Chester Wooley on Where Philanthropy and Venture Capital Meet
Geoff “Chester” Wooley, Co-founder Patamar Capital and current board member of SKS Microfinance, India’s largest microfinance bank, discusses where philanthropy and venture capital meet on Alan Olsen‘s American Dreams Show.
Transcript:
Geoff Woolley 0:00
Philanthropy and a family office’s investing is quite separate from each other. Depending on the size of the family office, its foundation or its family foundation, or whatever it might be, is oftentimes run by different people than their actual profit-making operations. Impact investing is a perfect storm in the way that it sits between the foundation and the family office. Both of them have to communicate that this is appealing to us because of the impact or helping others.
But it also actually provides a very good return. That’s really probably the biggest problem—getting the two areas in most family offices to talk, because they tend to be in their own little silos.
Alan Olsen 0:48
Welcome to American Dreams. I’m here today with Geoff “Chester” Woolley. Chester, welcome to today’s show.
Geoff Woolley 0:54
Thank you so much. I appreciate being here.
Alan Olsen 0:57
Chester, you have a remarkable career. And before we move into your journey into the field of venture capital, I’d like you to share some of your early experiences and how you moved into the field that you’re in now.
Geoff Woolley 1:17
Great. I appreciate, Alan, yourself and all that you do, by the way, to publicize things. So I think it’s a great opportunity for me. But yeah, I was actually, in the end of the day, raised mostly in San Diego, and then went to college. When I came out of college, my first job was—it’s a little bit humorous—my first job was with the CEO, the chairman of a big financial service company. His first assignment to me was to take a look at one of our divisions within the company and say why this division wasn’t doing well.
It happened to be a leasing division. And of course, in school, I knew nothing about leasing or equipment or that. But back in the 80s, for those who are old enough to remember, leasing had a lot to do with taxes and tax deductions. So I took a look at this entity as a white paper, as almost a consultant. I said, “We have too expensive money, and we don’t have great credits for our companies.” I was very proud of myself because I had done what they taught me in MBA school.
And he said, “Yeah, well, I could have told you that. Could you find something to do?” I basically said, “Well, I don’t know how you fix that.”
But as part of that, we had three companies in the portfolio, which was supposed to be a AAA portfolio, that were startups. And even as, you know, being out of school maybe four to five weeks at this point, I realized that startups are not AAA credits. So I went down to Silicon Valley, which was located in San Francisco, to talk to these lessees. I found that all of them were very interesting, and there was other security involved. So I kind of checked them off the list as not being a problematic company in that portfolio.
But one interesting fact all three CEOs told me was, “You have a letter of credit, and we would like it released, and we will give you options or shares in our company to do it.” I said, “Well, that’s a very intriguing idea, but I think I’m supposed to bail out the portfolio, not get it in more trouble.” That then led to me coming back to a white paper and saying, “Perhaps we could actually lease to young startups where banks won’t lease to them. Instead of just getting an interest rate, we could get equity in the company.
We could also have it secured by equipment. By the way, if they’re backed by a venture capital firm, very few startups go out of business in the first three to five years.” That was a paper, which is now really the theme of what venture debt is. Little did I know that that’s actually what I meant to do. To my great surprise, the Chairman said, “I like this idea. You go down and run this division.” Of course, now I’m in week 16. I said to him, “No, no, I came here to work for you. This was just my first assignment.”
He said, “Well, if you don’t, then you’re fired.” So I said, “Well, I think I’ll go down there and work it since I don’t want to go back on the job market.” That basically turned out to be a great opportunity for me because I was only around 21 or 22 at the time. It gave me up to $200 million to capital. We did actually three years worth of investing in this product of about $400-500 million. The product did very well and it made lots of money, which allowed me to then start my own firm when I was 24.
Once again, I think that the story from my perspective was, even though I was trying to get out of doing this and was forced with the basis that I would be fired if I didn’t, sometimes you have to take a gift horse in the mouth and just go forward. Anyway, that’s a little bit of my background. People say that I was very creative, very inventive. I say I was probably just maybe stubborn to the point that I almost got fired over it.
