a

Chester:

local perspective or an industry perspective and on a personal basis.

Chester:

And I think that going out and, and getting actively involved in an operating

Chester:

company before you actually come into the investing field is a really good help.

Aaron:

What advice would you have for investors that want to go into impact?

Chester:

I think that what's really needed in today's world is to take risk.

Chester:

One of the things that's been particularly popular and a certain class of impact

Chester:

investors, and mostly because of their financial advisors, if they said, why

Chester:

don't you go into and do deals with debt?

Chester:

And not equity.

Chester:

And there's all sorts of impact deals where you could lend money

Chester:

to micro finance banks or some inclusive finance companies.

Chester:

And maybe you'll get a three or 4% rate of return, but that's a good way to do it.

Chester:

I'm not talking negatively about that, but candidly, that type of money is

Chester:

now pretty much available in the world from just traditional institutions.

Chester:

But what what's not available is money that you could actually lose

Chester:

very easily, but it's also out trying to challenge the world.

Chester:

It's the type of people that, you know, let's say going back to Vendia, this

Chester:

BPO company in India, I mean, when they first went to investor and said, okay,

Chester:

We want to create this a company of a BPO completely differently, abled people.

Chester:

If they wouldn't have had somebody who thought, oh, what's the chances.

Chester:

I mean, these guys are really nice and good people and etc,

Chester:

but what's the chances that they're going to be successful.

Chester:

I think a lot of people would say, no, no that's way too risky for me.

Chester:

If they were looking at it from a real return, interestingly enough,

Chester:

I think they could have probably raised some money from donations.

Chester:

It's a humorous thing to me is that.

Chester:

I've literally had people before say, why don't we just give you

Chester:

a million dollars as a donation?

Chester:

And I'll say, well, you know, our structure, isn't that way we

Chester:

don't really just take donations.

Chester:

We take investments.

Chester:

And then a few, a few minutes later, they'll start then asking all of their

Chester:

specific questions and saying, well, what's the rate of return and what do

Chester:

you think the risk level of this, etc..

Chester:

And I ironically sometimes turn to them and say, well, I think you just wanted

Chester:

to give it to me five minutes ago.

Chester:

And now you actually are acting like a, you know, a hard knuckled investor.

Aaron:

That's so true though.

Chester:

And that basically is something that is, as you have seen

Chester:

an impact is actually very common.

Chester:

And I think it was really just because people really have two hats, either give

Chester:

money away and are very philanthropic or they have the half that they're going

Chester:

to be, you know, a hard nose investor.

Chester:

So I think you need to have a little bit more flexibility and being that

Chester:

hard nose investor, but not necessarily saying all except a low return, but in

Chester:

my viewpoint, I will accept high risks.

Aaron:

Yeah.

Chester:

Risk to me, means change low returns don't

Chester:

necessarily mean anything to me.

Narration:

Impact investing in the end is probably always going to struggle with

Narration:

the challenge of straddling two worlds.

Narration:

Life is a lot simpler when you only have to worry about a single

Narration:

priority like profit or like impact.

Narration:

But the reality is that you're more likely to scale.

Narration:

To get really big when you can find a way to balance both.

Narration:

The funny thing is that long-term, the idea is still about maximizing impact.

Narration:

It's the principle reason to do it.

Narration:

Even if in the short term, it means finding a way to attract investors.

Narration:

There are still billions of real people who need help.

Narration:

Chester thinks about them every single day.

Aaron:

As you reflect back across all of this, are there other one or two

Aaron:

experiences that shaped you the most?

Aaron:

I mean that that's still stick with you as resonating and guiding you in

Aaron:

the way you think about all of this.

Chester:

Yeah, I think one of the reasons that, you know, whatever

Chester:

guided me in this direction.

Chester:

And I guess you could say whatever guided me to a higher karma here,

Chester:

was the idea to make me a better person by learning from people.

Chester:

I can still remember the time of being in small villages in India

Chester:

and people are trying to explain to me about their businesses.

Chester:

And in many times I'm a little bit slow about it.

Chester:

But even though they might not even be literate.

Chester:

I've had so many experiences where people explain these things to me.

Chester:

And what I find is that they just have great common sense.

Chester:

And the one thing I would actually say that what all of this has taught

Chester:

me and even into my regular investing career in traditional investing, is that

Chester:

the idea of common sense is highly underrated, comparatively to all the

Chester:

other kind of measurements people are doing and what these great experience of

Chester:

people who don't have the education, or maybe even the reading skills or whatever.

Chester:

But what they do have is a lot of common sense.

Chester:

And I think that, that's something that I have treasured.

Chester:

I've been taught common sense day in and day out by people.

Chester:

And hopefully I basically now use that.

Chester:

I remember talking with this very, I guess you could say upbeat woman

Chester:

who was starting a little store.

