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Funding systems change in aging
LF24 | Investing in startups alone will not deliver a transformational response to the 'wicked' problem of aging societies. We need 'systems investing'.
“The wicked problems of the 21st century call for a radically new approach to investing—one that pursues systems transformation, deploys capital with a broader intent and mindset, is anchored in different methodologies, structures, capabilities, and decision-making frameworks, and moves away from a project-by-project mentality to a strategic blending paradigm.” - The TransCap Initiative
More money, less progress
There’s an increasing amount of capital and funds available supporting innovators in healthy aging, with new funds being announced regularly. However, despite a handful of impressive startups (that would need to be scaled 100x to make a difference), we’re not delivering systems change at scale. In fact, most of what has sparked people’s imagination and could help usher in a new model for aging are TV shows, movies and non-profits.
The need for mindsets and memes: learning from sustainability
This highlights the importance of narrative, mindsets and memes in systems change. Decades ago, Donella Meadows (an influential thinker in systems change and one of the coordinators of The Limits To Growth) showed the most effective way to change a system was by changing paradigms (where Hollywood lives) and the least effective was changing ‘parameters’ (i.e. where most ‘innovation’ lives).
The first alarm bells around the climate crisis were sounded in the 1970s, and Al Gore’s Inconvenient Truth came out seventeen years ago. Yet it’s only in the last few years that the movement has garnered mainstream popular support. Extreme weather conditions, an outraged Swedish child and Britain’s favourite pensioner have done more than countless worthy speeches or expert roundtables. Aging hasn’t had to deal with the same level of cynical progaganda and manipulation that sows doubt and slows change. But the stories of medical industry mealfeasance suggests some at least knowingly benefit from global frailty.
This note draws on those ideas that mostly live in the sustainability world and looks to apply them to aging. Highlighting the the S in ESG, if you like. If change happens now via Tik Tok
Aging: a not-very-surprising, very complex problem
The growing aging of our populations is probably the most predictable macro trend there is. It’s no surprise, yet we’re doing a poor job of preparing for it. Asia is doing it best, yet yesterday’s New York Times shared how Japan is struggling with ever fewer workers. Europe and the US are aging fast, so we can and should learn, but we don’t. Other complications arise when policies, pensions, workplaces, cities, health systems, financial services, housing and transport are not matched to the citizens. The caregiving crisis, dementia, isolation, palliative care, inequality, isolation and ageism are just a selection of the cornucopia of wicked problems innovators need to work on.
A couple of case studies bring systems change to life
The Wolves of Yellowstone Park and the power of tipping points
Wolves had been eradicated in Yellowstone Park since the early 20th century, and as a result the population of deers - with no predators - got out of control, leading to deforestation, over-feeding and landscape erosion. In 1995 a number of wolves were introduced. This had multiple impacts, not only directly reducing the number of deer, but changing their movements, so they avoided whole sections of the park. This allowed new ecosystems to form, and perhaps most interestingly the regenerating forests stabilized rivers and reduced soil erosion.
The Pill and the transformative power of movements
The contraceptive pill, invented in 1960 was one of the most significant advances of the 20th century, giving women control over their own bodies. An enlightening summary of the history of its development shows how rather than linear corporate innovation, its success was the unlikely combination of breakthrough technology, a pioneering feminist, an unconventional scientist, a female investor and a staunch Catholic doctor. The note suggests that ‘movements with missions make markets’ by: making a mission societal priority; organising knowledge and ideas; stimulating demand and connecting stakeholders.
Principles of systems change
These examples show the rules by which we operate - that life is deterministic, predictable and linear - are often not relevant. We need theory for how the world works. Donella Meadows again:
“The world is a complex, interconnected, finite, ecological-social-psychological-economic system. We treat it as if it were not, as if it were divisible, separable, simple, and infinite. Our persistent, intractable global problems arise directly from this mismatch.”
— Donella Meadows, 2010
A better way for conceiving how our aging society operates could be.
Fractal: Systems change is made up of a multitude of small projects that scale up to big projects.
Narratives: Storytelling and data are used to share successes (and failures) of what works and what gets propagated.
Emergence: The form of the solution is iterative and evolves, via simple rules (e.g. those that dictate a starling’s murmuration) and tipping points.
Relationships: How things connect with each other is key. We’re not looking at the system, we’re part of the system.
