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We’ve got you covered with our monthly Marks on the Markets series on the podcast.
This week, Finny Kurruvilla from Eventide Asset Management joins us to talk about public equities with a specific focus on biotech and healthcare.

Episode Transcript

John Coleman: Welcome back to the Faith Driven Investor podcast. This is John Coleman and this is our monthly marks on the Market series where we talk to experts in investing. Coming from a Christian perspective who can comment on current events in markets today, we have a very, very special episode and a very special guest. Finny Kuruvilla is with us today. Finny is the co chief investment officer and founding member of Eventide Asset Management with a couple of partners with whom he founded the firm. Eventide is a long standing member of the faith driven investing community, although they do a variety of different investments in both private and public markets, Finny has more degrees than I could possibly capture here, including MDs, PhDs and master’s degrees from a variety of awesome institutions like Harvard Medical School, Harvard University, MIT and Caltech. And he’s a leader in health care investing as well as broader investing. Finny, thanks so much for being on today.

Finny Kuruvilla: Great to be with you, John.

John Coleman: Well, I want to leap right in. We’ll get a chance to dig into more of your background later. But everybody’s been kind of whipsawed by markets over the last year. It’s been a pretty volatile time in markets, and I don’t think that health care investing has been any different. What is the latest? What’s the current state of the markets in health care investing now?

Finny Kuruvilla: Yeah, you’re right, John. It has been very challenging for markets broadly and in general. One of the things we’ve seen is that more interest rate sensitive domains in the market have been especially hit hard. So that tends to be domains that have growth farther out. So more high innovation, high financing type industries have been punished. And so that definitely includes aspects of health care. So one set of health care companies that has been especially hit hard is biotechnology companies. So they tend to be long duration. So most of the value is and many years from now, they also have high capital needs in terms of financing. So they often have to go to the market to raise more money given that they’re usually not profitable. So those have been challenged. There have been some bright spots in the middle of all of the difficulties. So in general, one of the things that we’ve seen is that cash flow positive companies have done relatively well. And so, for example, a lot of small medtech companies have done exceptionally well. This has been a great year for M&A. We can talk more about that. So we’ve seen a lot of companies appreciate on the back of very robust M&A from the larger companies. And then we’ve also seen domains like cancer screening do really well, Alzheimer’s disease, which has been something that has become a passion project for us here, has been another area of significant growth. So there has been some bright spots in the midst of what’s been a challenging market. And overall, we think that the long term drivers are positioned really, really well for health care. And so we continue to be excited about the space.

John Coleman: When you mentioned the duration of biotech investments and especially innovative health care companies that require a lot of capital and how they’ve been sensitive to markets recently, particularly, I imagine, interest rates and just the M&A markets having previously dried up. I’m interested to get into that. If you were to take a look today, do you think the air has been let out of those markets so far from a macro perspective, or do you actually think the macro environment still has more room for these securities to decline?

Finny Kuruvilla: Yeah. So generally speaking, those companies have had the stuffing knocked out of them to the point where they’re priced at very low valuations. And the typical company and especially in the biotech side, has declined somewhere in the 50 to 80% range. So it’s taking a very significant hit and that began a little bit more than two years ago when we’ll talk about this probably later. But when some of the covid enthusiasm went away, there are a few areas where some companies still look a little expensive. But I would say, broadly speaking, the industry looks very cheap. And if you use long term measures of is the industry expensive or is it fairly valued? It certainly looks fairly valued. One of the things that’s challenging in our space is how do you value companies where you can’t use price to earnings or price to free cash flow or EBITDA, but are some of the more classic measures of valuation given that most of them are not profitable? And so you can use measures instead like enterprise value divided by cash on the books. So that’s a measure of roughly how much enthusiasm there is in the space. And of course, you have to look at burn rates as well to make sure that you’ve normalized there. But on those measures, for example, last summer was actually an all time low in the space in terms of valuation. It’s gotten a little bit better since last summer. But on the whole, I would say that the companies are valued quite inexpensively.

John Coleman: And you touched on this previously. Look, I think most of us have the perspective that health care has pretty good fundamentals. Right now, broadly speaking, in the sense that it’s a greater proportion of us spend, at least internationally. It is. If you think about biotech and if you think about some of the areas in health care in which you’re focused, obviously markets have disconnected, but have you seen any change in the fundamental forward outlook for the companies themselves or for the industry? Or is that still universally positive as health care continues to increase?

Finny Kuruvilla: Yeah, in general, it’s gotten quite a bit stronger for these companies. So I’ll give you a few examples of what are the leading indicators of health for these companies. So the first is the demographics of the population. So one of the things that I think most of us know is that as you get older, you tend to use a lot more health care and those last 1 to 2 decades of your life use a lot more health care than you’ve used in the earlier younger portions of your life. And I think as almost everyone is aware, the world is getting a lot older where a lot more of a gray haired society. Last year was the first year in history that China’s population actually declined. Even in Western Europe, Japan. We’re seeing tremendous shifts in demographic structure there. So that bodes very favorably for the industry and that is likely to continue for years, decades to come. That’s number one. Number two is there has been tremendous technology innovations that have occurred in the last few years. I was a practicing physician up until roughly 2006 or so. And I look back at how we were treating patients, particularly with some of the diseases that we used to see, and it almost looks primitive. Just 20 years ago, what we were doing compared to what’s happening today, I mean, if you had told me in 2023, these are some of the therapies and how they’re going to be used, I would have said, sounds a little sci fi to me, but it’s happened and the pace of technological improvement has been just astounding. So just to give you a little bit of a flavor for this, when the human genome was first sequenced in roughly the year 2001, it cost about $3 billion to sequence that first individual, and it took roughly 12 years. So $3 billion in 12 years. Today, you can do that for less than $1,000 and it takes less than a day. So the costs have shrunk from 3 billion to less than a thousand. And then what used to take 12 years. Now it takes less than a day. And that pace of innovation far surpasses even what, for example, we’ve seen with Moore’s Law and semiconductors and computers getting faster and being able to have more memory on board. And that kind of just incredible gain in technology and then knowledge in terms of what are the parts of our genome that are responsible for health or disease. We have grown literally exponentially in the last 20 years or so, and most of those discoveries have yet to make their way into medicine. So there’s a lag of at least ten years or so between when someone comes up with a good idea before when it’s actually used in human populations. And so this kind of technological improvement is just incredible. And we are we’re right on the cusp of what promises to be a very exciting century of innovation. I sometimes say that we humanity in the year 2100, so most of us sadly will be dead and gone. But our grandchildren in the year 2100 will look at us today in terms of our health care, similar to how we look at cavemen who are using leeches and spears to slash their bodies for health care. Right. That’s going to be the degree of of improvement that happens in this century because we still, you know, even very basic questions like, you know, how does memory get made and stored? What is really the sustenance and the genesis of cancer? How do we really understand autoimmune disease? You know, we still don’t really understand at a deep level what causes those disease. And so we’re in this place now of how can we take these little seeds of insight that we’re getting from these genome studies into being real actionable therapies that can be useful in human populations. And so it takes time to develop that. And that’s going to be what happens over the decades to come. And so that shift to these more high tech type therapies using some of these insights from the genome technologies is what’s to come. And that’s only going to be accelerated. By, for example, AI which if we have time, we can talk about some of that. But another tremendous tailwind that the space has is we have more and more economies coming online that have the ability to access modern health care. And so you look at India, for example, that is slowly but surely starting to become more of a modern economy with access to something like what we have in the US. I mean, we’re talking about, you know, 1.4 billion people coming online. This doesn’t even count. For example, countries like Africa, a lot of Latin America that still really doesn’t have access to the kind of health care that we do in North America. And so that’s another tailwind now where we’re talking about massive populations. They’re going to be coming online in future decades. And then you layer on the fact that the diseases of, let’s call them addiction. And so this includes obesity. So, so much of obesity is really an addiction related problem. Tobacco of mental health, which is often tied in to a lot of issues of technology, loneliness, social media. Yeah, very profound structural reasons for that. These are going to be the kinds of diseases that biotech can at least partially address, maybe not fully address, but at least partially address. So we have a lot of reasons to be optimistic about some of these tailwinds that we have going into the century.

John Coleman: Well, just a small caveat, and then I want to pick up maybe with some examples. Going back to the areas that you’re most excited about that are near commercialization, those that you’re actually keeping an eye on. But I’m not a physician, but one of my children has a rare genetic disorder that only about 1600 people in the world have her family of disorder that they’ve actually sorted out now, that they can study genes. And only two people that we’ve discovered have her exact gene disorder. And what’s amazing to me is both the progress we’ve made to be able to even diagnose a thing like that, which wasn’t possible a handful of years ago, but also the progress we need to make to understand how to treat it or how to deal with these different disorders that aren’t well studied or don’t have a clear path. And so it is that dichotomy of just remarkable progress. But 100 years from now, you have to think our current approaches are going to look pretty primitive to whomever is practicing at that time. So many great threads to pick up on. But you had mentioned Alzheimer’s and cancer, for example, in your initial comments. And one of your themes here was the advances that are coming that people don’t even know about or that have lagged behind the research and are just coming to market. What are three or four areas that you’re keeping an eye on that you think are actually near to coming to market that are most exciting?

Finny Kuruvilla: Yeah, I would certainly include Alzheimer’s in that. So that is one that is just now coming to market like this year. And so I’m right now in Boston, Massachusetts. So just across the river, there’s a company called Biogen that got FDA approval for just last month, in fact, for the very first disease modifying treatment of Alzheimer’s disease. And so while in general, one of the sad but true facts of medicine is that a lot of what medications are doing is they’re addressing symptoms or manifestations of disease rather than the root cause. The root cause is often very difficult to address and sometimes technologically impossible. But one of the things that we have now just in the last six or nine months made progress and as a society is the root cause of Alzheimer’s disease. And so the way to think about Alzheimer’s is that in your brain, in an Alzheimer’s patient, what happens is there are these what are called plaques that are forms that just like you get a plaque on your tooth, you get a plaque in your brain, it’s a three dimensional ball. And this ball ends up killing the neurons that it touches. And if you go in under a microscope and take out this little ball and ask what’s inside of it, there’s two main proteins, two main components inside of that ball, and one of them is called a beta. And we’ve known this for decades and decades. This has been widely known. But how in the world you cleanse the brain from this? Well, somebody had a very clever idea. Which is to use our immune system to clear out these plaques from our brain. So our immune system, of course, we use all the time to fight off infections or to fight off cancer. Not a lot of people appreciate that. That’s a different story. But here somebody figured out, well, hey, why don’t we take an antibody? So an antibody you can think of, it looks like a Y. And the top part of the Y binds to it sticks to something that is dangerous, say, a virus or a bacteria. And when the top of that Y sticks to its target, it sends off a signal to the immune system saying, Hey, there’s something bad here, come and kill it or can’t clear it. And so these cells come in and they eat what’s at the tip of that Y, and they end up degrading it and thus getting rid of the infection. Well, somebody said, well, why don’t we develop an antibody against this, a beta, this component of these plaques, the chief component of this plaque, and then we’ll administer it to patients, give it to them in their veins, let the antibodies swim through the veins, go into the blood, and let the immune system clear out. And then let’s measure what if we can clear it out so you can do what’s called PET scanning or PET imaging just to see if the plaque is still there. And then let’s also measure cognitive function. So looking at memory, for example, executive function, some of the things that we all value that you lose, unfortunately, with Alzheimer’s disease. And so these data were presented last year, and it was very exciting that they showed in these PET scans, if you administer this antibody, it’s called the cannon MAB that is just given IV. Like I said, that indeed you get very profound, in fact, almost complete clearance of these plaques within a few months. And then more importantly, if you measure the clinical function of the brain, the executive function, memory, etc., you see a 27% improvement cloud there, which is a big deal. And I have a father in law who recently passed away from Alzheimer’s disease. And it’s a absolutely awful way to die because you lose so many of the functions that really make us human. And so when this came out, I mean, I was jumping up and down with joy here because Alzheimer’s is a disease that we don’t need to suffer from if we can get at this root cause. So there’s now a second company, Eli Lilly, that is going to hopefully get FDA approval soon. And now that the industry has a foothold, one of the things that biotech is really good at is once it gets a foothold, then it can iterate and improve, right? But you need something solid to be able to grab a hold of. And so that’s definitely the first area that I’m watching very carefully. And if you look at Alzheimer’s, morbidity and mortality, in other words, deaths and suffering both from patients as well as family and caregivers, this could be a real game changer.

John Coleman: Well, an example, if any, just of what you described about the pace of technology. I’m reading a book called Outlive by a guy named Peter Attia. Right now. I don’t know if I’m pronouncing his last name properly. And I just finished a chapter on Alzheimer’s, which was honestly that the most hopeless of the diseases or disorders that he was discussing. Right. Because there was really no progress in preventing or treating it other than behavioral modifications, exercise, things like that. And what you’re describing seems to have manifested almost entirely since even that recent book came out. I mean, that’s a remarkable amount of progress against a disease that really had no, from what I understand, effective treatment until now other than preventative things like exercise and diet.

