Interview with our CEO
by The Edge Malaysia Weekly, 8 May 2016The following article first appeared in Personal Wealth, The Edge Malaysia Weekly, on April 25 - May 1, 2016.
Impact investing, which combines the best of traditional investing and philanthropy, has been around for more than a decade but investors are still not familiar with it. Asia Community Ventures CEO and co-founder P. Ming Wong hopes to change the situation.
by Pathma Subramaniam
In 2009, a wealthy client’s complaint that her regular investments were not giving her the financial and social gratification she yearned for made then banker P. Ming Wong ponder how he could make a difference. As the financial markets were still reeling from the global financial crisis at the time, Wong was surprised that the matriarch was unhappy her bankers could not advise her on how to maximise both her social and financial returns. “This lady, who was in her late forties at the time, also told me that she wanted to give away all her money in her lifetime. Her genuineness convinced me that she truly cared about making a difference with her inheritance and our conversation eventually led to an advisory assignment where I helped to transition her traditional investment portfolio into one of impact investing to achieve both social and financial returns,” he says. This incident prompted Wong, who is now based in Hong Kong, to set aside a portion of his own portfolio to invest in social start-ups with a keen focus on technology.
When he was a banker, Wong was involved in the trading room, marketing and structuring derivatives and other risk management products. He also dabbled in investment banking, advising clients on the capital markets. Besides that, he has worked with hedge funds, financial sponsors and private equity funds. In 2010, together with a group of like-minded people — who wanted to align their investments with their values — Wong mooted Asia Community Ventures (ACV). The idea behind the Hong Kong-based not-for-profit organisation was to promote collaboration among key players in the social ecosystem in order to catalyse ideas and capital for a sustainable society. “Our mission is to promote impact investing as a tool to address social issues, which means that the underlying fundamental belief is that charity alone is insufficient,” explains Wong, who is the organisation’s CEO and co-founder.
“Grant organisations have been giving away money for decades but this has not helped address social problems. It has not fundamentally changed the status quo and in some cases, it has actually had severe and negative consequences because it encourages people to rely on aid as a crutch. “Impact investing is really about empowering a community to work together to solve things, engaging businesses as a powerful force and bringing them in to work on issues together. You no longer only rely on money from charities and government aid to fix issues.” Through ACV, Wong and his team hope to create an ecosystem and to get the Hong Kong government to be a part of it. “We feel that the government has a powerful role to play in creating the ecosystem to support impact investors.
“The second area of focus is start-up founders or entrepreneurs. We are concentrating on local start-ups that have a technology background because we think that if you are going to spend your time addressing an issue, you’d want it to be scalable. “A less scalable business is like a social enterprise, say, a restaurant that hires elderly people. While this act contributes to self-worth, dignity and so forth, it is also very difficult to scale. Similarly, set-ups for people who come out of drug rehabilitation programmes [face the same challenge],” says Wong. Impact investing has been around for more than a decade but traditional investors have been hesitant to hop on the bandwagon because of concerns over side effects — slow or low returns and high risk. As far as trends go, statistics released by Google show that impact investing has overtaken angel investing when it comes to search volume. But impact investing should not be confused with socially responsible investing (SRI) as the latter simply means keeping investment dollars from certain companies, like tobacco growers.
“Impact investing combines the best of traditional investing and philanthropy, namely financial rigour and business best practice with solving social and environmental issues based on clearly identifiable metrics, both measurable and accountable. “Impact investing is about positive screens. You invest in companies and founders that aim to solve specific social problems,” says Wong.
Wong’s investments are primarily in Hong Kong. “These investments are very time-consuming and you have to get to know the company, the founders but more importantly, you have to engage with them (personally). It doesn’t stop at writing them a cheque and waiting for them to issue me a report every three months. “After I write that cheque, I continue to be in touch on a regular basis or whenever necessary to work together to help the companies meet their targets, so the engagement is very high,” he points out. Through the engagements, start-ups that he invests in also benefit from the long list of contacts and networks he has compiled over two decades as a banker. “If I buy a share or put money in a socially responsible fund, it still invests in listed equities. I can’t call HSBC or any petroleum giant and give them my views on what they should or should not do. My little bit of money is irrelevant to them. “But if I invest a small amount — HK$20,000 or US$50,000 — it is very significant to a start-up. That’s the sort of engagement that a lot of families, and particularly the millennial generation, care about. It is not just about making money but also about making a difference,” says Wong.