Alan Olsen 5:33
Well, it’s interesting that the path that you were laid down, and I want to move into this next area because your next venture dealt, in some respects, with impact investing. What exactly is impact investing?
Geoff Woolley 5:54
Impact investing really just means, in my viewpoint—although it can differ with ecological companies or the green movement—in my area, I really work on poverty. We invest in companies that look at low-income people throughout the world as our primary market. It’s as simple as that. We’re trying to provide products to a certain population, which happens to be the majority population in the world, with goods and services that historically the poor don’t get.
I always make the comment that the poor always get the highest-priced products and the poorest quality, and they get disrespectful service. I always tell our companies that if you can treat this market as a true customer, treat them with respect, give them a good product and make it at a fair price, you actually have literally billions of people that are open to it. That’s really what impact investing does.
Some people, you know, maybe overpromise that we’re going to save the world, we’re going to solve poverty, we’re going to do this or that. In reality, I think anybody who has been around poverty knows that poverty is caused by tens, if not hundreds, of different problems. One of the problems is that the poor always have to struggle with education, housing, and getting loans, among other things.
If you can provide companies that provide those at a good quality and at a fair price, there is no trade-off between return and helping the people. But I would always emphasize that the low-income people of the world are really helping themselves. We only provide the products and tools that they should have had as any other consumer does. So that’s really how I look at impact investing.
Alan Olsen 7:47
What do you see as the biggest problem with family offices and philanthropy as it relates to impact investing?
Geoff Woolley 7:57
I think the biggest problem that I see is that family offices’ philanthropy and family offices’ investing are quite separate from each other. Depending on the size of the family office, its foundation, or its family foundation, or whatever it might be, is oftentimes run by different people than their profit-making operations. Impact investing is a perfect storm in the way that it sits between the foundation and the family office.
Both of them have to communicate that this is appealing to us because of the impact or helping others, but it also actually provides a very good return. That’s really probably the biggest problem—getting the two areas in most family offices to talk, because they tend to be in their own little silos. There are certain amounts that are allocated to their family foundation, and there are certain amounts that are in the family office. So I would say that’s probably one of our biggest problems.
If you get the founder of the family office, in particular, the founder is alive, and if the founder was an entrepreneur, we generally have a very easy sell because the founder likes the idea of young companies solving problems. It’s really just the structure of the family office that sometimes makes it very difficult.
Alan Olsen 9:25
Yeah, there was one of your experiences, I think early on, where you laid venture debt into the impact investing. You had a surprising return. I think your goal was a return, but can you tell the story about how that came about and what happened there with you doing good work?
Geoff Woolley 9:49
Yeah, I mean, one of the areas as I got into impact investing with Unitas and some of my partners—and by the way, this is certainly not just me; it’s a lot of great people that are faster and smarter than me—is that we concentrated on what was called microfinance in the world, which is a fairly large market, providing loans to the poorest, particularly women of the world. We had been working with microfinance to put people together with existing microfinance banks that have experience in banking.
To make a $500 loan to a person is easy enough, but to make it profitable, you have to do millions of these loans because of the volume. We came into the field seeing that most microfinance banks were started by very good-hearted people who really wanted to help people, but they didn’t know how to make millions of loans. They probably could do a few hundred, a few thousand.
Combining the two together, which in some people’s minds was heresy because you didn’t want to bring bankers into a good cause, we said, well, bankers actually know how to run banks, and many of them are very good people. By combining the two, we needed to grow these banks. Many of the banks that we supported grew from 50,000 loans to five to ten million loans. The assets under management, or the assets lent out, turned into billions of dollars.
We then had to start to raise equity for these banks because before, they were nonprofits.
When we raised equity, to make a long story short, nobody had ever exited a microfinance bank. As I went out to raise equity for some of them, we just said, really, nobody’s ever made money doing this. So I said to many of the close friends of the organization I was with, Unitas and Patamar, we think this will work. I’m not sure how we’re going to get an exit. Of course, in my world in private equity, if somebody can’t tell you how they’re going to get an exit, it’s probably not a very good investment to make.