Finny Kuruvilla: That’s right. Yeah. And Peter Attia is someone who is a very smart physician and that book is not that old. It had just came out for this reason. Yeah. Yeah. And the fact that it’s already outdated, there is testament to how quickly the industry is changing. The other area that I am very excited about is cancer screening. So I think most people realize that if you can catch cancer early, then the probability that you can get it removed and live a long and normal life is much more viable. When people find cancer late at stage three or stage four, then that’s tend to be when you get the really bad outcomes. So this, for example, explains why pancreatic cancer or ovarian cancer, these are organs that are deep within your abdomen. They’re typically not caught until later on stage three or stage four. And so the mortality from those diseases is much higher than it is, for example, with diseases that it’s much more obvious, like, say, a basal cell carcinoma, something on a scan where you can just cut it out because you see it. And so early detection is half of the battle with cancer. And it will one day be the case that we’ll go in for our annual exam with our PCP and they’ll simply draw blood. And as it turns out, your cancer is shedding small amounts of DNA. Into your blood. It’s very, very trace amounts. But these small amounts of DNA have signatures of mutation on them that if you have the right technology, you can identify them and say, oh, you know what? This person who came into my office, they’ve got early stage prostate cancer or breast cancer or ovarian cancer and then go in and do scans and surgery to get rid of it much more early and getting ahead of the curve. So that’s really exciting. We’ve already made some headway in that. So one of the classic examples of a company that we’ve invested in now for a very long time is using stool to detect colon cancer. So the traditional way of looking for colon cancer is a colonoscopy, very unpleasant. I think most people know how you do that. You have to drink some very unpleasant solution that clears out your bowels and along to but the camera gets put up your rear end and you have to go under a form of anesthesia conscious sedation for that. Who wants that? I mean, that’s not very pleasant. But now that’s becoming much more standard of care is somebody mails a box to your home and you use the bathroom. You just take a piece of stool, fish it out of the toilet, put it in the box, mail the box back to the company. And what they will look for is in the stool a trace amount of this mutated cancer DNA and use that as an early warning system, so to speak. And we know that the sensitivity on detecting cancers there is greater than 90%. So it’s very good. And now it’s becoming standard of care that starting in age 45, you can do that instead of having to do a colonoscopy. Wow. So that’s pretty awesome for especially those of us who are in our forties or beyond that don’t necessarily want to do the whole colonoscopy ordeal. And so there are that company and then a couple of others that we’ve been investors in are looking at how can we make this purely blood based? Because even that’s got to deal with your own stool. That’s not the most pleasant. And why not have it be the case that when you go into your annual visit, just do the blood draw while you’re getting your cholesterol checked and your blood glucose and all that, that they’ll just additionally check for a panel of cancers. And so that’s very, very exciting. The blood based cancer screening is still yet at the experimental stage and it’s not yet prime time, but I think in the next 5 to 10 years it will be something that becomes much more routine. So I’m very, very excited about that as a way to address the second largest killer of people in America, which is cancer. Speaking of which, there’s so many other areas that I’m excited about, but I will say that cancer, for me is near and dear to my heart, primarily because when I was a physician, a lot of the patients that I saw had leukemia or lymphoma or one of these blood related malignancies. And I just think it is just awesome the kind of technology that we have enjoyed that is completely changing the way that the cancer is done. So let me illustrate here with an example of something that I think is very profound. So in general, with cancer, the most common cancer of childhood is leukemia. So a lot of us probably know individuals who had leukemia as a child or parents who have children who have had leukemia. It’s very common. And the way that leukemia therapy has progressed is astonishing. So in 1970, if you had a child with leukemia, he or she only had a 10% chance of making it to adulthood. So fairly bleak. Today, it’s somewhere around 85 to 90% chance of making adulthood so much, much better. Odds of survival there. And that’s on the back of a lot of great therapies that have been developed in the industry. And in particular, though, one of the things that we’ve known for a long time is that so much of what cancer therapy really is, is it’s giving basically poison to a person. And what you’re trying to do is you’re trying to poison the cancer faster than you’re poisoning the rest of their body. And there is a window that you can try to thread in order to make that happen. But it’s a narrow window. And it’s also why, for example, the side effects from chemotherapy are what they are. They will kill more rapidly dividing cells. So when you’re giving these poisons, the cells that are dividing the most quickly are going to be the ones that take the hit. So your hair will fall out. As it turns out, the hair cells are rapidly dividing your gut. Cells are turning over very rapidly. And so you’ll get nausea, vomiting, diarrhea, fatigue. A lot of these things are the consequence of these very crude. Let’s give them poisons. And in fact, a lot of chemotherapies are, in fact. Iterations of chemicals that were used in war in order to kill major populations. It’s kind of scary. So this is how a lot of chemotherapy is built on, is just let me give a fancy form of poison and try to thread that needle very carefully. Well, when I was a physician, as I said, that was the mainstay of what therapy would be is giving these glorified toxins or poisons. I’ll tell you a true story here of a little girl named Emily. She was diagnosed at five years old with this leukemia, the most common form of childhood cancer. 85% chance of cure. 85 to 90 parents were told, hey, if you’ve got to pick a cancer, this is the one to get. They’re all like, okay, let’s go through the therapy. She goes through the therapy and lo and behold, she relapses, and so does she’s in this 10 to 15% that aren’t likely to make it. And after this relapse, it comes back very aggressively. And as cancers often do, when they come back, you just feel really bad for the patient because you very quickly run out of other options. Parents are told she’s got weeks to live. They were told, just put her in hospice, make her comfortable. But unbeknownst to them, this was at CHOP at Children’s Hospital of Philadelphia. There was a brand new therapy that was being developed, and she was literally the very first patient to get it. So, wow, this therapy is so cool. Let me explain it to you. So I mentioned to you before that one of the jobs that our immune system has is to kill cancer. So a lot of us realize our immune system kills bugs, bacteria and viruses, but we don’t appreciate enough how our immune system is actually fighting cancer all the time. So as it turns out, every single one of us has some low grade cancer that’s brewing somewhere inside of us. But most of the time your immune system is scanning your whole body and it’s looking for something different than normal. And it’ll kill that cell because it recognizes it as foreign. And so that is something that we should wake up and thank God for every day, because our immune system is our number one anti-cancer prevention agent that we have. And this is the reason why, for example, HIV patients who’ve got weaker immune systems often die of cancer. Well, one of the things that somebody figured out to do is why not take someone’s own immune system and the T-cell in particular, and we’ll take it out of the body and we’re going to infect that T-cell with the virus. And what we’re going to do with this virus is it’s going to be a good virus, not a bad virus, but a good virus. And that virus is going to have a homing beacon on it that’s going to train that T-cell to go straight to the cancer and kill it. And so they did this with Emily. They just took out her blood, just a simple blood draw, isolated those T cells, treated them with this virus, and then re infused her own, now modified T cells back into her body. And guess what happened was that in 23 days, her leukemia was gone. And wow. Yeah, it’s amazing. And you could actually watch. And they did this. These scientists and physician did this. They would take regular blood draws and they would watch these modified T cells grow in terms of numbers in her blood as they were amplified and as they saw this cancer and they would go and kill the cancer. And so this particular therapy, it’s called CAR-T, is FDA approved now. And we will often see somewhere between 60 to 80% what’s called complete responses, meaning that the cancer is completely gone. So Emily, as I mentioned, was diagnosed at five years old. She’s in her twenties now. She’s very healthy, walking around, doing great. This is like awesome, right? Like we’re engineering our immune cells to do things that they otherwise wouldn’t do and train them to kill cancer. And so this whole frontier of using the immune system. Using things like CAR-T immuno oncology therapies to train it to get better at killing cancer in a more directed manner, as opposed to giving the simple and kind of toxic style chemotherapies is going to be the future. So that’s another area that I’m really excited about. So this will be three of my favorite areas Alzheimer’s disease, cancer screening, and then training the immune system to kill your cancer.

John Coleman: Finny Those are amazing examples. What a cool story about Emily as well. One thing you’re describing I’d love to dig into for investors is the life cycle of these medical innovations is quite long. Right. Starting with university research or basic research, culminating in commercialization through a pharmaceutical company, etc.. And across that spectrum, there are both private markets and public markets investors. Talk to us a little bit about the role that both private and public markets play in this space and also just any difference in the way markets are reacting in the current environment between those two. Like are you seeing as big a collapse in private markets as in public markets, for example, and valuations, or is that disconnected somewhat?

Finny Kuruvilla: Yeah. So there’s certainly a vital partnership that exists between the private and public markets. And so there’s this whole field of venture capital that goes and finds these promising ideas that incubates them from early stage all the way to a hand-off of an IPO into the public markets. And if it weren’t for America’s very vibrant venture capital industry, the world would be very impoverished. So some of those therapies that I just mentioned to you, like those CAR-T, those those trained immune cells came from venture backed companies and approaches. So this is an essential partnership. In general, public markets aren’t ready to receive these very early ideas yet until they have some validation. And so that validation takes place in the womb, if you will, of these private vehicles that are typically venture backed. And so in terms of where we are there, there’s this phenomenon that’s existed for many years where the public markets tend to lead the private markets. And so when there’s a lot of great opportunities for IPOs, then that tends to be a way that the private markets get their exits. You know this industry very well also, but the private markets need liquidity. They need some way to exit in order to raise more funds. And so when the public markets are open and the private companies can go IPO and eventually the private investors can generate a return on their capital. And so for that reason, there is this lead that the public markets have on the private markets. There’s certainly an interdependence there. But in general, that’s the relationship that we’ve seen right now. We’re in this place because of the public markets, as we talked about earlier, declining in their valuations. And in general, it’s harder to IPO when people are a little more fearful. That’s meant that private funding has also declined and there’s not nearly as much money that is going into Series A’s and B’s, as was the case a couple of years ago. And so that’ll change and things will eventually normalize and go back. But right now we’re on the private side. We’re about where we were in 2013. So we’ve actually taken quite a step back in terms of amount of funding there. So that’s quite unfortunate. But we’ve seen this happen before and in general, once we get a little more animal spirits, once we get more excitement in the public markets, then IPOs will open up and that will enable some of these private companies to IPO, which will then enable the private companies, the venture companies, to go and raise more capital. So that’s high level where we’re at right now.

John Coleman: Which is interesting because we’re closing in on highs again in public markets, but it still is lacking. I love the term animal spirits. It still is lacking animal spirits a little bit, right, Because we’re you know, the public equity markets have recovered, but you’re still not seeing an IPO market quite as active in an M&A market. There’s still a lot of caution, I think, right now.

Finny Kuruvilla: That’s right. And the reason that the public markets are doing well, especially the Nasdaq, but even the S&P 500 is because their market cap weighted and so or I think most people understand this, but in case someone doesn’t. If you look at the S&P 500 and that index, it’s not equally weighting across 500 companies. It’s overweighting on the companies that have a higher market cap. So Apple, Google, Amazon, Meta, those kinds of companies have a significantly larger weight in the index. And because there were such fears about recession really for the last year or so, what’s happened is that people have gone into these mega-cap names, especially mega-cap technology companies, and that has pushed up these indices. But where we’re at right now is the dispersion, meaning the spread and valuation between the largest cap companies and the smallest cap companies is actually two standard deviations wide of normal, meaning that that spread is very vast right now. So you’ve got really expensive companies on the high market cap side and then very inexpensive, very cheap companies on the small market cap side. And so it’s unusual that we have this kind of spread happen. In fact, often it’s the case that a lot of the big companies are regarded as sleepier companies that maybe don’t have as much growth ahead of them and the small companies, that’s where the action is because they’re going to grow and there’s a lot of excitement there. But right now, partly deserved the large cap companies have shown because of AI and some other reasons that there’s cause for excitement there. And in general, the very predictable defensive quality is that people now appreciate that Google and some of these other companies have they actually have done really well through even hard times where people have realized they’re not quite as cyclical as people once thought. So that’s the reason why we’ve seen some of this disparity in valuation.

John Coleman: So I want to hit a couple of other quick topics before we get to some of our concluding questions. One, I promised myself I was not going to ask because it felt like asking about Bitcoin like four years ago. But you mentioned artificial intelligence. So I am going to ask, where do you see the intersection of AI and health care right now? What are you most interested in at that intersection at the moment?

Finny Kuruvilla: Yeah, I recently did a call on this and AI in general and where it’s at. And one of the things that we need to differentiate is that AI is an umbrella term and there’s a lot of differing component technologies underneath it. The one right now that has everybody excited are the LAM, large language models. So ChatGPT is the most famous bard, which is Google’s version, is the second most well known. And these are not as sophisticated as a lot of people might think. They’re very impressive, no doubt. But basically what they’ve done is they’ve ingested huge amounts of text and they’re very good at predicting what will be the result of, say, an autocomplete. In a lot of ways they’re just glorified autocomplete functions. Certainly impressive, no doubt. And there’s good reason why there’s enthusiasm there. But in terms of really achieving the kind of. Judgment and rationale that humans have. They’re a long way away. Now, how can this breakthrough and LAM help the world of health care? It certainly can. And there’s a few dimensions of assistance that we can have. I mean, in general, I think these LAM will be a lift to most industries. Just because it’s I recently heard an analogy that it’s like you’ve got an assistant sitting next to you who’s passed the AP English test. Maybe their judgment isn’t that great yet. So maybe they’re like a high school student who’s just gotten a four or five on their AP English exam. That’s kind of what you have now as an assistant sitting next to you. And I use chat GPT for when I want to quickly get a digest of a lot of material because it is good at doing that, where I think it’s going to be helpful eventually and we’re going to need a few years of investment here. But besides that general uplift from having an assistant next to you, who is this AP English High School student who’s done well there, it’s going to be helpful for predicting things like what drugs will be especially effective to target certain medications and then what populations will be more precisely targeted from a particular therapy and receive greater benefit there. So for things like pattern detection, it’s going to be amazing. One of the areas that I think is one to watch and I’ve been saying this for like ten years, is if you take head to head a skilled physician and some kind of AI algorithm and you give it a bunch of patients who have a bunch of symptoms and you say who can predict what the patient really has, the handwriting is on the wall that AI is going to be the physician over time. And that’s something that is going to be very transformative to health care because computers are just way better than humans at doing pattern recognition much more rapidly. So you think about radiology looking for the spot on the lung as a cancer or not, or, as I said, kind of classic internal medicine diagnosing symptoms. And so what this means is that there’s going to be a replacement eventually, probably not that long from now, of a lot of traditional doctors who are basically doing pattern recognition with some of these AI engines that are going to completely trounce humans at that. And just like today in chess, we know the even the best chess players, Magnus Carlsen and Caruana and all these people, they can’t be the best chess algorithms. The best doctors will not be able to be these highly skilled and well trained AI algorithms. So look out for that and advise your children and those thinking about going into medicine to be cautious about how they choose their career and make sure that they’re choosing one that’s going to have some longevity.

John Coleman: That’s fantastic. Before we close with what you’re learning through Scripture, it’s kind of obvious the redemptive nature of the work you’re doing just from the stories that you’ve told so far. But maybe comment briefly on how you think redemptive investors or faith driven investors should think about participating in health care, because there obviously are some things like ethical quandaries that you encounter, etc.. But how do you think about your faith in the context of investing in this space?

Finny Kuruvilla: Yeah, there’s a lot to be said on this, and I know you’re also a deep thinker in this, but I would say that in general the world has gotten somewhat skeptical about progress. You know, if you go back and look in the early 20th century or mid 20th century, there was a lot of optimism about technology. And then eventually it turned, especially in the back half of the 20th century, to a lot of fear, you know, Terminator and things like that. And we have forgotten that the creation mandate that God gave to all humans starting in Genesis one, is something that we have yet to realize, and it is something that health care is probably, in my opinion, almost certainly the single greatest area of where technology and progress can manifest itself in positive ways. And so as investors, as we’re thinking about where to allocate our capital, this is an area that I think just screams out unmet need here. This is an area where we can feel really good about advancing the global common good. There are other areas where sometimes I look at and I think, wow, what is the true common good that this is promoting? How is human flourishing really going to come from this company? You know, not mentioning any specific companies here, but often it feels like people are simply chasing profits as opposed to thinking about how does God want us to be allocating capital to really meet the needs of humanity? And I think health care is a very special field and that if you have some basic screens in terms of, you know, for example, not promoting abortion and things like that, then I think we. Can feel really, really great about how we can better advance the lives of millions and millions of people all over the world.

John Coleman: Well, Finny, we want to conclude today with what we ask all our guests, which is just what you’re learning through scripture that you want to share. I know you’re a deep thinker on these topics, and you do have a very thoughtful spiritual life. So is there anything right now that you’re studying that you want to share with others?

Finny Kuruvilla: Yeah. So I recently have been doing a fairly deep dive as a family and a couple of Paul’s letters, namely his letters to the Thessalonians and then his letters to Timothy. And one of the concepts that I’ve been very captivated by and doing a lot of further biblical study on is a term that I got this from a commentary, but the term is mimetic discipleship. And so if you think about how Jesus did his discipleship, it was very much this process of following him. And then in the process of following him, we become transformed. And so you can summarize discipleship and the line from Jesus in Matthew 4 where it says Follow me and I will make you fishers of people or fishers of men, the older translation say, And so you follow. After Jesus, you imitate him. You have this. Essentially what the disciples had was a 24 seven school of imitating Jesus and following in his paths. And then there’s a promise attached to that following, which is, I will make you fishers of the people. And I think we’ve moved more into an informational based way of trying to do discipleship as opposed to a mimetic or following way of doing discipleship. And it’s in a sense like not surprising given how a lot of our education models are operating. But you give someone information via a sermon or a book or something like that which have their place. And I’m certainly a fan of good sermons and good books, but I think more often than not, we’re lacking that component of mimetic discipleship. And mimetic is, of course, the adjectival way of describing the word imitate. And here I would point to the example of the field of medicine. So can you imagine what medicine would be like if you just gave people some textbooks and you said, Go read these books and go be a doctor? Right. It would be like, I don’t want to be treated by someone who’s gone through that kind of training. Instead, what happens is your first two years of med school are the textbook years. The second two years you’re watching somebody else do something and you’re helping them. And then when you start internship and residency, they’re watching you. But you got somebody over your shoulder. And eventually, after four years of that, then they release you to be able to train somebody else in that process. And so it’s tilted much more at this aspect of mimetic training, you know, mimetic learning where you are. Yeah, you’ve got to know some information, of course, but you really don’t become a doctor until you’ve completed all of that. And I just think, how much of Christianity have we built on more of an information transfer type system as opposed to a mimetic system? And this came up because and especially first Thessalonians, it’s a dominant theme, which I had personally missed, of how Paul is describing how he establishes his church and in this case, Thessalonica. And it’s a great study to do to go through and trace out that theme of where is Paul appealing to this concept that really Jesus initiated what mimetic discipleship is all about. So yeah, I’m very excited about this and wanting to go deeper into this.

John Coleman: Finny Kuruvilla I wish we had 3 hours for today’s podcast instead of just this hour. I think you have left us with a lot to think about and a lot of positive hope for the future with innovations in health care. So we’re grateful to you for coming on the Faith Driven Investor podcast today and for all you’re doing it, Eventide and elsewhere. Thanks so much for being with us.

Finny Kuruvilla: Thanks, John. I appreciate being with you.

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Despite the size and scale of the continent, there aren’t many female fund managers in Africa.

Today’s guest is trying to fix that.

Adesuwa Rhodes launched her firm, Aruwa Capital, because she saw untapped investment opportunities in West Africa in the small to lower mid-market. Aruwa has a specific goal to close the gender gap in Africa and become a case study that shows the business value of investing in women as fund managers, entrepreneurs, consumers and stakeholders in society.

She joins the show from her home in Lagos, Nigeria.

Episode Transcript

John Coleman: Welcome back to the Faith Driven Investor podcast. This is John Coleman. And I’m very excited about our conversation today with Adesuwa Rhodes. He’s the founder and managing partner of Aruwa Capital Management. I had the good fortune of running into Adesuwa the first time a couple of years ago, right as she was starting Aruwa. And it’s been a privilege to watch her since she since closed her first fund as she’s made a number of investments which we’ll get to talk through today and has embarked on her second fund here shortly. And it’s just a real success story of a number of things, including her own personal leadership journey, gender lens investing, investing in women and investing in emerging markets. So Adesuwa, we’re very excited about this conversation. Thank you for joining the podcast today.