Over the last four years, he has invested in four social start-ups. One of them is Playto (HK) Ltd, a startup that has created a sophisticated gaming technology to chiefly improve the lives of children with attention-deficit/hyperactivity disorder (ADHD). This brain disorder is most commonly treated with medication like Ritalin, which results in a loss of appetite, nervousness and sleeplessness. Behavioural therapy is arduous and requires long-term commitment while clinical neurofeedback is expensive — often beyond the means of the masses. A technology like Playto’s is comparatively inexpensive, says Wong. “The question this company chooses to ask is, is there a way we could address ADHD in an unconventional manner instead of just feeding children drugs that have dangerous side-effects? “Now, what do children with ADHD like to do? They have concentration issues but then they are still children and, like their peers, they love to play video games. Playto has designed a game that can be played on an iPad or an android device. You basically wear a headset that measures your neuro activity and then you fly a plane, for example, and if you are not focusing, the plane doesn’t fly and it eventually runs out fuel. But if you are focusing, it will fly well and you can navigate an obstacle course and finish the game. This is just one of the games.
“It is a perfect example of technology applied in a fun way to help solve a social issue. And the thing is, it makes money. For the price of maybe US$200 — for the game and headset — it involves many levels and many other games, just like your regular Xbox. That’s the cost of one or two visits to a doctor. “This is an example of a technology start-up that is applying its skill set to really address an important social issue but the key thing here is, it is also financially sustainable. It makes money. Playto has just been launched in Hong Kong and I think it’s going to be launched in the US, which is a much bigger market, soon,” explains Wong. Playto’s mission and impact matrixes are built into its DNA, enabling parents to monitor their child’s performance, which, in turn, enables the company to benefit from the data amassed and improve its processes. “By word of mouth or otherwise, the company keeps growing and you know that the game is working. Schools and clinicians are also adopting and recommending it. So, when we invest in a company like this, the data measurement is the core of the future success of the company.
“So, you don’t have to come up with an extraneous or onerous set of impact measures just to make the funders happy,” Wong points out. This is where his approach to impact investing is different because charities and foundations require lengthy reports, which normally take up a lot of time. The other start-ups Wong has invested in are One Earth Designs, which has developed a solar storage technology and invented zero-emission solar cookers; Insight Robotics, which uses drones to detect forest fires; and Cerplus, an online marketplace for surplus produce to reduce wastage, which operates out of the San Francisco Bay Area. Their niche is the reason he has invested in the four companies. In fact, Wong’s benchmarks for what qualifies as an impact investment are high. “It’s not just about investing for the sake of it. We want to find a really good company, which is why ACV has also set up incubator and accelerator programmes,” he says.
For Wong and ACV, the impact assessment of a social enterprise is secondary as he says this may disrupt a start-up’s focus on growing the business it has started. “This is where we are little bit different in our approach than a lot of other larger foundations and funds. Because before we make an investment, one of the first questions we ask is, what problems are you trying to solve?”
Three lessons Wong has learnt
- Do not expect quick results. Impact investing is not called “patient investing” for nothing. It is important to work with founders who are passionate about solving particular social issues and willing to dedicate years of their lives to achieving those goals.
- Since my focus is investing in social start-ups with a technology angle, the risks are the same as investing in regular technology start-ups. Management is key. The right people can pivot confidently when the business model needs to be tweaked, which is almost always required at some point.
- Be clear in your mind why you want to pursue impact investing. Is it primarily to make money while addressing bottom-of-the-pyramid problems that no one else is working on? Is it to use business models to solve our society’s most intractable problems where governments and non-government organisations have failed? Is it an extension of your philanthropy where financial returns are not so important? Once you know what it is you are trying to achieve, the rest will follow.