I just said, well, it’s going to help people a lot, and hopefully, we can get an exit. Fast forward, microfinance kind of took off in India between 2003 and 2010. The interest in the banks grew greatly. All of a sudden, a lot of venture capitalists were interested, a lot of other private equity people. One of the first companies that we backed went public for almost $2 billion. We had gone in at a valuation of $4 million. Five years later, there is an exit for us in a public offering.
We then returned multiples on the original money to our investors. The investors were a little surprised because they thought they had maybe actually done a nonprofit investment.
Later on, what I said out of this, Alan, was that if you’re going to change the world, you have to have some risk. Anybody who says, “Oh, we’re going to be able to change the world, but we’re going to promise you a 3% return,” which is oftentimes what people say in the impact field, well, you know that if they’re really going to give you that rate of return, it’s probably not because they’re taking risk. The only people who return 3% are government bonds.
Just like any venture portfolio, if we go out and back entrepreneurs, and they can grow and be successfully exited, the return is not related to the impact; the return is related to how good these companies do. I completely reject the idea that impact investing has to be a quote-unquote subsidized asset class. It doesn’t, because our returns have been probably better than most of my venture firms have done over a period of years.
Sorry for the long background of that, but that’s really our position in impact, which is there are good returns, but there’s also good that is actually done.
Alan Olsen 14:28
In evaluating an impact investment, which specific metrics are you about? Are you—
Geoff Woolley 14:35
I think that the way that Patamar does it—firms, I should also say, different firms approach it in different ways. We basically approach it first of all, is this a good idea? And what are the entrepreneurs like? Candidly, the first thing I learned in venture years ago was you invest in people, not ideas. So we look at the people and if we find someone we think will be successful, then we back them along with an idea that is focused on this market, which is the working poor.
From a due diligence side, if we think that the product will work or that the service is good, we then look at what the impact of that product would be on the people. In most cases, impact metrics, which is a big word people use all the time in impact investing, are really about how you measure this impact. We always emphasize that we should report on the impact, but we should also do it in a way that doesn’t create extra work for the entrepreneur.
I’ll give you an example. We once had a fishing company that was increasing the income of their average fisherman. Some academics at a large university challenged us to say, “Simply because the fishermen are making more money, are they spending it well?” I said, “Well, you’re basically doubting your own humankind, and I think we might be acting like Big Brother here.”
If we can get somebody to make more money, and you’re accusing them in some ways of saying, “Maybe the men are going to get drunk, and they’re not going to spend the money well,” we can’t have auditors going out to see what they do with their extra money. Candidly, I think it’s offensive to actually do that because the poor tend to be better cash managers than the wealthy. I’ve always trusted them.
So we would say, a good metric in this case is that the fishermen make more money. From that, hopefully, they get a better house, better education for their kids, better food supply, etc. To us, that is actually all that our investors generally want to know.
Alan Olsen 16:57
How do you go about balancing your financial return versus the social impact of the investment?
Geoff Woolley 17:06
Honestly, we don’t. We basically only invest in things that will have a large social impact. But we also have to take risks because the word “return” and “risk” are interchanged with each other, just like they would be in traditional venture. If you’re doing something new or you’re revolutionizing a current market by consolidating more suppliers, distributors, etc., you’re taking a large risk. If you take a large risk, you make a large change, which has a large impact.
Economically, you will generally have a much bigger return if you take risk and you’re successful. Of course, if you take risk and you’re not successful, then you’ll have a very poor return.
So I would always say once again that the return on impact should be no different than in venture capital. In some cases, we put it in a portfolio. We have a number of companies, 20-30 companies in the portfolio, and our hope is that two or three of them will do extremely well, and others probably won’t make it at all. But at the end of the day, that should still give us an average return. At Patamar and Unitas, we reject the idea that return and impact are necessarily interrelated.
We actually think that risk and return are interrelated. So we make sure to have a company that has big impact, but at the same time making sure that they’re taking a risk to change the world, rather than just putting out a low-yield bond or something like that.
Alan Olsen 18:45
What advice or strategies can you offer for building a successful career in impact investing?