Adesuwa Rhodes: Thank you, John, for having me. Really excited to speak to you today.

John Coleman: Absolutely. So maybe let’s dive in first on kind of the topics. I want to get to your personal story. But, you know, part of what you’re doing is investing with a gender lens or investing in or alongside women as a part of your strategy at Aruwa. And you have a LinkedIn banner image, for example, that reads, Women don’t need a seat at the table. We’re creating our own tables. Talk to us a little bit about what’s motivating about that for you and what investing with a gender lens or in women looks like for you at Aruwa.

Adesuwa Rhodes: Yeah, that is a very important quote for me, and it holds significant meaning to me because it reflects my own perspective on how best to advance women’s economic empowerment and women’s progress. It really embodies the idea that women should not be waiting for opportunities to be given to them or rely on existing structures or systems to grant them a place at the table. But we need to be proactive. We need to take the initiative if we want to forge our own paths to success and our own path to leadership. And this was really, you know, particularly relevant for me as I looked at, you know, the number of women that were capital allocators on the continent in Africa. You know, for my previous fund, we were fundraising for about four and a half years. And I looked around and I saw that there were really only less than ten women founded and led private equity funds on the whole continent, you know, a continent of 1.3 billion people. Women make up 50% of the population. So it was very clear to me that there are systemic barriers that are preventing women from starting and running their own funds. And if we continue to wait for those opportunities to be given to us, you know, nothing is going to change. So that part really just embodies, you know, be the change you want to see in the world. Take initiative, be proactive and create your own table. Even if your table is small to begin with, you can create your own table and, you know, be in charge of your own story. So that was really what prompted me to set up Aruwa because I wanted to, you know, in my own small way, hopefully be an example for other people to look at so that when they’re looking around and trying to find other, you know, women and applying funds in the continent, at least they can see one more and that may encourage them to, you know, battle themselves and that may encourage them to start up their own funds. And and as we see more success stories of, you know, women creating their own tables, I’m hoping that will also make room for more people to want to support women that are looking to do so. So, yeah, it’s really kind of important that as women, you know, we take our own steps rather than, you know, asking for permission. We take our own steps, you know, to try and influence and impact other women. Because as women see us, they are also encouraged, you know, setting up Aruwa and you know, where we are now. It’s such a blessing that women reach out to me and, you know, they say, well, look at seeing what you’ve done in Aruwa. You know, I have confidence to start my own business. So I have confidence to start my own fund because I you know, now I know that it’s possible. So that was really the kind of the onus of setting up Aruwa was trying to be that change. And, you know, I was asking for permission for a long time. And I thought, you know, it’s better to be the change and create your own table that can influence others.

John Coleman: I just wanted to pick up on that of, you know, serving as an example to others, because I can definitely see that Adesuwa. I noticed you’re quite active in terms of media, in terms of social media, in terms of encouraging others. But in your personal journey, where did you get the confidence to take that perspective? Who was it in your life that really encouraged you to take that path if there was anyone? And how did you come to the decision that you could be a leader in this space and an encouragement to other women?

Adesuwa Rhodes: Yes, I don’t think it was any one particular person. I think my faith played a huge. Role in that. So, you know, we were fundraising for this one for four and a half years. I had a lot of conviction. And you know, what I had built on the ground in Africa because I was headhunted by a European private equity firm to set up their Africa business. I had a lot of conviction in what I built, but we just weren’t making headway. So, you know, in my prayer time, you know, I was praying. I was fasting a lot, you know, just trying to ask God for direction and what to do, because I quit my job at Jp morgan to embark on this journey. So I always kind of seek advice from the Holy Spirit and pray. And, you know, what am I what should I do next? And I felt very strong leading that, you know, everything that has happened in your life so far is for this time. And it was really at that time that I took the decision to buy out my previous partners, you know, exited my investments, sold some of my shares on my Jp morgan bonuses, and approached the partners and said, look, I want to buy this out. And, you know, I rebranded the company to Aruwa in July 2019, and I was just 29 years old at this point. So a lot of people were looking at me like I was crazy, you know, They were like, well, you know, the fund hasn’t worked. I’ll just go back to Jp morgan. But I felt a very strong meeting from God that, you know, you’ve gone through all this. You’ve got in the track record from Jp morgan, you’ve come back to Nigeria. This is your chance to be that example. This is your chance to really leave a legacy and, you know, leave a life of impact where you could be an example to other women that may not have the courage to bet on themselves. You know, as a black young woman, you know, it could be something very, very powerful to be that example in the world because there’s really not enough of us. So, yeah, it wasn’t really one person. It was really in my time of quiet prayer and reflection that I got that leading to do this and get that courage and get that confidence, even though I just come out of what people would have deemed a failure because we never raised that $100 million fund. So, yes, I looked crazy, actually, to a lot of people, but it was my faith and my trust in God that if he has placed this on my heart, then he will fulfill purpose and he will fulfill what he’s told me. So it was really my faith that kept me going. And, you know, it’s been a seven year journey until Aruwa finally closed. And I don’t think you can do that just by human capacity. It was definitely in my faith. It was definitely the encouragement that I got from Scripture. It was definitely the encouragement that I got that, you know, God can be trusted to keep his promises. If you said something, he will fulfill it. So it was definitely my faith that got me to where I am today. If I didn’t have my faith, I would have quit a long time because.

John Coleman: Well, and it is you know, I didn’t highlight this as part of the introduction, but you had a very institutional quality background, so to speak, with Jp morgan, with other firms. I mean, you’re obviously well-educated in demand. You had this remarkable career path before you if you chose it, and yet you chose to strike out on your own and start something new and build something as the leader. And even as you tell this story, to really emerge from something that didn’t work out exactly as you had planned. But to take an even bigger risk on yourself is so inspiring, I think. And, you know, you hear it with a lot of entrepreneurs in retrospect, where they bet on themselves and the mission that they were following. But that also takes a lot of courage. And it’s so fascinating to me to hear the role that faith played in you. Getting comfortable with that.

Adesuwa Rhodes: Yeah, I know it was very important, and I think if I didn’t have my faith, I would have quit. And, you know, when we announced the, you know, thankfully by the grace of God, we were able to announce that I was subscribed first because, you know, final close for Aruwa last year. And it was very important to me to make it known publicly that, you know, I give all the glory to God, because without him, I wouldn’t have stuck it out and I wouldn’t have, you know, had the faith, the courage, the confidence to keep going despite, you know, rejections, delays, you know, you know how fund raising is. It it takes a lot of no’s before you get the yes. So it was really my faith that that pushed me through it, for sure.

John Coleman: Yeah. Fundraising is one of those topics that’s not often talked about in our industry, but fundraising time or a second time fund is not for the faint of heart. It’s it’s in for investors. You know, it’s typically not what you’re best at, right? It’s, you know, I imagine you’re quite good at it Adesuwa. But people get into investing to invest, Right.

Adesuwa Rhodes: And this is not my favorite thing to do as well.

John Coleman: And you hear a lot of no’s before you hear yeses often. Right? Exactly. And even if you’re really good, I want to talk a little bit more about the way that you invest and maybe even dovetail that a bit with your faith story. Now, as I understand it, one of the lens is you use for investments at arua is the gender lens. So it’s not just you as an inspiring example, but you building businesses that actually in some way kind of partner with women in the community or uplift women. Can you talk to us a little bit more just about Aruwa and your investment strategy? And then if that’s correct, just how that dovetails with gender lens? And what does that mean in the context of an investment strategy?

Adesuwa Rhodes: Sure, sure. So at Aruwa, we are an early stage growth equity and gender lens investor. So we’re investing in businesses that have proven their business model, have existing demand for their product and service, but they’re just looking for that incremental, you know, scale up capital to pass that inflection point of growth. We are investing in necessities. So health care, fintech, access to power through renewable energy and also essential consumer goods. We’re focused on West Africa for now, so focus really on Nigeria and Ghana. I’m based in Lagos, so having that proximity to our investments is very important. But we have an overarching investment strategy, which is our gender lens investing strategy, which is we’re investing in businesses that are either led by women, you know, founded by women of co-founded by women, or businesses that have gender diverse senior management teams, or we are investing in businesses that may be led by men, but are providing an essential go to service that improves women’s lives in some way. So that is really all gender lens. We want to be able to impact women with our investments, either as founders, either as in management teams, because we believe that if we do that, it really trickles down to the entire value chain of the company where you can see gender diversity in the board, you can see gender diversity in the supply chain, you can see gender diversity in the customer base. So out of the nine investments we’ve made so far in Fund one, about 62% of those investments are led by women. And we’ve created about well, we’ve supported about 96,000 jobs, direct and indirect, and about 70% of those jobs are held by women. So we’re very, very excited about the fact that as we invest with this gender lens and being a women that’s allocating capital, we have this trickle down effect to gender diversity in our portfolio, which for us is not just charity or ticking a box. We see this actually as an arbitrage opportunity to enhance returns because very few funds are doing this, but also because of the role that women play in societies in Africa, where women are the backbone of families, they’re the backbone of communities, they’re typically the ones that are working, providing for their families. They’re able to reinvest about 90% of their income back into health care and education for their families. So it’s actually a significant multiplier effect in terms of social impact through the strategy as well. So we’re very, very excited about showcasing that intersection that you can have with strong financial returns and impact. We’re not sacrificing one for the other with the strategy. It comes really well together because of our gender that is investing strategy. So we’re excited to continue to showcase that.

John Coleman: So much awesome stuff to unpack there. And I want to circle back shortly to this idea of the role of women in West Africa and just get your perspective on where things stand. But before we do that, it might help listeners to understand the model that you’re discussing a bit more. If you were able to just tell us about a couple of the companies you’re invested in and the way that they achieve those goals that you’re discussing, I’d love to hear some stories.

Adesuwa Rhodes: Sure. Sure. So we invested in a company called Coolbox. They’re a provider of solar enabled refrigeration in Africa. So obviously we have a power problem. Over 700 million Africans lack access to electricity. So in off grid areas, we have market women that are selling frozen fish, frozen meat that because of the lack of access to power, they have to throw their products away. And you know, that impacts their livelihood, that impacts their income. What cookbox have been able to do is provide a solar enabled freezer refrigeration system where they can have access to power for up to four days in off grid areas as long as they have access to the sun. And this has been game changing. You know, we have seen sales of this business since we invested grow by more than three xs, about 75% of our customers that are using this product or women. We have so many testimonials from women that have said that, well, now that they have the coolbox they can provide for their family, they can send their children to school. We’re selling these units in 18 countries globally, so not just in Africa as well. So again, we’re seeing that multiplier effect of impact because as the impact of woman in Nigeria. You’re also impacting the women in Cote d’Ivoire or in Senegal or in Kenya. So that multiplier effect, it’s really, really strong. So this is a business that’s co-founded by women. It’s also impacting micro Assamese in off grid areas that are earned by women where not only are we seeing three xs in sales and seeing, you know, rapid growth and profitability, but we’re also seeing increase in the livelihoods and the incomes of these women that otherwise wouldn’t have a product to sell because of a lack of access to power. So that’s one that we’re really excited about and scaling up that impact across Africa. So that’s one business we’ve invested in. Another business we’ve invested in is a company called Omni Retail, their B2B e-commerce business that’s digitizing the informal trade. So we have a lot of informal mom and pop shops across Africa that, you know, have very fragmented access to logistics, very fragmented access to fulfillment. They don’t have technology to help them manage their stock or have insights into the prices of goods. So what omni retail is able to do is completely digitize their fulfillment process, provide them with, you know, inventory management systems, provide them with working capital. Omni retail right now is working with about 65,000 retailers across Africa. Over 55,000 of those retailers are women. And we’ve seen that these women are able to grow by over four x once they get this digitized solution and have this app where they can track their goods, track their inventory, track their fulfillment. So, again, this is another way where we’re seeing rapid growth on the business side. And this is a business that’s doing about $160 million of GMV. They’re doing about $50 million of net revenues, seven and a half percent gross margins. You know, probably the best in the industry. But on the other hand, we’re impacting growing the businesses of 55,000 women across Africa. So these are the types of businesses that really get me excited where we’re able to invest in really, really viable, attractive fundamentals, but also, you know, have enormous impact on women across the businesses that we invest in. So those are just two examples. We have more and I can keep talking forever, but it gives you a feel of, you know, the types of businesses where it’s whether it’s consumer goods, whether it’s renewable energy, where we can see this real impact on women.

John Coleman: That’s awesome. Adesuwa Those are great examples and it tees up nicely. This thing we wanted to circle back with, which is just the status and role of women in West Africa. I mean, the inclusion of women in the economy obviously is transparently very good for economic outcomes. Right. It’s such a key component that activation is a key component of economic growth at a macro level. But it’s also incredibly important for equality, for inclusion, for a number of other things. And it’s different in different parts of the world right now. And as you mentioned, Africa is a continent of 1.3 billion people with societies that are dramatically different from one another. I know you’re dominantly investing in West Africa, including in Nigeria, where I believe you’re based. Would you mind just giving us a window into what is the status of women’s rights, women’s inclusion, women’s economic activity in the countries in which you invest? And how is that changing over the last few years?

Adesuwa Rhodes: Yeah, no. So I think we still have a long way to go. But, you know, I think you’d be interested to know that Africa has the highest rates of female entrepreneurship in the world. Is that. Wow. Yes. Yes. Four times more than Europe. And this goes back to, you know, why impacting women is so critical and has that multiplier effect, that whole continent like Africa, because women are really the breadwinners. And people ask me, so why do women in Africa work so hard? And this is just my own theory. I don’t know if it’s right or not. But my theory is because women in in somewhere like Nigeria are having about five children on average. Right. They’re not waiting around for a man to come and feed their children. You know that maternal instinct, you go out and work to make sure that you provide for the children that you birth. Right. So I think that’s why we have such a high rates of female entrepreneurship, is because African women have a lot of children. And what we’ve seen in society is that that level of entrepreneurship and energy is not being matched with the level of opportunities and the level of capital that these women are able to access. So if we take last year, for example, only 4% of venture capital dollars went into female led businesses. It was 25 x less than the capital that went into the mail at businesses. And that just doesn’t sit right with me. In a continent and an economy where we know that women are driving access to basic goods and services for their children, for their communities. Right. So we still have a long way to go. You know, when I started Aruwa that number was less than 2%. So we’ve made some progress in the last three and a half years, but still, we still have a long way to go. I think what’s also interesting in a market like Nigeria is you have that on one side in terms of entrepreneurship. But if you think about female leadership and women in senior positions, we’re not doing too badly, actually. So there was a circular that was put out by the central bank. I would say probably seven years or eight years ago. Now that said that boards of the banks had to have at least 30% female leadership. So because of that kind of rule, we’ve seen a lot of drive to diversity across banks in Nigeria. And I think that’s something where, you know, that we’re proud of that. You know, we can say, okay, well, in senior leadership, in corporate, especially in financial institutions, we’ve seen, you know, inclusion of women. And I think that has kind of trickled down in society to make sure that we’re taking women seriously and senior corporate positions, not just in the financial industry. But when it comes to female entrepreneurship and giving women the same access to capital, the same access to whether it’s loans or equity, we still have a long way to go. And that’s why we’re excited about what we’re doing in Aruwa to make sure that we level the playing field for female entrepreneurs. That’s a really big part of our mission.

John Coleman: And what is the you know, you had mentioned how much faith had influenced the investing that you’re doing. Another question I had was just about what role faith plays in West Africa. In Nigeria right now, I know it’s a remarkably religiously diverse area, so it’s a pretty high numbers, especially relative to the west of people who are deeply religious, although that manifests in different ways. How does faith really manifest in the areas in which you’re investing right now?

Adesuwa Rhodes: So I think for us at Aruwa, you know, we I would say we’re a faith based organization, but we don’t have any sort of faith mandate that makes sense, you know, because of the construct of Nigeria and where we are. So we’re in the south. Most of the people in the south are Christian, more people in the north are Muslim. So just by the factor, even if we don’t have a mandate to only invest in Christians by de facto, I believe all of our portfolio company founders except for one, are Christians. So that kind of gives you that makeup in terms of how we are the area that we’re in, in terms of kind of the religious makeup. But I would say that faith for us, you know, I think it’s being able to pray with entrepreneurs, being able to, you know, support them in difficult moments. Yes, we’re investors, but, you know, treating them like human beings as well. I think the fact that we are all of the same phase where we can bump into each other in church, I think it puts a different dimension as well to the investing story and to the investing partnership. So I think for us, it’s great that we’re able to have kind of common faith with the people that we are investing in, but it’s not a prerequisite. And I would say that faith in our markets is a huge driver. You know, as you said, a lot of people are religious, whether that manifests as Muslim and Christian. But it’s a huge driver of what keeps us all sane and what can be sometimes, you know, challenging conditions. So, yes, I would say faith continues to play a role for all of us in this part of the world.

