Impact investment bank ClearlySo is driven by a firm belief in the power of business to deliver positive change in the world. That emanates from its chief executive Rodney Schwartz – who tells Julian Blake about his journey from ‘the dark side’ to enlightened impact investor.
For nine years, Schwartz has led ClearlySo, Europe’s leading ‘impact investment bank’ as chief executive. “The main thing that differentiates us from a normal investment bank,” he explains, “is that all our clients generate social, ethical or environmental impact. It’s a core part of what they do, not some little CSR thing off to the side.
“These companies are predominantly about generating impact – and building great business organisations at the same time. We find the money to help them do that, and that means anything from £300,000 to £50m.”
ClearlySo may not be your normal kind of investment bank – but Schwartz himself emerged very much from the investment banking mainstream.
A native New Yorker, Schwartz was born in Brooklyn “in an area that wasn’t and still isn’t trendy to immigrant parents who barely spoke English”. After school in Queens he went upstate to university then business school.
Schwartz spent eight years in Manhattan, the heart of the US financial world, working as an analyst at broker PaineWebber, before becoming MD and head of equities at Lehman Brothers, a name forever linked to the failures of the global financial system. Luckily for Schwartz, his time there predated the 2008 global crash the firm’s actions precipitated, by 14 years.
A move across to London saw him stay in investment banking at Paribas, where he spent four years before leaving the City proper in 1997. The briefest of flirts with politics followed as Schwartz stood (unsuccessfully) as a parliamentary candidate for the Lib Dems.
At that point Schwartz started on his own independent investment journey – setting up VC funding pioneer Catalyst. “A fintech investor before we even used the word fintech”, Catalyst’s online investments “had a very terrible time in the market”, he admits. That’s hardly surprising, given that Catalyst worked in the run-up to the dotcom crash of 2001.
“Very quickly I realised that it wasn’t what I wanted to be doing any more,” Schwartz recalls. “So I started adjusting what I call my journey from the dark side. That involved trying different things I had the luxury of being able to do because I had earned some money in the City.”
“I wanted to do something that generated some good,” he says. “The first thing I tried, given that I was running a VC firm, was raise an impact fund. It wasn’t called an impact fund – we didn’t have a name for it back then.”
After a failed attempt to partner with help-the-homeless newspaper The Big Issue, Schwartz took a short hop to become board chair at UK housing charity Shelter. That move would actually turn out to be something of a big leap towards where he is at ClearlySo today.
(Shelter turns out to be common ground for us both: I spent seven great campaigning years at the charity, editing ROOF magazine, though our paths never crossed).
It was not so much the charitable nature of Shelter that inspired his ClearlySo calling. It was the coincidence of chairing a 40-year-old charity alongside another much newer fundraising operation called JustGiving, which was not actually a charity at all.
JustGiving, a digital disrupter founded by Zarine Kharas and Anne-Marie Huby in 2001, would go on to become the UK’s best-known fundraising platform, with turnover far exceeding that of many of the big charities it backed. To date it has raised over £3bn for 26,000 good causes.
“JustGiving had only five or six people on its team at the time,” Schwartz recalls. Shelter, by contrast, had many more, and was also facing one of several tricky moments it has faced across its history.
“It was the contrast between how unimpactful and ungovernable Shelter was in my judgement, how frustrating an experience it was and how flawed I think the whole model was – and how inspiring and innovative and powerful JustGiving seemed set to become – that actually convinced me that I needed to form a company whose purpose was to create 100 JustGivings.”
“That’s how ClearlySo came about and that’s how I finally figured out what the hell to do with my life,” says Schwartz.
But it was the entire UK charity fundraising model that needed addressing in his view – and the arrival of digital made this only more apparent.
“Charities can’t really raise equity and sometimes you need to make investment. But charities spend so much money to raise money that they really can’t ever build a cash cushion to be able to invest for the future,” says Schwartz.
“Technology has been changing so many different fields and disrupting fields all across the industry that sometimes charities that have operating models that are very hard to change in any kind of rapid way get overtaken.
The contrast between the two approaches is not just important for Schwartz: it gets to an issue at the very heart of technology for good.
You don’t have to be a charity to do good, and being a non-profit is no guarantee that you will deliver the best for the people you’re trying to help. With technology as the engine, charities and businesses alike can deliver better public good.
Yet the announcement last month of a £95m acquisition of JustGiving by US buyers does highlight another contrast: Shelter could never be acquired by US dollars. Though JustGiving says the move will help UK giving, the sale reminds us that a private business is still subject to the uncertainties of the marketplace in ways that Shelter never will be.