Mariana Mazzucato in her books the Entrepreneurial State and Mission Economy suggests an innovation framework for delivering missions, drawing on the original ‘moonshot’, the US Apollo Space program. This galvanized billions of dollars of private and public sector benefits, and the benefits are felt to this day.
She describes a structure to deliver on Challenges: identifying a Mission, which takes place among certain Sectors and that in turn is made up on a number of Projects:
Her approach influenced the €100bn Horizon Europe investment plan, but alas there’s not a single mention or ageing, caregiving or dementia in the 173 page report covering 5 missions and thousands of minions. Not only in my reading is aging missing, but so too is an answer for how this will be funded.
Show me the money
When JFK announced the bold mission to put a man on the moon and bring him back, he wasn’t doing some ROI calculations on the back of a napkin before popping in to see the manager at his local Bank of America. He was opening the government money-printing machine. Similarly, Europe has €100bn to spend on five missions. Having spent the past decade bootstrapping Aging2.0 with a peppercorn budget, I can’t imagine what it’s like to have €20 billion to address the problem. But I’d like to.
Systems investing - bringing in finance
Systems investing is a loose term with different interpretions, but for the sake of this post I’ll define it like this:
“Systems investing engages the financial sector to fund outcomes-driven collaborative impact projects with the intent to deliver deep and lasting positive economic, technological, societal impacts”.
So, unpacking this:
The “financial sector” refers to the entire capital stack, from individual investors and crypto punters, philanthropists, high net worth financial investors, non-profits, foundations, impact investors, venture investors and pension funds.
“Funding outcomes driven collaborative impact projects” could be small scale - such as a university research project to a significant capital allocation to a late stage startup as part of a more mature collaborative. These collaboratives are outcomes-driven - i.e. they are designed to validate a hypothesis, and capture data along the way. But that outcome could be anything needed to unlock barriers - technology breakthroughs and startups for sure, but also new policy measures, coalitions to build interoperability and standards or behaviour change.
And finally, this capital is invested with the explicit “intent” to deliver positive systems change - as a primary goal to enact changes in the real economy, not real effect as a byproduct of a successful financial outcome.
Compared to venture and impact investing
Below is a comparison of how I understand systems investing, according to the above definition, and how it compares to venture investing and impact investing:
The goal of systems investing is specifically to change the system, which is defined in a way that there are logical systems boundaries, relating to the “job to be done”. So for example better nutrition for those living with dementia could be a system, based on the fractal principle, that could also ‘caregiving dementia patients’ or broader still, ‘keeping people in their homes longer’. Venture investors are looking for significant financial returns (to balance out the other duds in the portfolio), while impact investors may also have explicit goals around non-financial metrics, but they’re usually measurable metrics. Systems investors explicitly target non-financial returns, but worry less about its measurability.
Systems Investing involves explicitly recognizes there are multiple stakeholders involved with changing systems. The finance world generally focuses on the ‘market’ and views externalities as something that you pay taxes to make go away. Impact investors generally also look at those impacted by externalities and seek to accentuate the positive and reduce the negative.
Capital & Asset
Venture and Impact firms generally operate at single stage (especially in the aging space), though some larger firms invest from seed stage through to late stage. They cater to companies - one at a time. Systems Investors cater to Ideas, and have a goal to grow them into collaborative systems change efforts. A crucial difference of Systems Investors is they’re supporting a bundle - a strategic portfolio - of products and services that together delivers on the identified mission. Individual companies should succeed, and could also be taken to IPO via this process.
Systems Investing looks outwards - it starts with mapping the world as it is today, and what it could be like tomorrow, and looks at transition paths to get there, and where those paths get stuck. The interventions are focused on collaborative efforts to remove roadblocks and barriers that prevent a new reality from forming. When success (or failure) is realized at the local level the effort acts to amplify awareness of the effort, to accelerate (or avoid) similar initiatives happening elsewhere. The process builds up a theory of change which can then be tested.
While these experiments will likely be small scale, hands-on consulting projects to start with, over time there’s no reason why a more hands off approach couldn’t be used - using the collective intelligence of the network to develop novel solutions to the challenges that have been articulated. Haier has become one of the leading appliance makers in the world with a novel decentralized, ecosystem approach and DAOs and Web3 are designed to facilitate trusted, transparent projects by strangers working to deliver outcomes, paid by tokens or bounties.