John Coleman: Yeah, it is such a fascinating place and I love to hear those stories and how it’s incorporated in the work that you do. You had kind of ended there by talking about how you are in a, let’s say, a dynamic part of the world right now where things change. And we’ve talked a lot about the gender lens investing, but haven’t talked a lot about investing in emerging markets yet. And I know many of our listeners are actually in emerging markets at Sovereign’s. We’ve done more in Southeast Asia, for example, than we have in Africa. But investing in emerging markets comes with its own opportunities. It comes with its own risks. Talk to us right now. Just about how you approach investing in the emerging markets you’re in and what different types of factors you have to pay attention to that a U.S. or a European investor, for example, might not. And what opportunities does that create that might not exist in the U.S. or Europe, for example?

Adesuwa Rhodes: Yeah, sure. So I think for us, we think obviously that there is tremendous opportunity investing in Africa and investing in the markets we invest in. We think that, you know, this is really the last frontier for growth. You know, a population of 1.3 billion. People. Africa will account for over half of the global population growth in the next 30 years. You know, we have, I think, the highest percentage of young people in the world. So we see this as really the last frontier for growth when it comes to, you know, how are you going to make attractive financial returns in the next, you know, decades to come? But as you said, it does have its challenges. You have to think about macroeconomic stability. So there are certain, you know, policies that may come in place that may, you know, alter macroeconomic slightly. They may be governments that come in place that change a policy that, you know, a business might have been profitable for them for a number of years. So I think the way that we think about it at Aruwa is how do we invest in defensible sectors. So I think in emerging markets, my view is you have to be a bit more focused. You can’t be a jack of all trades. Like maybe you can be in the U.S. where you’re a generalist and you’re investing in anything that’s exciting. I think you have to tailor your strategy to be able to withstand the shocks that come whether a macroeconomic shock or political shock that come in emerging markets. So how do we do that? We make sure that we’re investing in defensible sectors and necessities, things that the rapidly growing and urbanizing population will always need for the next 30 years. We’re always going to need health care. We’re always going to need access to financial services. We’re always going to need access to power. We’re always going to need essential consumer goods like food or, you know, other fast moving consumer goods. So I think that for us at Aruwa, we want to make sure and make it clear that to invest successfully in emerging markets, there has to be some element of focus, which is why, you know, we’re based here on the ground in Lagos. We’re investing in just Nigeria and Ghana because we’re based in Lagos. In Nigeria. We have that proximity to our investments. We have that proximity to entrepreneurs. So I think focus is very key. Another thing I would say is we believe that you also need to be a little bit more hands on in terms of not only corporate governance but also operationally as well. So we are very, very hands on with our entrepreneurs and helping them think through strategy and helping them, you know, implement finance, function upgrades, helping them think about the KPI they should be tracking. And we also sit on the boards of these businesses. So I would say that those are some of the nuances that are probably in our strategy because we’re investing in emerging markets that maybe if we are sitting in, you know, New York or city in London, we may not have those nuances. So I hope I answer the question. I kind of went off on a tangent.

John Coleman: No, you absolutely did. And, you know, I think, again, one of our partners, I think you met Henry Kastner. Africa is such a big focus of his right now, because I think what he sees and what many of us see is that it is the future in many ways. Right. I mean, you mentioned 1.3 billion people now, but it’s one of the few areas in the world. And again, I know it’s a diverse set of countries within the continent, So I’m painting with a broad brush. But I think it’s generally true that populations are growing. Right. Even Asian countries population growth has declined dramatically. China, for example, has a shrinking population right now. Japan does with the West, has obviously struggled to have fertility rates above replacement rate so that the economies aren’t growing organically. Africa is still booming. There is a lot of opportunity left through modernization because some of those countries have not yet fully developed and there’s a lot of focus on the area. And as you’re pointing out, there are these leverage points like working with women who are so central to the economy that can help you operate there. But it is important to have a local partner, we think, because understanding each of those countries, communities, areas in Africa, in Lagos, you know, in all these places is infinitely complex. And so having someone like you as a partner, someone who knows the area, is incredibly important, I think, for outsiders to just grasp that complexity.

Adesuwa Rhodes: Yes, I completely agree. And you’re absolutely right. You know, Nigeria is going to be the third largest population in the world in 30 years. So that’s somewhere you want to be investing and especially investing in necessities that that growing population will continue to need. So I completely agree. You know, we think it’s the last frontier of growth. We think that, you know, if you really want to make attractive returns, then Africa should be in your portofolio.

John Coleman: Can I ask you about one specific challenge of investing in emerging markets that we hear a lot and I know Nigeria has experienced recently, recently, which is currency fluctuation for non Nigerian investors, for example, for folks from Europe or the U.S. or somewhere else. Currency fluctuations can introduce a series of risks that they might not otherwise have to take. I know Nigeria’s currency has experienced some challenges recently. How do you think about that in the way that you invest?

Adesuwa Rhodes: Yeah, no currency risk is top of mind. You know, currency risk is one of the biggest risks to returns in emerging markets, as you rightly said. And in Nigeria, you know, we’ve seen the currency really devaluation over the last eight years with the previous administration. And what this administration has done is unified the exchange rate. So previously we had an official rate that was at around, you know, call it 460 naira to $1. And then we had a black market rate that is around, I call it 750 naira to $1. So that gap in the official black market rate obviously lend its hand to a lot of bad actors and obviously a lot of speculation and meant, you know, there was a lack of scarcity of dollars in the economy. What the new administration who have just come in in May have done is they’ve unified the exchange rate where we’re now seeing the naira kind of settle somewhere, kind of between 630 to 650. And yes, that’s going to hurt because, you know, a lot of people have been pegging their costs and, you know, their forecast to the official rate. But we believe that in the long term, because you’re able to drive out bad actors because of that wide spread that would actually encourage foreign direct investment into the country. So how we think about currency risk is because obviously we’re raising dollars from our institutional investors and investing dollars into these businesses is to make sure that a good portion of our portofolio are actually generating dollar revenues. So we have a company called Agro…… that exports superfoods to the US and to Mexico. 100% of their revenues are in dollars. We have a business called Remi Industries that manufactures eight different production lines of hygiene goods. They export their hygiene goods across West Africa and earn dollars. We have a business for tailor that is operational not just in Nigeria and Kenya. We have a business called Omni Retail that I mentioned is not just the operation in Nigeria, but also in Kenya and Ghana. So I think as we think of portfolio construction, we want to make sure that we’re investing in businesses that have export revenues in other currencies, for example, coolboxs, you know, selling, etc., maybe a refrigerator in 18 different countries across the world, Nigeria just being one of them. So you always have to have, you know, currency risk mitigation in place as you deploy capital in emerging markets. So either investing in businesses that have that natural hedge and it generates revenue in hard currency or another strategy we deploy is investing in import substitution. So as we invest in more local manufacturers, they’re actually shielded from a devaluation because they’re able to gain market share because a lot of importers are driven out of the market in that scenario. Or another thing we’re doing is also investing in very, very rapidly growing businesses between 2021 and 2022. Aggregate growth in our portfolio is about 70%. The average devaluation over the last five years has been about 18% a year. So we have different strategies to pull from as we kind of think of portfolio construction as a whole to make sure that, you know, you can kind of withstand some of the currency shocks and make sure that your portfolio is shielded from that. But over the last two decades in African private equity, that has, you know, currency has been the risk to return. So it’s very, very top of mind for us at Aruwa capital.

John Coleman: You know, I want to throw you a fun question and then end with some advice on Africa. And then we always ask the same question for our final one, which is just what are you learning through scripture? A fun question for you is you were a netball player at the University of Bristol and a couple of my my partners and I have had this discussion recently just about how well athletic leadership skills then translate into business, right? There are actually a lot of things you learn as an athlete, especially in a team sport, that then translate into good leadership later. First of all, what’s netball? And then secondly, what did you learn playing netball at university that you feel like is helpful to you today?

Adesuwa Rhodes: Yeah, so netball is kind of the English men’s basketball, I guess. So it’s like basketball, but you can’t move. So you grab the ball and you can’t move, you have to pass it. And the basket we have doesn’t have a backboard, so you have to. Learn how to swish Oh you goals there’s no backboard. Yeah so yeah I love netball I played netball in school. There was an opportunity for me to actually play professionally, but my parents said I had to stay in school. I couldn’t do that. So when I went to Bristol and I had the opportunity to play for the university team, I was really excited. But a lesson that I learned that was, you know, I was coming from school, you know, I was the captain of the netball team and I was kind of like, you know, quite good. But I came to Bristol and, you know, you’re in a bigger environment, you’re in the university setting, and there are other people there that are better than me, right? So I didn’t get into the first team, I got into the second team and I think that was a big lesson for me that rejection is okay. You know, there are moments in life where you may not always get what you want, but I had an amazing time over those three years in the second team where we actually won a lot of matches and it was a fun team to be in. So even though I was disappointed at the beginning that I didn’t get into the first team because obviously I was coming from a background where I was captained the netball team in school and you know, we had been quite successful. It taught me a lesson that God may sometimes place you in a place where you might think that you’ve been rejected, but it’s actually the right place for you. So I think that’s something that followed with me because there was another opportunity in my second year of uni where, you know, I really, really wanted this Goldman Sachs internship, but I didn’t get it. I got a Jp morgan internship. So I think God has been telling me every time that, you know, you may not always get your first choice, but trust me that I know what I’m doing. And, you know, wherever I place you where you’re meant to be. So that was a lesson that I learned. And I’m always learning that, you know, just trust God, even if you think that sort of thing that you want may feel like a failure or a rejection. You content and where you are and trust God that you’re in the right place. So that was what I learned from my netball days.

John Coleman: That’s awesome. That’s awesome. So I want to ask two final questions and the first is just a parting shot for those looking to invest in Africa or in particular to countries within Africa. We’ve talked about a ton today, but is there any final advice that you would offer folks looking to get involved on the continent?

Adesuwa Rhodes: Yeah, I think you touched on it, John. I think it’s making sure that you partner with a local partner that’s on the ground, that understands the environment, understands the nuances of investing in this part of the world and, you know, being in partnership with them as we explore investment opportunities, whether that’s through a fund structure like Aruwa or through a co-investment structure where you’re making directs alongside them. But I think it’s very important to have partnerships with people on the ground because there are definitely nuances to investment in emerging markets and the best people to help you through those nuances, the people that are on the ground that understand the terrain, understand the risks, understand the opportunities, understand how to mitigate those risks. So, yeah, you know, I always say that if you don’t have Africa in your portfolio, you’re doing yourself an injustice. So, you know, I encourage people that are, you know, allocating capital or investing to be looking at Africa investments because it’s really the last frontier for growth. It’s really where you can have attractive financial returns. But also if you care about impact, you know, where also there are significant multiplier effects in terms of impact levels, job creation, poverty alleviation that are also possible here. And I just think you can’t achieve that in other parts of the world where you can do good financially, but you can also, you know, be impacting lives and having that intersection. I think it is pretty magical. And you can do that here in Africa. So please invest in Africa, but do so by partnering with a local partner.

John Coleman: Excellent advice. And we always close just by asking everyone what are you learning through Scripture right now that you think might be relevant to share with our listeners?

Adesuwa Rhodes: Yes, so. I’ve been reading a lot about Daniel recently and just kind of his story, so that’s kind of what I’m reading right now in my Bible study. And I think that what Daniel teaches me and what Daniel can teach everyone is just being very dogged in your beliefs and not letting society influence you. I don’t know if I’m getting too philosophical for this podcast, but I really love I really love how Daniel just didn’t give in, you know, to the King and to that what society was telling him to do. He was very, very focused on being contrarian. And I think sometimes to be a pioneer, you have to be contrarian. So I encourage entrepreneurs that are looking to start businesses or looking to, you know, bet on themselves, you know, looking to seek that promotion in the organization. Just believe in, be authentic to yourself. I would say don’t be influenced by society or, you know, don’t be influenced by what society may be telling you to think. Be confident in your beliefs and, you know, bet on yourself based on your beliefs. That’s what I’m learning from Daniel at the moment, so I’m getting encouragement from Daniel to continue to be contrarian and continue to, you know, pursue this gender lens investing strategy, even though sometimes people look at me like a crazy. So yeah, that’s the encouragement I’m getting from Daniel.

John Coleman: That is a great word to end on. You definitively are not crazy Adesuwa. You are doing amazing work, again. This is Adesuwa Rhodes, the founder and managing partner of Aruwa Capital Management, investing in West Africa, primarily Ghana and Nigeria and Adesuwa. We’ve been so privileged to have you on today and hopefully we’ll get to do this again in the future. Thank you so much for coming on.

Adesuwa Rhodes: Thank you so much, John. I really enjoyed our chat. Hope to speak soon.

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In this edition of Marks on the Markets, we’re joined by frequent collaborators, Justin Speer and Phil Jung.

Justin is the Principal and Senior Analyst at Sovereign’s Capital where he focuses on Private Equity. Phil also works with Sovereign’s as a Venture Capital Partner.

The two join John to give an overview of private and public markets as we head into Fall.

Episode Transcript

John Coleman: Welcome back to the Faith Driven Investor podcast. This is your host, John Coleman, and this is a belated monthly marks on the markets for September. Producer Joey has already disciplined me for this guy, so no one needs to write in. I know I’m a bit late on marks on the markets, but to make up for that, we have an extraordinary episode with two of my favorite people. Justin Speer is one of the leaders of our public equities complex at Sovereign’s Capital, and Phil Jung is one of the leading partners of our venture complex at Sovereign’s Capital. And today what we thought we would dig into is the current state of the markets broadly, but also what it’s looking like in public markets, what the economic outlook is, how we’re seeing the IPO market and also what late stage venture, an early stage venture are looking like along with how we’re coming alongside CEOs and other leaders in the midst of what continues to be a tumultuous environment. So, Justin, Phil, thank you so much for being here today.

Justin Speer: Thank you for having us.

Phil Jung: Glad to be on.

John Coleman: And Phil got in at 2 a.m. last night, so we’re expecting some really fun commentary out of him today.

Phil Jung: Yeah 3 cups of coffee so far. And yeah, it should be fun. Hopefully, hopefully this turns out okay.

John Coleman: Awesome. Well, I’m going to start with a little bit of a softball for both of you, and I’ll let Justin start so that Phil can drink a little more coffee. Just give us your current kind of 10,000 foot overview of markets. Justin, Obviously we want to get into both public and private. You’re a bit more public focused. Where do markets stand today in September 2023?

Justin Speer: All right. So we established a bear market trough in the third quarter of last year and have since had about a 25% recovery in the market, which is about the seventh worst, I guess, recovery from a bear market trough this far off the trough nearly a year actually was incredible. But positively, we’ve seen inflation, which was the number one problem for businesses and for all of us has really come off the boil in the last year. It’s actually it’s led into June, 12 consecutive months, so about 3%. And that’s where we’re hanging out from nine in terms of the headline inflation. And so that’s a good thing and that’s a function of what the Fed has been doing, aggressive, like the most aggressive tightening we’ve seen in at least 40 plus years with the Fed funds rate now at five and a quarter or five and a half. So we’ve had a monster move in interest rates and it’s really led to this. It’s an interesting backdrop. It’s a lot of just dichotomy. And what I’m saying, like in terms of big picture macro things that we’re seeing, we’re seeing consumer confidence has been pretty resilient, which is a function, I believe, of, again, excess stimulus that’s still in their pockets. We had $7 trillion of stimulus. It worked its way to the economy. We’re still working that down. And the other thing that’s really been surprising to me in the wake of the Fed’s tightening is the employment picture has been actually pretty solid. I would have expected and in fact, if you look at the yield curve and it was anticipating that we would see the unemployment rate move up, it really hasn’t moved up that much. And I think that’s really moved to the forefront of the challenges for business is just access to qualified labor. But on this front, I think that’s the balance Is the Fed, they’ve tightened. I don’t know how much more they need to go. I think the question is how long they need to hang out here. And we’ve seen a bifurcation in markets where housing activity has been pretty sluggish in general. Existing home sales, we’ve seen manufacturers struggling. If you look at the sentiment surveys for manufacturers, they’ve been subpar for a while, almost depressed. But on the other side of that, we’ve seen growth. Equities in particular have done really well. We’ve seen the emergence of generative AI, which has extended maybe some of the growth use or lifted the growth use for some large, large players in the market. So that’s supercharged some of this recovery. But it’s been a tale of really two different stories that I think the question is how this thing ends is can we get inflation down to 2% without breaking the economy? And I think if I look at valuations, for example, I’m getting two different rates. Large caps are actually kind of expensive. Large cap growth stocks are expensive value and small cap stocks are quite cheap. So the market seems to be saying two different things that the economy’s great for the large caps, but we may be entering a really potentially a pretty severe recession if I just look at the small cap valuation. So it’s one of the more complex backdrops that I’ve been a part of as an investor in the last 20 years.