For Schwartz, the contrast between the charity and the business model is critical, and informs the thinking of ClearlySo overall. “Sometimes the discipline of running a business as opposed to a charity just keeps you sharp,” he argues. “There are some activities where I would argue that the business model is actually more impactful in a social sense.
“I sometimes think charities take their beneficiaries for granted as if ‘well we are doing them a favour so they have to take our services’. It’s true but it’s the wrong attitude.”
In his own experience, “sometimes really successful impact businesses actually can have both a wealth-creating effect and a very impactful societal effect. The best example of that is the Body Shop, he says.
“They created from a small investment to create a company they eventually sold for £650m. More importantly [co-founder] Anita Roddick completely changed the way people thought about product consumption. And because they were successful they also had more impact.”
Schwartz’s room at ClearlySo, ceiling-high with books, is more library than office. His wisdom is valued on platforms and boards; he advises social enterprises, is a visiting lecturer at Oxford’s Saïd Business School and has served on the boards at the Ethical Property Company, The Green Thing and the UK Social Investment Forum. And he writes regularly for the business press.
Schwartz is convinced that, after nearly 10 years in business, ClearlySo is an organisation whose time has come – because the markets have a bigger appetite than ever before.
“Impact investment is growing fast,” he says. “It’s now estimated to be $117bn worldwide. That sounds like a big number, but the pool of managed assets worldwide is $150trn – so it’s less than 0.1% of global assets. The way we approach things is about reaching out to that other 99.9% and getting them to think about impact for all their investments.”
“That’s what marks us out,” he says. “Our approach is ‘how do we get the most money into this and how do we get the whole capitalist system thinking about impact’.’’
So how then, does ClearlySo do this? After all, investors are a steely bunch. “We talk to people in a language they are comfortable with,” says Schwartz. “You don’t wave your finger at them and tell them what they should do because they are evil capitalists. What you do is say ‘here are some really good investment opportunities, oh and by the way you’ll have a positive impact on the world if you invest in them.’
“It’s very easy to criticise investors and I have done a lot of it over the course of my career,” he continues. “There are some well-intentioned people, but they have to move at a pace that is comfortable and with guidelines that are consistent with the way those firms operate.”
But why would investors look at investing for impact over other more surefire kinds of return? For Schwartz, there’s a big assumption there to challenge. “If one thing was proved by the crash it’s that all those surefire things weren’t so surefire,” he says.
“The crash shook people up a bit and made them more aware of the fact that the way the financial system is operating wasn’t working really as well as we thought it was. And it gave people a mindfulness about impact and social implication of things that they were investing in.
He believes that talking about investors as if they’re one category is “very, very misleading. Like all of us as individuals, investors can be very idiosyncratic. There is no single class of investors.”
Schwartz believes there are three key reasons why investors are thinking much more about impact now.
One is that “the economics of the bad things that they generate for society are now starting to hit their P&L. That means that investors need to be attentive to those bad things”. Second, companies that do good things “have a halo around them” and (like the Body Shop) are being paid more for in the exit market.
And the third reason is that “their investors are starting to care either because they really care, or because they want to show they care, or they want to pretend they care. The people who are investing are starting to put pressure on private equity managers to demonstrate that they’re generating impact.”
Schwartz says this is one of the reasons why ClearlySo has developed its online Atlas product, to help firms understand the negative impact of their portfolios as companies, as well as their positive. “Every company has an impact: some good, some bad,” he says. “Being mindful of all of that is pretty important.”
(Atlas was recognised by judges at DigitalAgenda’s 2017 Impact Awards, not least for its potential to measure impact, both positive and negative.)
That’s a pretty compelling argument of the why. What about the how? What does ClearlySo do in practice to help? After all, it’s not a direct investor itself.
“The one thing I did not want to be was a bank,” concedes Schwartz, who says that when ClearlySo started it had no model, so tried a range of approaches, including crowdfunding, consulting and conferences.
“We talked to the enterprises that we tried to help, and what they all said was, can you just help us raise money? Helping people to raise money is a regulated activity. You have to have an FCA licence. We’re not a bank in the sense that we don’t make loans and we don’t make investments. We’re just a middle man little person.”
A range of investors have backed ClearlySo as a company – about 45 angel investors, and three institutional investors – Big Society Capital, Nesta and (since 2014) Octopus Investments.