Chester:

As I was talking with her, I just kind of wanted to know a little

Chester:

bit more about her background.

Chester:

And she basically said, well, she'd been married when she was 14, which in India is

Chester:

not a terribly, you know, uncommon thing.

Chester:

Unfortunately, her husband left her when she was 15.

Chester:

And in India, in particular, the villages is that once women are married,

Chester:

they're not allowed to remarry again.

Chester:

So essentially you're, you're almost an old maid by the time you're 15 and, and

Chester:

then her perception, that's what she was.

Chester:

She had already had a child.

Chester:

And no education.

Chester:

I don't know that she was even literate, but what she did have was

Chester:

this great ability just to say, in my village, we don't have enough eggs.

Chester:

And then she basically gave me some very good examples why her

Chester:

eggs are needed in this village.

Chester:

And how is she got so many chickens she could basically meet that need and

Chester:

she would make so much money from it.

Chester:

And people like that.

Chester:

When you look back and say, here's somebody who probably didn't choose who

Chester:

they were going to marry, certainly didn't choose to be widowed by the time she was.

Chester:

15, certainly didn't, you know, always just choose to have a child.

Chester:

And then if you look at all the bias, you know, she's not allowed

Chester:

to walk into any bank because in, in most banks is still in India,

Chester:

poor people aren't allowed to go in.

Chester:

And if you look at how many things that she is coming up against, and still

Chester:

basically has a cheerful attitude and explain how her egg strategy is working.

Chester:

I just thought to myself, you know, sometimes you think you have problems in

Chester:

the world, but here's this person who is persevering and prospering with a set of

Chester:

circumstances, which are so much harder than mine and she pays no due to it.

Chester:

And that's really why, I guess I could say maybe at the end of this interview,

Chester:

is that that's really what motivates me to do what I do is it, these people

Chester:

inspire me on a daily basis just really to remember that there's very few

Chester:

things that are terrible in the world.

Chester:

Things are just not good.

Chester:

Occasionally years ago, one of my mentors taught me and when I walked into

Chester:

him and I said, oh, this is terrible.

Chester:

And before you said another thing to me, he said, no, no, it's just not good.

Chester:

And I remember saying, Well, you haven't heard what I've said yet.

Chester:

He said, yeah, but there's very few things that are terrible and

Chester:

knowing you, it's just not good.

Chester:

And I have actually used that.

Chester:

So my life is that I, I say to students or other employees, when they come in

Chester:

and thinking that things are terrible.

Chester:

I just tell them, no, it's just not good.

Chester:

And then we'll, we'll work it out.

Chester:

And people like this, I think th th the people that you meet and impact

Chester:

are the people who basically know that things are just not good, but they

Chester:

don't think that they're terrible.

Narration:

So Chester began by telling us how much he values the common

Narration:

sense of the poor entrepreneurs that he's known over the years.

Narration:

But did you notice how his comments also radiate optimism?

Narration:

Common sense and optimism are not two attributes that we typically

Narration:

associate with each other.

Narration:

If anything, common sense implies the more cynical perspective.

Narration:

One that isn't caught up in big dreams.

Narration:

But consider the young store owner in India who noticed that

Narration:

her village needed more eggs.

Narration:

Her common sense led her to see more, a better future for herself and her child.

Narration:

Chester is teaching us that the truly practical, common sense view

Narration:

of the world is an optimistic one.

Narration:

We have plenty of reasons to believe that things may not be as terrible as we

Narration:

think, and that we can make them better.

Narration:

I'm so grateful to Geoff Woolley for talking with me in this episode, as you

Narration:

can tell from our conversation, he's had a unique and fascinating career.

Narration:

If you want to learn more about what he does, we have some

Narration:

useful links in the show notes.

Narration:

If you enjoy How to Help, please give us a positive review in your podcast app.

Narration:

It really helps us to reach more listeners.

Narration:

Also be sure to subscribe so you can get future updates automatically.

Narration:

Next time I'll have a conversation with Dr.

Narration:

Anton house.

Narration:

He's a historian who studies innovation.

Narration:

What is it that makes people places or moments in history, especially inventive.

Narration:

And how can the answers to that question help us do more good today.

Narration:

Dr.

Narration:

House has a way of making the lessons of history, especially practical.

Narration:

So be sure to come ready to put his insights, to work, to stay up

Narration:

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Each edition recommends high-impact organizations and shares ideas for

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You can subscribe or read the archives @how-two-help.com.

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We're grateful as always to Merit Leadership who sponsors this podcast

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and to our production team, which included Cyndi Hall, Travis Stevenson,

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yours truly, and Eric Robertson, who did the editing and the music.

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If you want to use their music in your projects, you can find a link

Narration:

and a discount code in our show notes.

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Finally as always.

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Thank you so much for listening.

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I am Aaron Miller and this has been How to Help.

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