John Coleman: Men, I want to unpack that a little bit more. But before we move to Phil, I wanted to follow up with one quick question. I think it was two or three months ago, it was accurate to say that it was nine or ten stocks, the mega-cap stocks that had driven more than 100% of the return of the S&P at that time. Is that dynamic still that pronounced Justin or has that moderated such that other larger stocks are growing in line with those mega caps?

Justin Speer: Yes. A year today the market. And this is the S&P actually the Russell 3000 is up about 18% year to date. And what’s really leading that is tech and communication services, which is Facebook, but they’re up over 40%. The broad tech sector, which is a big chunk of the market, is up 45%. Most of the other sectors are low single digits. You do have consumer discretionary, which took it on the chin. Last year is up 30%. But most of the other sectors are, you know, flat that up mid-single digits with the worst performing utilities and health care is down 1%. And of course, the regional banks, because of the bank turmoil in March, April, down 17% year to date. But yes, tech is really leading this thing, very big tailwind to the broader market from tech and digital. And consumer discretionary has come along here in the last few months.

John Coleman: It’s great. So Phil, moving over to you, I mean, you offer a dominantly in the private markets right now, particularly with venture backed companies along their growth from kind of seed to pre-IPO stage. Tell us what you’re seeing in valuations right now and how the market’s reacting.

Phil Jung: Yeah, well, first off, the last 12 year and a half, 12 months, year and a half, it was a tough time for the private markets and especially in the software space for technology businesses. You just heard in the headlines every week of large companies and private companies doing layoffs, reductions in forces and people looking for opportunities. Their next gigs because they were laid off, functional areas and team leads, all were cutting their budgets as well. You know, oftentimes in an executive team meetings, CEOs were asking each of their functional needs to figure out how they can trim their spend or expenses by ten, 20, 30%. So a lot of that happened. Now, fast forward to where we are at this point in the year. You know, there are starting to be signs of life. You know, green shoots or whatnot. And what we’re seeing in the private markets, you hear less frequently of rifts and further layoffs. A lot of that has already happened. A lot of companies in their first and second round of layoffs. And at this point, people are planning ahead for next year, 2024. And budget reforecasts have pretty much halted at this point for the rest of this year, and they’re not thinking forward. And so we’re starting to see signs of life expansion in average contract values. We see this in our portfolio as well, as well as perspectives in terms of growth prospects for next year. Hiring plans is slowly starting to pick up again as we go into 2024 and especially this time of the year, post-Labor Day before the holidays. This is traditionally a very active time for the private markets to be deploying and investing capital. People are back from their summer vacations and investment committees can now gather again and folks are looking to do deals before the holidays slow down again. And especially if you raised a fund over the last two or three years. I mean, you’re sitting on cash. Well, not cash, exactly. You’re drawing capital from your employees with capital calls, but you have a fund available that you are looking to deploy capital into in promising opportunities. So this is these next few months here. It’s kind of a sprint in the venture market of activity. So, you know, all I’d say there’s a cautious recovery that seems to be happening. If you look at a lot of the data that’s put out by Carta, Pitchbook, etc., valuations early part of this quarter and Q3 seem to be picking back up again from some of the lows in Q1 and Q2 of this year. So there’s reason to be optimistic and at least in the private markets for sure.

John Coleman: I want to come back to this question of the real economy, which Justin started to touch on both in the U.S. and potentially abroad, if you feel comfortable talking about that. You know, we’ve talked about on this podcast before that the most recent financial crisis was one of the strangest in recent history, certainly more echoing what we saw back in the 1970s than almost any recent period where you had this combination of supply shocks due to COVID, due to the Russian invasion of Ukraine, due to limited supply chain, is a hangover from COVID. And those incidents we saw massive inflation kicking in and the Fed having to respond to that as just in their rising rates. We saw this regional banking crisis that erupted in the middle of that. And so there were all these complex factors playing in. Certainly some of those seem to have calmed, at least from my perspective. The supply chain shocks seem to be normalizing for the most part. As Justin mentioned, inflation is headed in the right direction, although only with continued rising rates. What are you guys seeing in the real economy right now? Where do we stand with regards to where we were in that crisis? What are you paying attention to? And particularly on this front of recession in interest rates? Do you have a perspective on where we might be heading? And maybe, Justin, if you don’t mind, open this up on that front.

Justin Speer: Right. I think a lot of the challenges were just due to just these imbalances, in part due to the supply chains, due to absenteeism and people just staying at home from work in the immediate aftermath. But then. You tack on that stimulus. And it’s just fascinating to see that you saw money supply just take off like over 25% expansion in the money supply. And then people now have money to spend, but they don’t spend it on hotels and restaurants. Immediately they go out and they spend it on goods for shoring up their home and improving their home. So you saw in some instances like retail sales, like gap up over 40% year over year, it was insane. You know, retail sales are up 5%. So you’re pulling ahead in some instances, demand like more than five years in a single year. And so it just leads to these massive supply chain imbalances. And then obviously, the tail result of that is inflation. And so what the Fed has been doing is really trying to reverse some of that through the tightening measures, including increasing the Fed funds rate, but also money supply. And I think this is something that I’ve done some work on money supply contracted for the first time in 60 years in December of last year, based on sort of a statistical work and regression analysis that we’ve done. Money supply will have an impact in about a 12 to 24 month lag. So we are still yet to feel the full, long and variable lag of some of these measures. And I think that’s where a lot of questions lie with regards to the macro. I think that you’re going to still see some headwinds in parts of the economy in particular as the full manifestation of these actions from regulators or policymakers are continue to pay through the pipe on their way through. We’re going to see, I think, more of that manifest itself into the first half of next year. And so I don’t think we’re done. And that’s where the Fed is going to look at the data. It’s data dependent. The big one, though, that I’m watching in terms of the imbalances and the employment picture and employment, the unemployment rate is really a lagging indicator. If you look at job openings, the job openings are still well above historical levels. And if I look at it, are a little under eight or a little over 8 million job openings versus historically close to 5 million. But that’s come down from over roughly 12 million back in 2022. So we’re starting to see that come off of oil. And that’s going to go a long way in easing the pressures on inflation from wage. If that can continue, and I think that’s what we’re going to keep our eyeball on is really that is the employment picture. And the real question is, is this tightening going to manifest itself in ultimately breaking down the economy into a recession? And right now, I think the broader view is that if we do have a landing, it’s going to be a soft landing, which would be really amazing considering all the moving parts. But if we land on a soft landing kind of outcome, that would be a really ideal outcome. I think that’s probably being priced in right now. And the bond and the equity markets.

Phil Jung: Soft landing is a similar kind of narrative that we’re hearing in the private markets. I unfortunately have not run any regression analysis, John, so I’m sorry, I don’t have the wisdom of Justin to back up my claims with any sort of data. However, just anecdotally, you know, in the private markets, it’s especially in investing where a lot of that does go into technology, at least for venture capital, it’s very different than the broader kind of macro real economy where unemployment is low. You know, today as a consumer, if you’re looking to hire a plumber or in fact a person or if you’re a daycare center looking to hire workers or even in education in schools, it is tough. It’s hard to find folks because unemployment is so low. But in the technology sector, it is really, really hard right now if you’re a tech worker because there just aren’t a lot of job openings and folks that are expanding, companies that are growing. So there is some narrative around a tale of two cities in that sense. But broadly speaking, there does seem to be a soft landing approach for next year that people are planning for. Next quarter should be better than last quarter. The next six months should be better than the last six months. And the next 12 months certainly should be better than the prior 12 months. Boards are planning to build in this type of growth for next year’s budgets, as opposed to this year when there are constant forecasts and ratcheting down what we were expecting to see and with the rise of interest rates. If you are a fund that does make for a difficult environment for fund raising, given that a lot of investors and LP’s, you know, they can invest risk free at a 5% return, whereas in the risky private markets where cash would be tied up, these are typically long hold periods for private investments and a lot of the uncertainty. So if you’re a fund actively out in market in the last year, this year, it was certainly a tougher environment to raise capital. But if you had raised your fund in 2020, 2021, cash was flowing and a lot of those funds are sitting on available liquidity to deploy capital into. And so in the early stage Market seed series A, startups were still raising capital, the ones that had a real differentiated product to value proposition customers and really strong growth in metrics seen in Series A round. We’re getting done now. They were taking a little bit longer, perhaps months instead of weeks, as opposed to a few years ago, but cash was flowing into those companies. We did see a slowdown in mid to growth stage companies that closely mirror more of what’s happening in the public markets where Justin spends all of his time. But again, 2024 should be much better than what we are seeing in 2023 in terms of activity of the private markets.

John Coleman: That is super helpful. And Phil, don’t worry about having not run a regression analysis even in our short time with the FDI podcast. Justin Speer is responsible for at least 80% of the regression analysis run for this podcast, and we’re very grateful for grateful for it. You know, one topic that’s coming up a lot right now that I’d love to just touch on briefly is the IPO markets obviously important for the work that both of you do? Day to day IPO markets have been pretty frozen the last couple of years. You know, and leading into that, we had this weird dynamic where there was almost like a twofold IPO market. One, there had been this irrational explosion of SPACs, which we could talk about just a bit and how those have ended up. Some of those have ended up continuing doing really well. There was a company I talked to recently called Public Square, for example, that went public through SPAC quite successfully from their perspective. And there are others I know that are soon to go public through SPAC, but that market has died down. You don’t hear people launching SPACs very much now and then. The conventional IPO market has also been frozen as I think later stage venture backed companies are waiting for more favorable valuations in markets. So I would love to get y’all’s perspective as valuations have started to creep up both in public and private markets. What are we seeing today? Where did the IPO market stand and what do we expect in the near future? And maybe, Phil, if you don’t mind, Well, we’ll start with you on that one.

Phil Jung: Yeah. Yeah. Happy to start because I’m very interested in kind of where Justin takes this from, from what I share onwards. You know, a lot of the mid and growth stage companies were just waiting for the right time to see when the IPO windows were starting to open. Now, in the meantime, so many of these technology companies were getting much more efficient with their burn ratios, with their targets on profitability in the rule of 40, for instance, is a metric that’s often referenced by high growth or late stage private companies. And so you have almost this sideline this backlog of folks on the sidelines waiting. And in recent weeks, we’ve heard of folks like Instacart and ALM and Klaviyo waiting to go public later this year. And so there’s been a lot of conversation about whether these early entrants are going to really blow open the doors for a strong Q4 going into 2024. And all of that trickles down eventually to the early stage side once the capital markets open up from an exit M&A IPO window that gives earlier stage investors and companies a lot more confidence that, hey, there is opportunity for continued growth and capital allocation for us. So that confidence will instill down and trickle down. So I’m curious, Justin, what you’re seeing, because that is the sentiment amongst, you know, growth stage investors of we think it’s right around the corner. There are companies that have really strengthened their performance and their efficiencies and there’s a huge backlog of companies now call it plus 200 million of RR, you know, Agusto, Stripe, Brex, Databricks, others that are just kind of waiting to see when the right timing is. I think the big question is valuation. You know, where are these multiples going to kind of play out? And they’re certainly not going to be what they were like a couple of years ago. But are they closer to long term averages, maybe something like ten x of, you know, revenue multiples of what the public markets will bear this time around in the next couple of quarters? I think that’s a big question mark that private investors are eager to see and watch.

Justin Speer: Yeah, it’s fascinating. You know, there’s always in my mind, a particularly in an environment where we are, where it’s a slow growth environment, there’s always appetite for growth. And I think growth becomes even more attractive in an environment like this. It’s interesting to note also that if you look at the broader market growth, equities have outperformed value equities by 25 percentage points thus far year to date, second best since 2000 performance. It’s incredible strength of growth equities, which I think is a nice that’s nice fuel for confidence for IPOs. So I would I wouldn’t be shocked with the strength of the market today to see more activity on that front.

John Coleman: That’s really interesting. And I’m for my part, I’m hearing the same, which is now that valuations are recovering in public markets. It’s much more attractive for these late stage companies. I mean, the other thing we got to think about is a lot of these later stage companies in private markets, the funds that are holding them are coming to the end of their lives, right? Phil? And so because there has not been a lot of liquidity generated over the last two years, a lot of investors are getting quite anxious. And they haven’t been able to get liquidity through the secondary markets because secondary discounts are extraordinary right now and you’re looking at 30 to 60% discounts to NAV on secondary transactions. And so I think people are very hopeful that the IPO route becomes available to those securities and that will have a trickle down effect, it seems like, to the rest of the early stage markets.

Phil Jung: John, if I may just double click on that for just a minute, especially for our listeners who may not be familiar with fund dynamics. You know, most private investment funds have certain windows. It’s a ten year fund. Maybe there’s a couple of one year extensions, but in the LPas, they’ll be agreements. There’s an end of life where LPs are expecting to receive capital back. Right. It’s not like most funds just can hold on to a position in perpetuity. And there are other vehicles for that. But that’s not how most funds are structured. And so if you’re a large fund with a significant or material ownership stake in a company, you may put pressure on a company to go public. Maybe you’ll be one of the first to potentially open up this IPO window later this year or next. Because you need liquidity, you’re obligated to provide liquidity back to your investors. So that’s something that maybe not all entrepreneurs think about when you’re taking outside capital. Understanding the dynamics of where a fund is in their lifecycle, are they early in their investment period? Are there late in their investment period? What is the fund lifecycle timeline of that particular fund? So that’s something to be mindful of. One other interesting piece about companies going public is, you know, another reason to do that might be from a company entrepreneur’s perspective is to almost reset the preference stack. So for a lot of these high growth companies that have raised tens or hundreds and hundreds of millions over the last several years, when capital is flowing, when investors invest capital, they oftentimes get preferred shares. That comes with a certain liquidation preference. That means in an exit scenario, these investors are paid back first before the leadership or employees in an option that have ownership through an employee stock option pool, see any types of proceeds. And so you stack on hundreds and hundreds of millions of dollars depending on what the exit price is. Unfortunately, most common shareholders in these types of scenarios may not see any sort of proceeds, but what happens when you go public is all of these preferred shares convert to common. So in some sense you’re almost starting over in terms of that preference stack. So that might be another reason that drives companies to seek to go public to help with that conversion. So a lot of that goes into it. And again, Justin is the expert here and what that looks like. Those are some of the dynamics that are less talked about in terms of companies going public.

John Coleman: Yeah, I completely agree. Maybe to follow up on a thread, but to switch topics a bit headed into the next section. Justin had begun to bring up earlier segments that the markets seem to be excited about. I think AI is what everyone’s talking about feels eerily similar to, you know, eight nft’s in 2020 and like blockchain in 2017 or something. But, you know, I think we’d all admit that generative AI is a transformational technology. There have been great leaps made, particularly on the natural language processing side of that or on the large language model side of that through Chat GPT and others. What are industries or segments that you’re most and least optimistic about right now? And so Justin, maybe we’ll start with you on this, but as you think about industries, you’re really fired up to be an investor in those that you’re really cautious about right now. What are those?

Justin Speer: Right. And I think that on the heels of COVID and what that’s done is it’s really, I think, accelerated this growing affinity for digital experiences. And so where we’re seeing some really rapid adoption, I think it’s a secular growth thesis is in the adoption of these technologies. But really the shift towards electronic payments is one that I’ve been focused on. You know, that’s not something new, but there are some really, really robust areas of opportunity for disruption in a host of different sectors with payments and electronic payments in particular taking over. And there’s some really great cultures out there, really great leaders out there, small cap companies that have just massive addressable market so they can grow into. So I think that’s an area where I think there’s an area for disruption, for growth. And in an age where growth is hard to come by and the shake up in the financials in particular, and particularly the denting evaluations for SPACs, some of these companies, you know, came out of SPACs. And so there’s some really interesting valuations that I think don’t reflect necessarily the longer term opportunity that some of these companies have. And I’m pretty excited about.

