Drawn directly from the methods, best practices and lessons learned during 65 years conducting the Unconventional Warfare[i] of U.S. Army Special Forces, Unconventional Investing is getting directly into violence and poverty repressed communities, identifying and developing local business leaders and matching them with the right business opportunity, innovation, resources, Capital and mentoring, thereby allowing for stable communities through the creation of financial assets and sustainable knowledge economy business ecosystems.
At its very most simple, Unconventional Investing is going local and going small!
Guiding Principles of Unconventional Investing
In the developed world, there is no shortage of Capital seeking investment opportunities, with roughly $121 billion now in dry powder in Venture Capital as of April 2017[ii] and as of September 2017[iii], $963 billion in dry powder in Private Equity as a whole. Nor, despite what investors, academics, governments and NGOs seem to believe, is there a shortage of quality innovations with real business and return potential[iv].
Increasingly at issue however, despite heavy investment in fostering innovation and entrepreneurship globally, is a sufficient steady volume of quality very early-stage investment opportunities and related investment deal flow. At the heart of this problem are three interrelated forces:
· Emphasis of early investors on 20X returns or greater denying many quality startups the Seed Capital required to go on and obtain needed VC funding[v];
· Rather than investing in talent and opportunity alone, regardless of background, investing almost solely in known individuals from the circles of the elites[vi]; and
· Depending on an endless stream of deal flow, seeking the path of least resistance in the form of either not funding, or funding and then casting aside any startup requiring any substantial involvement.
To date, the developed world’s response has been to broaden the net of potential early-stage investments, not by going outside the circles of the elites or seeking lower rates of return, but by looking for investments with 20X or greater return potential among elite circles globally[vii]. This trend could be seen as the inevitable next step in Globalization, an integration of global innovation capacity and investment Capital, bringing down traditional borders, and strengthening the global economy. And these efforts are to be applauded.
However, a gap is widening between those within elite circles globally, and those outside these circles. A gap already nearly insurmountable in many communities of the world. A gap related to the ability to participate in the wealth creation power of the knowledge economy. A gap leading to higher and higher levels of global instability and rising violence.
3 Lessons Learned in the Conduct of Unconventional Warfare
1. Economics over Infrastructure
- Infrastructure is NOT the prerequisite for economic systems to emerge and grow
- Business thinkers and leaders ARE the prerequisite for economic system emergence and growth
- Economic system profits ALONE allow for infrastructure development, improvement and sustainment
2. Private Sector over Government
- Business ecosystems are NOT developed by government or through government agency
- Private sector MUST create businesses and business ecosystems, government assists in protecting them
- Economic systems ONLY become defensible through entanglement with larger economic systems
3. Leadership over Education
- Education improves chances of, however, education is NOT an indicator of economic potential, leadership is
- Leadership IS everywhere, if insufficient economic system exists, then leadership pursues income from other than business
- Developing business leaders is the KEY to empowering communities to break the poverty and violence cycle
- Successful Business ecosystems ALONE develop sustainable infrastructure, good governance and security
- Sustainable infrastructure, good governance and security LEAD to higher levels of education, to better businesses, an expanded economic ecosystem and more infrastructure, better governance and security – THE VIRTUOUS CIRCLE
6 “Hard-learned” Principles of Unconventional Investing
Targeted investments – The investment industry did not begin, nor create the technology revolution and knowledge economy, employing the current model of sifting through thousands of business plans a month, relying on random emergence rather than targeted development. Early investors in technology, and those highly successful even today, seek out startups which address a specific market need the investor thoroughly understands and is seeking to address.
Leaders over innovators – With technology increasingly a commodity, no matter its sophistication, and with a vast and growing pool of innovations available globally, what needs to be sought out and developed today and into the future, is business leadership. Without the need to have originated the innovation or business opportunity itself or to develop necessary technologies, a large population of solid business leaders becomes available.
Outside the circle – While a very large volume of business leadership talent is made possible by reducing the need to have originated the innovation or business opportunity and the need to develop the technology, demographic trends alone dictate sourcing talent only from the children of elite circles will not be sufficient. This means getting outside elite circles, and built up cities to the children of non-elite circles and communities to source necessary leadership talent.
Customer and product – The new very early-stage investor model, a return to the original model, requires investors focus on identifying business opportunities and required solutions, on sourcing innovation and technology development, but more, on sourcing business leadership talent. In turn, while they need to truly understand their business in totality, these business leaders need to possess the capacity to deeply understand two things in great detail, their customer and the product their customer requires, and the evolution of both over time.
Serial investments – This return to the old way of purposeful investing means building companies that are no longer meant to create industries or to last for decades, a removal of the need to build unicorns. Instead, keeping pace with the just-in-time and gig economies, this means building companies with limited lifespans, which realize a solid, much more assured 3-5X return rather than the 20X or greater now sought. Which in turn, both opens up a vast array of quality investment opportunities and leads to highly skilled and proven business leaders available to go on to found 3-5 startups over a 20-year period, with each increasing in sophistication, leading to startups which do go on to 20X and greater returns.
Profit-sharing and M&A – While traditional Return models will still apply in rare cases, for the most part, new models will have to be employed which emphasize profit and loss sharing during the limited life of the company and liquidity events arising as result of the portfolio company having been acquired.
At Emerio we’ve developed an investment strategy and global platform, derived from 65 years of Unconventional Warfare, designed to conduct Unconventional Investing, to specifically address growing wealth disparity represented by current early-stage technology investing models. Our Unconventional Investing platform has been developed with an understanding it requires an integration of successful entrepreneurs, business and technology leaders and seasoned investors to guide very early-stage startup investments to success in any environment.
In violence and poverty repressed communities it requires these same leaders must possess skills, relationships and experience in identifying and developing local leaders, hard-earned experience gained from having worked directly in these same communities. What is required are MBA and PhD capable investors who can also win a bar fight[viii].
E.M. Burlingame: Founder Emerio Group and the Honos Foundation
Actively engaged, leveraging diverse experience and skills developed during more than 30 years in technology, entrepreneurship, startup investing and Special Operations to identify and develop the next generation of startup leaders globally.