Venture and Impact is episodic. They focus primarily on the companies, supporting them with capital and advice in discrete funding rounds. They often provide a range of services to their portfolio companies - strategy, introductions, hiring or whatever the startups need to succeed. Some have made servicing their portfolio companies an art form, e.g. A16Z’s army of service providers or First Round’s worldclass Review newsletter that shine a light on their portfolio.
Modern portfolio theory, the bedrock of modern finance, suggests a balanced portfolio designed to balance risks - with the goal of maximizing overall financial returns for the minimal amount of risk. When venture firms have a portfolio they’re often looking to minimize risk, not maximize impact. Impact investors would likely be open to adding ‘at a maximum level of impact’ to their risk / reward considerations, but single asset holdings are not designed to do this, so any complimentarity in their portfolio is likely to be weak or coincidental.
Systems Investors on the other hand would explicitly invest for ‘combinatorial scale efficiencies’ to maximize the impact. So in the case of transforming the system of “better nutrition for dementia patients” could invest in services and technologies all along the ‘supply chain’ of that solution - supporting food delivery companies, cutlery designed for people with dementia, personalized nutrition testing and biomarkers, alternative proteins designed for people with dementia, smell techonlogies that stimulate hunger, reduction of local food deserts and policy changes to make food and nutrition reimbursable by Medicaid, as examples.
A16Z, Khosla, Bessemer and TechStars are among the most prolific generalist investors who invest in agetech, while focused firms such as 1843 Capital, Primetime Partners and Pivotal have an explicit mission towards aging and / or care. There aren’t any aging-focused systems investors that I’m aware of - most of the advanced thinking around this comes from the sustainability movement, with inspiring framing work done by Transformation Capital, significant funds being deployed by Just Climate (from Al Gore’s Generation Investment Management) and Bill Gates’ Breakthrough Energy.
Questions to explore
This is a young, still forming area and more work is needed, in particular:
MVP. What would a minimum viable pilot of this concept look like, and what would it need to do to validate this approach? How does one test an ecosystem?
Legal structure. Which of today’s existing legal entity / entities is best suited to deliver this, given it has elements of consulting, network, non-profit and a fund?
Blended capital. What are good examples of different capital providers operating together (seems that Convergence is doing interesting work)?
Collaboration. How to enable different stakeholders to easily communicate and coordinate around missions above the level of individual organizations?
Timescale. How do we ensure stakeholders focus on the long term, when they’re rewarded for the short term?
Incentives & rewards. How dowe ensure that the visionaries and catalyzers are motivated and rewarded when ROI is system change not profit?
Attribution. How do you ensure that your interventions were responsible for the overall improvement of a system?
Ownership. Who owns what in a system, and what is the role of government, as systems innovator of the last resort?
Complexity. How do you reduce complexity of what is by definition a complex, whole-system approach?
Platforms. How could one enable open, combinatorial platforms that don’t generate massive lock-ins and switching costs?
Blockchain and Web3. Web3 is all about memes. What role could distributed technologies play in connecting transparently and securely capturing impact?
Call to action and final note
I’d be interested in talking with the following - reach out if this resonates:
Startups and research projects who could act as ‘visible attractors’, pioneering new approaches then sharing their experiences more broadly.
Researchers who are building impact taxonomies in healthy aging, identifying leverage points for maximum impact and developing theories of change.
Data scientists who are interested in identifying and capturing the data of these leverage points and can track progress of a system to deliver its mission.
Technologists who are interested in building an open platform/s to allow collaboration and visibility in and between systems.
Story tellers and social media gurus who want to help connect the dots between micro projects and the macro missions.
Impact investors, in particular those tired of the single asset model and realize it’s not delivering transformative results, and may be interested to test a blended capital stack.
Government policy makers looking to do things differently with a collaborative, public-private sector model.
High net worth investors who have a vested interest in delivering results and are open to exploring new models for investment.
Australian policy makers and investors given that am based here currently. The Lucky Country could be a ‘Goldilocks’ testbed at the right scale. It has fairly efficient Federal and State governments as well as the growing interest in Antipodean test beds for the US market.
My next steps are to sharpen this into a clear proposal and start to engage a few foundational projects that can demonstrate the opportunity to scale.