Phil Jung: Yeah, on my end, you know, I think we’re full in this generative AI hype cycle. This past week was the latest YC Demo day over two days and effectively all the. Nominees reference that they were or some sort of AI company or generative AI company. Now, I think there is a lot of excitement, especially earlier this year, about what was happening in the space. And already there seems to be some clear winners. The entropics, the hugging face, the chatGPT, open AI, folks of the world. But what we’re most excited about currently, as we think about how AI can be used, are very specific opportunities. I use cases, verticals where I can assist and augment kind of human analysis or insights that are being driven. So for instance, we recently looked at a company, we’re still looking at a company that supports providers as they interact with patients during a live interaction to help document through technology. So there’s no manual labor that now needs to be inputted in notes and also the associated billing, the CPT codes and the requirements to help Bill for that time, which decreases the burden on the provider to spend after each patient visit, to spend and typing up notes and submitting all the required documentation for that time. We think that’s a really elegant use of AI technology in a way that’s real. Where [….] can you see immediate benefit? We’re also, it really continue to be excited about software. I mean, you know, it’s been how many years, decades since the phrase, you know, software eating the world has really taken over. But we’re still seeing applications of instances where software can continue to automate and provide just more efficiency. We’re excited about a company currently that has developed software for autism care clinics that are spending time with patients and their families. And these are children who are dealing with serious, prolonged kind of cases of support and need where often providers are working 30 plus hours with them. And all of the documentation in that case as well in terms of care plans and pathways and next steps and follow ups and appointments. All of that is still done pen and paper in some clinics. And so a software platform that really is the operating model for that clinic on how they run their business. We think that’s another way that software instance can really change the trajectory of how care is delivered. And so software, you know, specific use cases of AI, you know, those are areas that we use feel very excited about. And, you know, oftentimes people ask us, well, we have this great company, it’s not a software company. Would you consider investing? You know, currently that’s outside of where I focus today. And part of that is because for software businesses, it’s very different from other industries in the sense that, you know, once a software platform is created to deliver that same value to that next customer, it doesn’t require much in terms of incremental costs are that R&D has been developed, you know, that new user or that clinic or a customer can log on through a SaaS portal. So that’s a high margin business. And what that affords the company is margin to invest in other areas of growth or operations. And it gives you a little bit more room for error as you continue to scale headcount or sales and marketing team R&D, etc.. So we like those high margin businesses that can be scalable and we’ll continue to see, I think, a lot of growth in those areas. You know, an industry that has really fallen out of favor in venture is actually consumer consumer focused businesses. You know, during COVID, we saw this boom in e-commerce and home delivery of food and whatnot, post-pandemic. A lot of those industries and companies that saw, you know, rocket ship growth have really fallen out of favor. And that’s partially because, you know, one end user consumer behaviors, fickle, you know, preferences change and to to acquire customers, it takes a lot of marketing spend to stay top of mind. It requires massive marketing and advertising budgets. The cost of customer acquisition is very high relative to these other kind of software businesses, for instance. So consumer focused kind of opportunities have seemed to fallen out of favor, at least for now, in the venture industry. A lot of the direct to consumer models that used to be very exciting just even three or four years ago.

Justin Speer: That’s interesting Terms of the categories are the sectors that have been under pressure. You know, those pandemic gaming categories early on, I think are facing this this this hangover effect. That’s something to be mindful of because I don’t know not to look at everything, but I don’t know if current expectations from the broader market really reflect that reality, particularly as stimulus savings wear off. And I mean, how many times can you paint your home? Right? I mean, it’s just one of those things where we’re going to see a little bit of a hangover. And I think that that can last a while. The other area for us where there’s a lot of pressures in the banking realm, you have pressures from I didn’t realize this until I did a lot work on about nearly 85% of banks funding come from deposits that are yelling, you know, deposit rates of like 40 basis points. When I go money market rates and Treasuries and CDs at five and a half by five and a half percent. So their funding vehicles are going to be. Really under a lot of pressure. At a minimum, their margins are probably going to be under pressure over time. And then on top of that, you’ve just got dislocation and some of these valuations for office multifamily from this moving rates that’s going to affect the asset ledger book. And so it’s something that obviously led to a little bit of rumbling earlier than we haven’t even gone into like an economic kind of stress yet. Really, it’s more just valuations moving. But at the end of the day, I think banks are going to be an area where we have to be really careful with.

John Coleman: You know, And what’s interesting to me Justin to pick up on that theme. And then one that Phil mentioned with banks, there’s been this realization that what people thought of as a very safe place for money maybe isn’t. Now, no one lost a dollar because of federal guarantees, but in fractional reserve banking systems, there’s always been this disconnect where you deposit money in a bank, you think it’s incredibly safe because you’re not earning anything on it, or maybe you’re getting a small savings rate and then the bank levers that up 90%. Basically, they loan out, you know, 80, 90% of the money that comes in and deposits into into riskier assets. And because that’s been guaranteed through the FDIC and through these implicit guarantees of the federal government, I think consumers have largely kind of been unaware of that. But with the regional banking crisis, people have started asking themselves, like, why am I sitting in a repository account with greater risk when I can go to a money market with a better interest rate and there’s no real leverage risk like there would be in a fractional reserve account. And it’s fascinating because that is if that continues to catch hold, that is incredibly corrosive of the profitability of the typical bank structure, right, Because that’s where they get their money on the loans that they’re doing, the deposits that empower that. And I think people are more aware of how fractional reserve banking works now than they were even six or eight months ago. Probably the second thing I’d bring up, which Phil touched on, is, you know, as we look at these run in technology stocks, I think the tech sector for the first time in its recent history was forced to demonstrate discipline. And they actually did that in a way that investors appreciated. You know, one of the questions was always when this massive 15 year bull run in technology or maybe even longer than that ends, right, since the late nineties, basically. How are Google and Facebook and Apple and Amazon going to deal with belt tightening? Are they going to be able to conduct layoffs or are they going to be able to sort out which parts of their business are profitable and not profitable? Are they going to be able to manage costs when they need to because they’ve never been forced to do that before? And I think, Phil, my impression, both in private companies as well as their larger technology counterparts, is that investors saw real constructive cost control in those companies and they demonstrated ability to manage through crises when they needed to cut costs. And I think that’s part of what gave people confidence to get back into these names, right, is the idea that they saw them manage themselves reasonably well through what could have been a downturn. And so my hypothesis is that that was approved point that people have been waiting for for 15 years and that the tech sector actually largely passed on that. Great.

Phil Jung: Yeah, that’s a really great point, John. And now I got to say, I think it took a little bit of time, several quarters for that to really hit home for a lot of entrepreneurs and maybe even, you know, 18 months or so. But it’s really interesting, you know, in today’s environment, even when we get pitched opportunities at the seed or series stage. So very, very early companies oftentimes, you know, call it a million or a couple of million in revenue. Even entrepreneurs are presenting investment opportunities into their company as almost a dual path. We can leverage this capital wisely. We know if we put in a dollar in marketing, it’ll spit out 110% in top line revenue growth, for instance. And so we can use that towards growth and dual tracking it with this capital, there’s a path towards profitability. Right? And so even at the earliest stages of company formation for entrepreneurs to be thinking about that profitability targets and efficiency ratios and that’s just not something we were seeing, you know, five plus years, you know, the whole bull cycle almost. Right? When capital was plentiful, entrepreneurs were just thinking about, well, if I hit my next top line goal, I’ll be able to raise more capital. And burn does not matter as much. And so it’s really interesting. It took some time, but we’re definitely seeing that in today’s market.

John Coleman: Guys. This is the Faith Driven Investor podcast. You guys are faith driven. Investors want to turn now a little bit from the kind of financial market dynamics to what you’re seeing on the faith front. Two topics come to mind, but I want to start with one first, which is each of you takes a different approach to what we termed spiritual integration in the companies that you serve as a capital partner and what that can look like. And in fact, when we say spiritual integration, we just mean how does the leader of a company live out their faith in the context of the way in which they manage that company or they lead that company. And how can we as capital partners, encourage them on that journey in a way that creates human flourishing and love of neighbor within those companies? Maybe to start with, you Phil in the venture markets. What is the latest in spiritual integration? How are you all coming alongside companies and what are you encouraging companies to do? This may be different than what you would have done a couple of years ago, or that’s beginning to be innovative.

Phil Jung: Yeah, well, maybe I’ll start with the trend that I’m seeing More and more common is, as a lot of companies are either kind of remote or in a hybrid scenario and you’re not seeing everybody in the office. I’m hearing more and more examples of companies that have dedicated channels, whether it’s a Slack channel or other forum where people can share highlights, encouragements and also prayer requests as well from those within their company to celebrate the highs and the lows in ways that we might encourage one another. You know, some have explicit prayer channels, even though these are not, quote unquote, Christian businesses. Right? These are secular businesses led by believers. But they feel in this day and age where we’re all looking for something bigger than just us, they’re looking to join a company that cares about an individual and their whole self. They’re promoting and encouraging those ways to communicate and bring your whole authentic self to work. So I’ve been really strengthened and encouraged by that. In this environment, it is really tough if you’re an entrepreneur in the early days of company building, oftentimes you don’t have a fully built out executive team. Maybe you’re solo founder. The highs are really, really high and the lows are really, really low. And so we see our role as capital partners, obviously, with supporting business related initiatives and budget reviews and go to markets and all of that. But just encouraging founders who are so often heads down into their business, which can get demoralizing at times. We act as a reminder of, hey, you know, in this market, if you’re only growing, you know, two X instead of the three or four X that you are aspiring to do this year, that’s actually really good in this market. You know, this is what we’re seeing amongst your peers. That has been a huge encouragement. We’ve gotten that direct feedback, I think, oh my goodness, we’re only growing two X this year. Last year we did four X and I thought we were just, you know, sucking completely missing it. And yet it’s really helpful to get a sense of what you’re seeing in the broader markets. You know, that’s been a very small thing that we’ve realized. You know, we’re seeing so many thousands of companies a year having 80 plus portfolio companies. That’s a small way that we can encourage founders of what’s happening in the broader macro. But most importantly, it’s reminding entrepreneurs that their identity is not in their business, it is not in their performance. Yes, of course, it’s great if your company is thriving and things are going well, but first and foremost, your identity is as a child of God. And whether your company’s success then becomes the next unicorn or it fizzles out next year. And that kind of fizzle rate is very high in venture, by the way, an early stage venture that your identity is not in your work, it is not in your performance of your company, but it is purely because you are a child of God and reminding them of that, praying with them, asking how their families are doing, how things at home are going, how their church life or their community is going, and just reminding folks that there is more to life than just their business. Although it is very important. Just to be clear, that has been a great reminder for us, even as capital partners, to double down on that effort, especially during this time when things are shaky and raising capital becomes harder and growth becomes harder than in prior years. So we’ve been trying to be very intentional about that, setting aside to pray with our founders, with them, and outside of time with them too, with amongst our teams, encouraging them of what’s happening in the broader environment so that they can kind of stay plugged in. And in the know, I think, for instance, after we record this, this might be a great resource that we share out in terms of how Justin and John are thinking about what the public markets and the broader kind of later stage environment is looking like, especially for those early stage founders. I think people would be encouraged by that.

John Coleman: Fantastic. Justin, what are you all seeing? I mean, public companies, CEOs and public companies are obviously in a somewhat different situation than our earlier stage companies. What are you all saying there?

Justin Speer: And so we are really blessed to be a part of the culture here at Sovereign that really is focused on spiritual integration and recognizing that culture is really, really important. And we’re navigating pretty complex times with, you know, some and I’ll just be open and honest. Some strange ideas coming in to the marketplace about what a strong culture is. And so, you know, our process is all about finding companies that have faith driven leaders that are doing incredible things for their people. Your servant leaders have golden rule oriented values. These are companies that have incredible benefits. They do some really wonderful things for their people, not just their employees, the families and the communities around them, and do so in a way that’s really God honoring. And one of the things that we do at sovereigns and one important area of impact that we have on the public equity side is that we’re hosting these roundtables for CEOs of public companies to come together. And it’s a small group which creates like a really great format environment for just openness from peers who are dealing with similar types of challenges as public company CEOs. So we’re bringing these leaders together and they’re learning from one another about best practices that each of them are deploying within the organizations to serve the people and to enable their people to flourish. So I think that’s a pretty unique thing that I’ve really never been a part of in my career until I came here. It’s one of the highlights of my career, really, is to be able to be a part of that and really blessed to be a part of that. But we are just delivering these companies, the opportunity and the CEOs of these companies, the opportunity to learn from one another? And each leader has a different they have different roads, different geographies, different industries. And so as our co-founder Luke Roush would say, our aim is it to be prescriptive on a set of tactics but rather descriptive on how leaders can maybe serve their employees, build on what they’re already doing within each of their companies? And hopefully these CEOs will be served with such great ideas from their peers that they act on them. And that will manifest itself in the many thousands of employees that are represented by those leaders in these rooms just to deliver incrementally exceptional culture. And so we actually just had our first roundtable in Dallas have nine companies in attendance, over 40,000 employees represented, 100,000 family members. And that’s, from our perspective, what it looks like to positively serve these public company CEOs, not asking for anything in return, just trying to help them and help their people flourish.

John Coleman: That is awesome, guys. Well, you know, we end all of these podcasts briefly by just asking folks what they’re learning from scripture right now that they might want to share with others. And so just in a couple of minutes, Phil, is there anything on your heart right now that you’re learning and scripture you want to share here with the audience?

Phil Jung: Yeah, maybe. You know, I’m taking my own medicine in terms of what I shared last of even as an investor, just not rooting my identity in fund performance, you know, fund size, the logos that we’re able to partner with in terms of portfolio companies, you know, all of that is in God’s hands. And so in John 15, where it reminds us that I’m the vine and you are the branches, that if you remain in me, that you will bear much fruit and that apart from me, that you can do nothing. I think that’s so humbling and yet so empowering that even, you know, I may think that if I just am able to crank out a couple more hours of work, then maybe, you know, this next company or this next partner of ours, you know, we can close that deal or that opportunity. Well, you know, just as much if I go to sleep and be energized for the next day, God is still working in my times of slumber. And so just that reminder that even as an investor, that there’s only so much that I can do that is ultimately in the Lord’s hands and in that I find security and comfort and peace that transcends this world. I mean, that that’s the message that I’m trying to share with our entrepreneurs that I’m preaching to myself at the same time. So especially in this very competitive industry where there headlines every single day of activities and exciting things that are happening, just knowing that, yes, that is good. But also, you know, God is better in terms of how he is moving and what he’s able to do beyond our imaginations.

John Coleman: It’s a good word, Phil. I will say I feel a little bit guilty that we asked you to prioritize this over sleep given the 2 a.m. arrival last night. So Phil did skip his nap for the Faith Driven Investor podcast, but hopefully that’s a ministry resource that it’s a good priority. Thank you. Phil. Justin, what’s on your mind right now?

Justin Speer: You know, just coming off of the fact that Phil got in at 2 a.m. and he’s doing this, he looks fresh. I think you’re you’re doing well. Phil. But in that vein, you know there’s a section of text and scripture. Mark Chapter six really in verse 48 is where I’m thinking about It’s on my heart after all of our discussions, but know the disciples of Christ. They’re in training, they’re in basic training, and they didn’t really know who He really is. They knew he was special. They do not really how special he is, but he just fed 5000 miraculously. And before that he gave them the power over unclean spirits and they’ve seen him calm storm before. And the people after he fed 5000 wanted to make him a king. And Jesus departed to a mountain and his disciples were left like, What in the world? And we’ve left everything for this man. And now we’re leaving him. We’re alone in a boat, rowing in verse 48. So Jesus saw them straining. Rowing for the wind was against them. Now, about the fourth watch of the night, he came to them walking on the sea and we’re pass them by. So these men were probably three, four or five in the morning. They had just pulled an all nighter. They’re exhausted and they’re rowing in this boat and they’re afraid. And then here comes Jesus walking on the water. And then you come to realize that they now realize that this is more than just the king. He’s the king of kings. This is God. No one can do what he can do unless God is with them. And more importantly, that He is God. And so sometimes, you know, you get in the boat. And I realize that these companies that were investing and I didn’t realize that one in four people are coming to work with either mental health or a substance abuse issue. People are dealing with a lot. And sometimes we’re all dealing with a lot. And we are rowing and we’re trying and we’re going against the wind and we’re exhausted. And I think we just need to remember just as what Phil is saying just to keep our eyes on Christ. And and they apparently were still a lot of learning to do because they were afraid they still had to build their faith. And it wouldn’t be ultimately until they saw him on the cross. And he resurrected three days later that they really had their faith and their hearts were melted and they did some amazing things in his name after that, in particular about let’s just keep our eyes on Christ and recognize that our labors not in vain. And he’s with us and he’s in control and he is the master of the universe. And I love God very much, and I love these stories. To help remind me.