“Although a lot of the buzz around ClearlySo is about our angel investment activity, 80% of the capital we raise is from institutions,” explains Schwartz. “We interact with over 1,200 institutions from all across Europe.”
Perhaps the easiest way to illustrate the ClearlySo effect is by example. One that Schwartz concedes he’s “quite emotionally attached to because it was our first”, is Ieso, (formerly Psychology Online), offering an online ‘talking therapy’ service. “We helped them secure an investment in 2012 of £97,500 and they have gone from strength to strength,” says Schwartz.
“How wonderful it is that there is a service that enables people to get mental health provision online at a lower cost and in a way may that for some people is much more comfortable,” he says.
A second investment, in Epona Clothing, illustrates the impact of the ClearlySo intervention beyond pure cash. “I remember the CEO saying how significant a role that investor played as chair of the company. He said that involvement was more significant than the money.”
Across its nine years in business, ClearlySo has done some 140 deals for 120 clients. Given its impact specialism, it’s unsurprising to see that its two biggest verticals are in health, where it’s completed 20 deals, and education, which has seen 15-20 deals. Renewable energy and ethical consumerism are also becoming more prevalent.
It’s the ClearlySo emphasis on tech-enabled business that looks especially interesting. Tech startups appeal to entrepreneurs and investors alike because of its low entry costs and potential for rapid scale.
“It doubly applies in the social impact field because we’re looking for cost-effective social evasion and disruption,” says Schwartz. “That’s why the overwhelming bulk of the companies that we’re involved are tech in one way or another.”
Since inception in 2008 to the end 2016, ClearlySo has been responsible for channeling almost £150m in investment, making it the largest player by far in this market. “It still feels, given my prior life, like an incredibly small sum of money,” says Schwartz.
There is little doubt overall, however, that the amounts being raised by ClearlySo have increased sharply. “This year we will have raised £60m,” he says. “In one year we’ll raise more than half of what we raised in the eight years to 2016.”
So the growth in impact investments through ClearlySo is impressive. So too is the rise in impact investing overall. However, that 0.1% figure keeps coming back, in terms of managed assets worldwide. How can the world of impact investing move more seriously into the mainstream, and what more can be done to bring in big business to embrace the impact agenda?
For Schwartz, this is a fundamental question. “The only way to get business to do anything is to prove it’s in their interest to do it. But the thing is big business is starting to believe it is in their interest to do this stuff.
“Marks & Spencer took a view a long time ago when it first formulated its Plan A campaign that it was in its interest to do this,’ he says. “Ten years ago they had Plan A phase one, and now they’re in the middle of Plan A phase four. Each time they learned that actually customers liked it, and staff liked it too.”
Yet still too often in the business world there remains a downside, with corporate social irresponsibility rearing its head again this year – not least from Silicon Valley tech giants once heralded as enlightened performers on the corporate stage.
“They’ve used their power to keep their money offshore, shift things around to minimise their tax obligations and have contracts with people that I think are indecent. That’s where the law needs to play a role,” says Schwartz.
Back to ClearlySo itself, in 2018, the company reaches its tenth anniversary. Where does Schwartz see the business and the wider impact economy in the following decade?
“We have a really exciting opportunity, he says. “The sector itself is £117bn. That is actually rather small, but it’s growing at 30-40% per year.
“We are operating across Europe, which is odd given the way things are going politically. But whereas we used to just talk to UK institutions now we increasingly talk to European institutions because they’re interested both in UK enterprises and UK funds. We will do many more deals, particularly much larger deals and probably a greater variety of deals, so we can enable more types of investors to participate in the impact investment sector.”
“In 10 years’ time we will have a thousand, and the assets that they manage will be incredibly large, and the impact that they can generate will be substantial because if they’re measuring something. If they care about impact that would benefit society.
In looking forward, Schwartz draws on his instinct to look on the bright side; that’s what has undoubtedly driven him at ClearlySo. “I’m often accused of being an optimist and it’s definitely true,’ he says. “I wouldn’t be doing this if I wasn’t.”
Rodney Schwartz – CV
Chief executive, ClearlySo
Chief executive, Catalyst Fund Management & Research
Parliamentary candidate, Welwyn Hatfield Liberal Democrats
Managing director and head of financial institutions, Paribas
Co-head of equities and managing director, Lehman Brothers
Equity research analyst, PaineWebber.
MBA, finance and applied economics, University of Rochester Simon Business School
BA, political science, University of Rochester.