Geoff Woolley 18:52
Well, impact investing has become very popular, particularly with young people today coming out of college. I’m actually very glad of that because it’s showing that people are not just looking to make the most money they can, but they’re looking for some social issues.
Very similar to venture capital, I believe that the best way to come into the industry is to get experience by being either an entrepreneur or working in an entrepreneurial company, or theoretically working in another investment firm, maybe doing the same type of work in a venture firm or buyouts.
Personally, I prefer to have people that work with me who have experience in different young emerging growth companies, because they then appreciate how difficult it is to raise and grow a company. Just like in your own business, Alan, I think that nobody knows all the difficulties that went behind to make you a success. The best way for me to then coach my people to make investments is for them to understand how difficult it is and how to make those coaching decisions.
So I would basically say it’s better to have them have some experience in real life and then come to us, rather than just start giving entrepreneurs lectures all the time without really having the risk on the line.
Alan Olsen 20:11
Well, Chester, it’s been a pleasure having you with us today on American Dreams. Best wishes to you and Patamar. If anyone’s interested in becoming part of the programs that you’re running or the venture paths, how would they go ahead and learn more about it?
Geoff Woolley 20:26
Yeah, go to our website at patamar.com or certainly just reach out to me directly and we’ll get you to the right people.
To view more content like this, click here to subscribe to our YouTube channel
And click here to receive our FREE Newsletter.
Thank You!
Transcript generated by software and may contain errors.
Geoff Woolley has over 30 years of experience in venture capital investing, managing more than $2 billion in investment capital. As the founder of successful venture funds in the United States, Europe, and Asia, Geoff is a trailblazer in the field. He is the Founding Partner of Dominion Ventures and European Venture Partners (now Kreos Capital), where he pioneered the concept of venture debt. Throughout his career, Geoff has invested debt and equity in over 400 companies, including high-profile names like Ciena, Coinstar, Hotmail, and Human Genome Science.
Geoff Woolley’s involvement in frontier market venture capital began in 2001 when he joined Unitus Labs as a board member. As Capital Markets Chair at Unitus Labs, he played a key role in launching the Unitus Equity Fund, the first commercially focused microfinance equity investment fund, and Unitus Capital, the first investment bank dedicated to social enterprises in Asia. Since its inception, Unitus Equity Fund and its successor, Elevar Equity, have raised nearly $168 million across three funds. Unitus Capital has facilitated over $1.6 billion in debt and equity financing for social enterprises.
In 2011, Geoff co-founded Patamar Capital (formerly Unitus Impact), a venture capital firm focused on improving economic opportunities for low-income communities in Asia. As Co-Founder and Partner at Patamar Capital, Geoff continues to drive impact investing in frontier markets.
Geoff Woolley also serves on the boards of MicroBenefits, Jana Care, and Kinara. He is a founding and current board member of SKS Microfinance, India’s largest microfinance bank, and Samhita Microfinance. Additionally, Geoff co-founded the University Venture Fund, the largest student-led venture fund in the United States, with $18.5 million in assets. He also launched the University Impact Fund, partnering university students with top-tier impact investing firms and social enterprises for hands-on investment experience.
Geoff holds a B.S. in Business Management from Brigham Young University and an MBA from the University of Utah.
Alan is managing partner at Greenstein, Rogoff, Olsen & Co., LLP, (GROCO) and is a respected leader in his field. He is also the radio show host to American Dreams. Alan’s CPA firm resides in the San Francisco Bay Area and serves some of the most influential Venture Capitalist in the world. GROCO’s affluent CPA core competency is advising High Net Worth individual clients in tax and financial strategies. Alan is a current member of the Stanford Institute for Economic Policy Research (S.I.E.P.R.) SIEPR’s goal is to improve long-term economic policy. Alan has more than 25 years of experience in public accounting and develops innovative financial strategies for business enterprises. Alan also serves on President Kim Clark’s BYU-Idaho Advancement council. (President Clark lead the Harvard Business School programs for 30 years prior to joining BYU-idaho. As a specialist in income tax, Alan frequently lectures and writes articles about tax issues for professional organizations and community groups. He also teaches accounting as a member of the adjunct faculty at Ohlone College.