John Coleman: Man, I feel like Justin just ran a regression on scripture, right?

Phil Jung: That was going to say the exact same thing. John That is the equivalent of a regression analysis, man. I’m glad. I’m glad I went first.

John Coleman: Justin Phil, you guys are awesome. Really appreciate you making the time today. I really appreciate your insights on markets and I hope you will consider doing this with us again. Thanks for joining the Faith Driven Investor podcast.

Justin Speer: Thank you John, thank you Phil.

Phil Jung: Thank you.

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What does Faith Driven Investing look like for a global firm dedicated to bringing prosperity across the world?

Today’s guest, Mark Stoleson, has wrestled with this question before as the CEO and Partner of Legatum, a global firm that wants to improve people’s lives by increasing prosperity across the world. 

He joins us to talk about their approach, the power of building frameworks, and what it’s like to think globally about Faith Driven Investing.

Episode Transcript

Luke Roush: So good morning. My name is Luke Roush and welcome to the Faith of an Investor podcast. I’m joined here by my co-host John Coleman. John Good morning.

John Coleman: Luke Good morning. We’re recording this at 6 a.m. Nashville time. I know, so it is an early morning, but you seem delightfully energized this morning. Despite that.

Luke Roush: I am. I am. And we have a wonderful guest this morning. Our guest is Mr. Mark Stoleson, who is the chief executive officer and a partner at Legatum. We’re going to hear more about the firm this morning, but he’s been with the firm since 2006, served in a variety of capacities, including head of group investments. He’s worked with his partners there to incubate a number of the firm’s key philanthropic endeavors, including the End Fund, the Freedom Fund, the Luminous Fund, the Legatum Center for Development and Entrepreneurship at MIT, as well as of the Legatum Institute Foundation in London. So prior to Legatum, Mark was an attorney so he’s reformed out of that practice which is wonderful and he also hails a law degree from my alma mater, Duke University, which we have not connected on previously. So that’s really fun. Mark, welcome to the show.

Mark Stoleson: Luke. Thanks so much, John. Great to be with you both.

Luke Roush: Yeah, it’s really, really good to have you on. I’m a long time admirer of Legatum Mark, as I shared in our lead up to this, But I want our listeners to be able to benefit from some of the things that I really admired as we talked through your background. But just give us oriented in terms of where you all are at Legatum. And so your website has this wonderful tagline of having an ambition to improve people’s lives by increasing prosperity across the world. What does that look like for you guys? And maybe just take us down the walk and journey you all have been on?

Mark Stoleson: Yeah, absolutely. So maybe we could just start at the very beginning. So Legatum actually evolved out of another investment firm and it was a family run, sort of a family office investment firm that was 20 years old. And I work there as a young professional as you said, I’m a recovering lawyer, but a lot of those skills actually were really useful. So one of my jobs was working within our public equities portfolio, working on corporate governance issues, just trying to improve the governance and sort of what we would call ethical business leadership across our portfolio. So that was my start. What I found, and this is a really key part of the story, is that one of the principals in that firm and two of my colleagues all had a faith, and we discovered that early and oriented our friendships and the vocabulary that we use, that our outlook on things. And we wound up working very, very closely, very intensively for a couple of years. And then a shocking thing happened that we had the opportunity to stand out and create our own firm. And the genesis of Legatum happened around the table with all four of us basically saying, what do we want to do? Not just with our business, but with our lives? How can we use this business and this organization as a vehicle for purpose and for meaning, and to kind of focus on what David Brooks would call the eulogy virtues rather than the resume virtues in life. You know, when you cross over, you want to hear well done, good and faithful servant. What does that look like for your life? And that was an active part of the conversation. So we thought, well, number one, we want to keep doing what we’re doing. We want to build and run a world class investment organization. We want to multiply our capital, not necessarily play it safe and conserve capital. That multiply capital. We believe God is a God of multiplication and everything is possible. So with that kind of piece in place and that is part of our aspiration, then it was, okay, now if we multiply our capital, how are we going to use those resources in a way that we think are meaningful and positive and helpful? And that’s where Legatum, mission statement was born. A lot of companies have mission statements. We kind of feel like we carved ours out of stones right at the outset and it has never changed. So we’re 20 years into this and Legatum mission has remained the same, and that is to generate and allocate the capital and ideas that can help others prosper and that word prosper and prosperity for us, just given our beliefs, has a holistic nature to it. Prosperity is like the biblical principle of shalom, prosper, your soul, prospers, prosper to all the ways that are meaningful and in a life well live in your relationships, in the opportunities pursued, in the responsibilities that you have within your family, within your community, within your nation. So that was it. And, you know, that was the beginning of the story. But everything that happened afterwards was an expression of that authentic mission statement that I can go through and tell you about. I’m sure during podcast will kind of unpack what we have done. But the thing that follows now, you know the why and. Kind of what we set out to do and everything that follows. It’s been a journey of just trying things, failing, adapting, learning, trying to do better. A lot of things haven’t worked, but a few have and have really scaled the things that have really come to exemplify that original mission.

Luke Roush: One of the things that I’ve really admired is that you all were contrarian before. It was popular to be contrarian, and there are some bets and some investments that you guys have made in specific areas of the world. You’re a global firm. You said, I think in Dubai, split time between there in London, but you’re active globally. Maybe just take our listeners down a bit of the walk that you all have been on. I think it’s appropriate to start with the why and maybe kind of translate into the what you all have been working on over the last 20 years.

Mark Stoleson: Yeah, absolutely. So because we started and are investors, we can’t help it. We’ve got an investors lens that we use for everything that we do. So we think about capital allocation, we think about return on investment. And so within our investment business, you know, it’s proprietary capital that makes us a little bit unique. Obviously, our mission and our relationships, this partnership with four individuals has lasted for two decades. That’s unique. The mission is unique. The fact that we have proprietary capital is unique. It’s a huge blessing. What it enables us to do is invest with a long term perspective and actually follow that through. And so a lot of people talk about that. We know that, you know, just the power of compounding over time being patience and investments is really valuable, but not everyone can do that. So if you’ve got a fund life, you have to return capital to investors or you have redemptions. You know, you face forced selling at just the most inopportune times. We’re super blessed and fortunate that we don’t have to do that. And so throughout not just Legatum’s history, but our prior firm, we would find that we could make some of our best investment decisions when everyone else is panicking, when everyone else is fearful, when markets are roiling. And you see this major disconnect between the actual value and the price of something. And it requires a lot of discipline. Even when you have proprietary capital, it requires discipline and sort of intestinal fortitude to deploy capital when markets are really shaking. But we’ve been able to do that well. So one example, just one small example was in Covid, where we watched the situation unfolding. We watched not just markets, but nations just panicking. We did our research and when we do it, investors do. We started to read. We started to research and started the thing. And our contention was, I mean, we’re not scientists, we’re not PhDs, but just using common sense, using our own experience, using our faith. We looked at and thought this could be bad, but it’s probably not going to be as bad as is sort of current market prices are reflecting. And so, you know, we always carry some dry powder and some cash and we were down. I mean, our fund must have been down 25%, you know, in March, maybe February, March, April ish. And we had one position that was down over 50%. So we were definitely seeing the mark to market repercussions of all of this emotion and sentiment. But we did something that when Legatum does well, this is how we do it. We went 100% invested and for one of I think, twice in the last 20 years we borrowed money to invest, but we took a little bit of margin and just plowed it all in our existing portfolio. We know those businesses very well. We know everything about them. We know where their value lies. Got high conviction in their ability to create value in the long term. And we just went all in and that was one of our best performing years in the last 15 years was 2020. And so that’s zigging when everyone else is zagging. But that’s a great example of us doing what we’re configured to do. We made the opposite mistake and lost patience, and we’ve lost patience. When things go down too much, too fast and we’ve lost patience when they go up too fast, all of our models get stretched in banks, which we don’t. We like financial services and the price to book ratio goes like eight. In a country like India, even if the bank is growing at 100% for a year, we just, you know, we get rattled by that and sell out to it. And so we’ve made those mistakes over time. But one thing that really has taken root within the firm is the virtue of patience. And patience is the choice. And patience is a discipline. But when you actually use it in investment, it’s like a superpower. And so when we’re doing well, we have high conviction. We have a highly concentrated portfolio, and you’ve got a multi-billion dollar portfolio that’s usually invested across less than ten. Names will go narrow and deep, high conviction and intend always to hold for the long term. So it’s a bit like a private equity portfolio, but 50% of it is in the public markets.

John Coleman: Mark, I love that example, especially during COVID when you guys zagged as everyone else was zigging I guess, or zig when people zagged. What are the examples of that right now in your mind? Either countries where you feel like investors have panicked or have exited sectors? It’s still a pretty choppy economy right now, I think globally with inflation, with rising interest rates, with softness in real estate markets, etc.. And so we’re seeing a lot of places that investors are shying away from. Are there any high conviction spaces where you think people have overreacted now that you’re focused on?

Mark Stoleson: It’s a great question. I mean, just for a second, dialing back the talk a little bit, the whole heritage of this firm is in going places that other people don’t want to go. So, you know, in going places, that would be fashionable tomorrow, but that are out of fashion today, whether that’s a company or a country. And so a lot of the history is investing in Brazil. In the 1990s, no one wanted to go there investing in the former Soviet Union. So from the Czech Republic through to Russia during those years over throughout our history, we’ve invested in most countries. So we’ve invested in China and India and in Europe and in North America, South America. So I think if you look around the world today and ask where is the most out-of-favor country for investors, you know, at least somewhere near the top of the list right at this moment would probably be China. And so you have to look at it, study and think really hard. You’re looking at a situation that is driven by politics and geopolitics in addition to just economic fundamentals. That would be the type of place that Legatum would be monitoring, I would say, in looking for opportunities. China is a huge country, huge population. You know, it’s still growing and has, you know, hopefully its best years in front of it and it creates some amazing companies. So it’s a place that we would probably look. But right now when you start to see fear begin to reach sort of a peak stage, you can take your pick. You can find amazing companies in America that are out of favor in certain sectors, whether that’s within the energy sector and other places. So basically anywhere that’s out of favor is a place that we would be keeping a close eye on.

John Coleman: But one of the things I love about you all is the global footprint of the firm. In fact, here in Dubai, I think is your primary home office. I guess, Mark, I had the privilege of living and working in Saudi Arabia for a while and Afghanistan spent a lot of time in Dubai. Obviously, such a fascinating region. At the micro level. How did you decide upon Dubai and what is working as a faith driven investor look like in Dubai? And as you zoom out, how does that influence and shape you as a firm, that global footprint?

Mark Stoleson: Yeah, great question. So the choice of Dubai for Legatum, it was just really pragmatic. Frankly, we don’t have any investments that we own our own building. So we rented out we have tenants […..] and whatnot. But that is really our only investment in the entire region. So Dubai is a bit of a bedroom community for Legatum, but it served us very, very well over time and what we were looking for and we asked ourselves the question every five years or so like, should we still be in Dubai? Because we could be anywhere. But the key drivers of that decision were, you know, number one, we wanted a place where we could recruit and retain world class talent. So where can you find good schools, a good standard of living? It’s a safe place to raise a family. Then we wanted a place that logistically would serve our global footprint. So from Dubai, Dubai now has the world’s busiest airport. You can fly to Hong Kong in 7 hours, London 7 hours, Cape Town in 10 hours. The US is a little bit further, but you can kind of get a lot of places that we want to be and we love to be boots on the ground. Go visit countries, visit companies and really get a close perspective on our portfolio and on opportunities. So that’s a key part of our strategy. So logistically, Dubai is fantastic. And then third is just a really business friendly place. It’s easy to set up a business, it’s easy to run a business. It’s the legal framework. The infrastructure is fantastic. So, you know, we’ve looked around for other places to be, and some have one or two of those attributes, but very few have three. And so we’ve stayed in Dubai. What is it like to be a faith driven investor in Dubai? It’s awesome. Dubai itself is part of a republic. It’s part of a group of smaller sort of emirates. Or little countries within a country, the UAE, the United Arab Emirates. Dubai only has probably 2 million people in it, but it has 200 nationalities that live within Dubai’s. It’s a very cosmopolitan place, very international place, and it’s a very tolerant place. So you can practice your Christian faith. You know, I live on the Palm Jumeirah and I had people that were renting the home across from us or Orthodox Jewish people or who walk around with the yarmulke, you know, kind of traditional Jewish wardrobe. So Dubai is just a very tolerant, very open, very cosmopolitan place. I belong to an amazing church in Dubai. And we found that that type of openness and tolerance made it easier and made it possible for us to retain and recruit amazing professionals as well.

Luke Roush: One of the things that I think also has just attracted so many people to Legatum over the years and has really built, you know, your brand in a way that I think also reflects the faith of the founders is this idea of prosperity and what that looks like in and through your firm and the investments that you make and then how you select investments. So you talk a little bit on your website around the prosperity model and your prosperity ladder framework. Would to have you just unpacked that model, the framework? I think most firms don’t have a theory of change, how their work translates to change that we want to see in the world. But maybe could you take a couple of minutes and just unpack that for us, Mark?

Mark Stoleson: Sure. Absolutely. So if a God whose mission is to help promote prosperity is to help people prosper again, as investors, we want to do our homework and study like, oh, what? How do you make that happen? What are the component parts of prosperity? And we didn’t know literally when we started, we pulled out. I had a yellow legal pad and we were sitting in a room. We were like, I don’t even know what prosperity means. It sounds like money, but what does it mean? So we I went to the Webster’s dictionary and looked it up, and it turned out that prosperity is really multifaceted. It’s got a lot of things going on. And we realized probably we’re going to need some help. So we visited some professors at Oxford University here in the UK. So I’m talking to you from London today. And we got seven professors together who all had like an angle on what’s prosperity. And we asked them to deconstruct prosperity into its component parts and tell us, how do you do it, what’s it made of? And it’s made of the things that we’ve already talked about. But of course it takes wealth, but also what we call wellbeing, which is all this stuff that makes life worthwhile. It’s the quality of your relationships, it’s the amount of opportunity hope, you know. How do you measure hope and how does that get factored into it? Safety, security, health. All of these things. And after we had these genius professors kind of deconstructed it for us, we thought, okay, well, let’s put it all back together and do an assessment like how prosperous is the UK? How prosperous is the US? And once we started to pull on that thread, we thought, Wow, you can actually compare countries against each other. And gosh, if you can do that, that sort of feels like an index. You could have a league table or an index of prosperity of prosperous countries. And so our Legatum Prosperity Index was born on 2007. And looking back on that document today, which Legatum Partners co-wrote together. It looks really amateurish, really, you know, very basic. And over time, we hired an amazing group of folks to do things called regression analyzes and a whole bunch of other super high tech stuff, too. And I think they’ve got 88 different components to our prosperity index. And it’s a very sophisticated look at what drives prosperity on a national level and what restrains prosperity on a national level. And the idea was if we can create that kind of framework. For national leaders and decision makers. That’s a public service. If you’re a national leader who wants to see your country prosper, this can give you a good idea as to how to think about that and maybe where to allocate your time and allocate your resources. So that’s the prosperity index, the prosperity ladder. One of my partners, Alan McCormick, literally just wrote it on a napkin one day because he realized everything we do and the way that we think is about capital allocation and we understand how to allocate capital in the public equity markets. But then there’s sort of private equity and then there’s venture capital and then there’s sort of angel. We’re all familiar with those sort of different strategies of capital allocation. But we realized we’re doing a ton of work just in philanthropic efforts and charitable work, and that has all of the same attributes of capital allocation. You want to do your assessment, you want to allocate capital wisely, you want to look for a return on investment. You need to monitor that. What does an exit look like in philanthropy? And so we wound up just creating that prosperity ladder that we got some amazing feedback from it because it really does just sort of provide this taxonomy of capital flows and capital allocation in these different to meet different needs, basically.

John Coleman: One of the things I love about what you all do is the diversity of investment strategies you’re involved in. And as you mentioned, that even extends into philanthropy. Luke went through some of those at the beginning of the call, just in the different focuses that you all have as legatum. Could you unpack that a little bit and tell us what are those different strategies and why have you all chosen to get into each of those in a way that influences prosperity as you just described?

Mark Stoleson: Yeah, absolutely. So maybe I’ll start just for 2 seconds on the financial investment business. So the way that it’s configured today, it looks a lot like Warren Buffett. It’s got a little bit over 50% of the public equity markets, and that’s on an unlevered basis. We don’t borrow any money, we’re not shorting anything. It’s long on the highly concentrated portfolio and then we probably have about 40% in private equity. And private equity is probably a better fit for Legatum because we don’t feel like we’re traders or even investors. We want to be business builders, business owners, and that’s our mindset in investment. And then probably about ten or 15% of the portfolio is in venture capital. But venture capital is not our wheelhouse. We wouldn’t be good as a venture capital firm, but we do strategically want to be exposed to certain geographies or certain sectors and need a way to do that. And so we have about seven different venture capital fund partners that we’ve allocated capital to because they’re just way better at it. But we want the exposure. So one of the ways that Legatum thinks about investment is what we call as SBI is simple, big ideas. So if you think India is growing at seven or 8% and it’s got a population of over a billion people, there is an SBI, which is the rise of the Indian consumer, how do we express that simple big idea? And then we’ll express it through kind of the sectors that we like that we understand consumer discretionary tech, maybe financial services and banking. So that’s kind of how we think about our core financial investment business. We don’t think a whole lot differently about philanthropy. We want to look for value. We want to look for an outsized return on investment. And to do that kind of guy, go looking in the same types of places, places that are overlooked. So let me give you an example. Luke mentioned the end fund. The end fund stands for Ending Neglected Diseases. And what the end fund is all about is deworming people. So that story started with one of my business partners reading the Financial Times. He discovered that 1.5 billion people around on planet Earth have one or more forms of worms, intestinal worms. They can kill you, they can make you blind, they can make you lame, they can keep kids out of school, keep people away from work. So it has a major harmful effect on the health of a community family nation. You will only find these diseases in the poorest countries on the planet. So you won’t find them in America, you won’t find them in UK, Japan. Why? Because, I mean, all these diseases are global diseases. The worms are everywhere. It’s because in America we deworm people with a pill and we deworm animals as well. And there are a lot of countries that just don’t have access to those pharmaceuticals. So as we did our research, we discovered that pharmaceutical companies were actually, to a large extent, give you the medicine for free. The patents have run out. They don’t make any money out of it, but give it to you if you have a credible plan for kind of supply chain management distribution. Legatum chose two countries, Burundi and Rwanda, and said something that’s never really been done before is what’s called a Mass Drug Administration program on a nationwide level. We thought if working closely with the ministries of health. Those two countries, we just wanted to figure out if you could do a national process over 7 to 10 years, so long term time horizon to control and then eliminate these diseases. And what we found was the results were just off the charts, exceeded all expectations. We found that in some pockets of those countries, you have like 70 or 80% of a local population infected with these diseases. And with two treatments a year, you could get the disease prevalence down into the single digits, even down to zero in some places. So incredible results having proven the model, having de-risked it, which is just again, the investors lens, we thought, well, we don’t have the capital to roll this out to the whole planet, so we’re going to need to collaborate. And the end fund was born out of that spirit we took the Legatum name off of. It wasn’t the Legatum of Deworming initiative anymore. It became the end fund and we invited other donors and investors to join us. And today the End Fund is the world’s largest privately funded deworming campaign. It did over 200 million treatments last year alone. So it’s just it’s operates in over 30 countries. And to me, that kind of the punchline of that story is somebody has to have the risk capital. Somebody has to go out there and risk failing and prove the model. And once you’ve done that, the other part of the story is taking your name off the door, in some ways, opening it up to everyone else and making it something that people can collaborate on and feel a sense of ownership on.

Luke Roush: So, Mark, that’s remarkable story. I mean, 200 million treatments in the last year alone. Just unbelievable. There’s aspects, you know, when I hear you talk and we had a chance to talk a little bit before this as well, when I hear you talk, I mean, we’re talking with you on the Faith Driven Investor podcast, but there’s also a faith driven entrepreneur podcast, and there are elements of you and your partners and how you think about translating simple big ideas that SBI into reality. That really is akin to what we see in venture capital founders. Maybe speak a little bit about just the transformational potential with entrepreneurship and how you and your partners are wading into that idea.

Mark Stoleson: Yeah.

Luke Roush: Different parts of the world on both a for profit and maybe concessionary capital perspective?

Mark Stoleson: I mean, I think we as investors, we just instinctively love entrepreneurs, love the creators and the risk takers. But as we studied, prosperity didn’t take long to realize there is no prosperity in a nation without entrepreneurs. And these are the people that create the opportunities. They create the jobs. They are the engine that drives the ecosystem of finance and that really they are major servants for our national economy and prosperity. And so. But for us, entrepreneurship is even more. And the reason why we set up this Legatum center at MIT and the way that that works is we realize there are brilliant young folks from really, you know, disadvantaged backgrounds or countries that are very poor, just kids that could get into MIT but can’t afford it and have a bench or a calling to entrepreneurship. And we thought, gosh, if we can kind of come alongside them and just with a little bit of funding, give them access to that level of education and that level of network. And if they go back to their country, they’ll start a business, they’ll run a huge business. They may want to be running the whole country. And if during their time at M.I.T. as a Legatum fellow, if we could also give them a vision for the power and the virtue of entrepreneurship. So if they wind up in a position of political power and authority, maybe they can play a part in sort of removing obstacles and sort of paving the way so the more entrepreneurs will serve that society and drive more prosperity for everyone. That was the thesis behind setting that up. And the reason for that is when we look at entrepreneurs, we feel like and again, you know, entrepreneurs are people and people are are flawed. But big picture to us, entrepreneurship represents a basket of values, right? I mean, these are people who want to be creative and people who will put themselves out there and fail and then adapt and try again. So you’ve got perseverance, you’ve got patience, you’ve got audacity and boldness. There are so many. Character attributes that are so good about entrepreneurs that you just want to see, you know, spread out. You want to see sort of leavening a whole society, a culture of a society. So we love entrepreneurs because they do great stuff and create opportunities and jobs. But we love the idea of entrepreneurship too, because of what it represents in terms of values.

John Coleman: Going back to the global nature of your firm, Mark, in the way that you work with such a variety of people. I mean, you even just described it in things like the end project that you’re working on, where you’re working across countries. This is the Faith Driven Investor podcast from a Christian perspective. But we’ve also highlighted Jewish investors here. We’ve got a muslim investor coming up. You’re working alongside people of all belief systems in the work that you do. Any advice for folks on just navigating that as a person of Christian faith, working well with those who are sincerely motivated by other value systems or in a diverse environment where those value systems are represented?

Mark Stoleson: Absolutely. So Legatum has sort of three basic core principles that everyone signs up to and animates everything that we do. And the first one is excellence and elegance. And the second one is culture of honor. And the third one is flawless compliance. So because we operate in lots of different countries and lots of different cultures and lots of different sectors as well, whether you’re deworming kids in Africa or you’re deploying capital in the Japanese banks, you know, for us flawless compliance means you say, well within the safe zone, the right side of the line at all times, no exceptions. And we’ve got a team that’s, like you said, in London and in Dubai and also, you know, in the US and other places. So that’s really important. But the key, the twin kind of heartbeats of Legatum are really excellence and elegance and a culture of honor. And with excellence and elegance. It’s not just being, you know, masters of our craft, like really always looking to improve, always looking to do better in terms of how we invest and just how we conduct ourselves. The elegance part is we want it to be beautiful, but we want the relationships to be beautiful. We want our work product to be beautiful. We want them got a brand and what it represents to be not just excellent, but also beautiful. And the culture of honor is probably the most important part of what makes Legatum and I think really special and what makes it so effective in different cultures and with different faith traditions, because we don’t feel like it’s our role to tell anyone how to think or what to do. We come to serve it in the posture of a servant of wanting to come alongside people and help and contribute and honor other people. And that starts I mean, it starts at home for us. That means that starts within the Legatum team and within the Legatum family. And so something that we pay a lot of attention to is how are we treating each other? How do we make decisions? And culture always comes from the top. And within Legatum the top is the partnership of these four individuals, and we take a very intentional and disciplined approach to maintaining right relationships with each other. A couple of principles that really stood the test of time for us. One is what we call the power of agreement. And what that means to us is that we want to move in unity at all times. So especially with anything material for the firm, it doesn’t mean that we have to agree on everything. But if we wind up in a situation or a decision that we’re discussing that we need to take and we’re not in agreement, we make the highest priority to be in unity regardless of whatever we decide. And the second is what we call keeping short of counts. And so when you walk a journey with anyone, whether it’s in a marriage or a business relationship for two decades, you’re going to have good days and bad days. You’re going to misunderstand each other, you’re going to offend each other. It’s human experience. But the one thing we can do is keep short of counts and to raise issues quickly, not let things fester, not let any sort of bitterness take root, forgive each other and move on and just be very, very intentional about that. So when you see those principles, really something that we make a big priority with in the partnership, you can see it fed through the entire organization and the culture of honor that we strive to live by.

Luke Roush: I think those are great tips, Mark, and great stories of how you and your partners over 20 plus years have been able to stay together, stay unified, you know, engage in the merits when hard decisions need to be made, but ultimately come out and move in unity. I like that a lot. One of the things that we like to do at the end of each podcast is just take time to hear what the Lord is saying to you in and through Scripture. Sure. And how that maybe impacts your work and leadership of Legatum. So maybe just take a few minutes and share what the Lord is teaching you right now in this season.

Mark Stoleson: Well, I mean, two things that come to mind that are really sort of top of mind right now. And I’m sort of pondering why the Lord is raising these things now. But one is, you know, in Isaiah when it talks about the prophesying, the coming of the Christ is prophesying the coming of Jesus, and it says the government will be on his shoulders and it talks about these attributes. And one of them is that he’s the Prince of peace. And we normally hear those words around Christmas time. But for whatever reason, I feel like God really put that on my heart recently. And I think what he’s saying and I’m still really sort of noodling on this, is something about the importance of just good governance, good governance, good governments, good leadership, and whether that’s in your family or whether that’s in your organization, whether that’s in a nation, there’s this connection between good government, Christlike government and peace. Like if you’re not seeing peace, there’s probably a link to the quality of the government. And that’s really struck me because as a leader and as a leader of leaders within our organization, leaders have different personalities. And some people are more by confrontation, easier calling people out, calling people higher. Other people really are just more wired for harmony and they don’t want to confront things. And it’s something that I’m working on with some of our young leaders is just the necessity as a leader to bring peace. But sometimes you have to bring peace by raising the tough issues, by calling things out, by holding people accountable, by making it clear what you will tolerate and what you will not tolerate as a leader. And that’s hard. That can be awkward, that can be uncomfortable, that can make you unpopular, that can make you lonely. And yet it’s totally fundamental and necessary as a leader. So this link between good government, like Christlike government, I just for some reason I was really struck by that. The government’s on his shoulders and, you know, there will come a time when every new about every tongue will confess that Jesus Christ is Lord. When that happens, we will experience what that level of peace looks like because we’ll be living under his government alone. And it’s awesome. But I feel like it’s part of our role, not just as believers, as Christians, but as leaders to do our part to try to bring heaven to earth, to try to bring some of that within the authority that we have been entrusted with. So that’s one. And if we’ve got time, I’ll give you the second one. Second one, it does go to the power of unity again. And, you know, I’ve been really reflecting just on when Jesus talks about how his disciples will be known, it’s that you will be known not by what you achieve, but you will be known by your love for one another. Yeah, that’s how people are going to know that they’re Christians. That’s how the people are going to see a reflection of Christ those other people are going to encounter. The Divine is through our love for one another. And so even within the bottom context, even though the God him is not an evangelical Christian organization, we have people of all faiths and no faith that work within Legatum, and are very successful within Legatum. But that’s the perfume that I want to see coming out of the God is a love for each other and a love for humanity and a love for our neighbor. And that through that, I feel confident that God will make itself known, that his presence will be revealed if we love one another. But as a corollary to that, I just have noticed over two decades of doing this with my partners that when we are in unity, I feel like something spiritually powerful is unlocked and we can see it in fruit and in the oil of God’s favor in the activities. It’s almost like you get the relationships and it’s almost like it’s not always the case, but it feels like good things happen. And when you’re in disunity and disharmony, it feels like it just at least for us, it feels like it has a a restricting effect or almost feels like a kind of cauterize is God’s favor. And so it’s something that it’s just hugely important to get over yourself, make things right and run. Don’t walk back to a place of unity.

John Coleman: Mark That’s an encouraging word. We’re really encouraged by the work that you’re doing at Legatum and around the world. I’m really hoping to get to visit some time on a trip to Dubai. Luke It seems like we’re probably overdue for a trip out there, but just really thankful that you would come on today and share your insights and the insights of your firm with the Faith Driven Investor podcast and with the audience that we’re reaching. So thank you so much for being here today and for the work that you’re doing.

Mark Stoleson: John Luke Guys, thank you. Not just for this time, but thank you for what you’re doing with the faith driven investor, faith driven entrepreneur, the whole movement that you guys are stewarding. It’s super important. I hope that this is useful for someone out there as they hear it. And you’re both more than welcome in Dubai. We look forward to your visit.

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What does it look like to lead in the midst of chaos, brokenness, and division?

The recent events in Israel and Gaza have made the brokenness of the world even more acute and visible.

There are a lot of thoughtful places where you might go to find perspective on politics, faith or even breaking news, but we wanted to bring something different to the table.

We’ve brought on two friends of the Faith Driven Movement, Mordechai Wiseman and Bader Mansour, to talk about what it’s like to lead businesses in the face of tragedy.

Bader Mansour is the founder of NAZDAQ, a company that develops data solutions in Nazareth. He comes from a unique perspective as both a Palestinian and an Israeli citizen. Most importantly, he identifies a follower of Jesus of Nazareth. 

As an executive for a network of 17 churches and one of the founders of a local seminary, Bader is also a recognized national leader within the Arab-speaking Christian community.

Mordechai Wiseman runs an investment fund and a consulting firm, and is the founder and chairman of Israel Firstfruits, an economic development agency for the local community of faith in Israel. He is also founder of the Messianic Business Fellowship, which is the only national network for marketplace believers in Israel, both Jews & Arabs. 

The two have worked together for many years, have a deep relationship that transcends ethnic roots, and are rooted in their love for Jesus. 

They graciously joined the Faith Driven Entrepreneur podcast for a conversation about how their faith has informed their perspectives on leadership, identity, and the current conflict. 

Find out more about the work they’re doing in this video that premiered at the Faith Driven Entrepreneur Conference: https://www.youtube.com/watch?v=ySOzMWsSc3U

Episode Transcript

John Coleman: Welcome back to the Faith Driven Investor podcast. This is John Coleman, your host, and I wanted to float something new with you today. Usually we dedicate the first episode of the month to a feature we call marks on the markets. But this month, instead of focusing on the macro investing environment, we wanted to highlight a recent episode released at faith driven entrepreneur between an entrepreneur and investor based in Israel. The tragedy of the Hamas terror attacks, the rise of global antisemitism and the resulting war in the region that made the brokenness of the world even more acute. Invisible. So we wanted to invite some two leaders who had become friends of the faith driven movement. Bader Mansour is the founder of Nazdaq, with the Z, a company that develops solutions in Nazareth. He’ll get more into this, but he comes from a unique perspective as a Palestinian and also an Israeli citizen. But most importantly, as a follower of Jesus of Nazareth, as an executive for a network of 17 churches and one of the founders of a local seminary, Bader is also recognized national leader within the Arab speaking Christian community. Mordechai Weisman is the founder and chairman of Israel First Fruits, an economic development agency for the local community of faith in Israel. He is also the founder of the Messianic Business Fellowship, which is the only national network for Marketplace believers in Israel, both Jews and Arabs. He’s a Jewish Israeli follower of Yeshua Jesus. Like most Israeli Jews, he served in the Israeli Defense Forces. His son is currently serving as well, and we are keeping his son in our thoughts and prayers. Let’s listen to that conversation.

Rusty Rueff: Hey, everyone. All opinions expressed on this podcast, including the team and guests, are solely their opinions. Host and guest may maintain positions in the companies of securities. Discussed in this podcast is for informational purposes only and should not be relied upon as specific investment advice for any individual or organization. Thanks for listening.

Henry Kaestner: Welcome back to the Faith Driven Entrepreneur podcast. We have a special edition today. I’m here with Rusty. And Rusty and I are going to wade into this amazing scene that’s going on right now in the Middle East. We are not going to be talking much at all about politics. This is not what we do here. This is a podcast that is meant to help the Body of Christ, particularly business owners and entrepreneurs, understand how much God loves them and what he is inviting them to as they participate in the marketplace. There are times when that mission that we were all on might seem relatively easy. It might seem sometimes when that mission is hard, there are times when the yoke is light, sometimes when it is heavy. But for today, we had this incredible opportunity to have this perspective of two dear brothers that we’ve known now for years. As Rusty said in the intro, we featured them on some great video stories for context, and they’ve graciously allowed us to spend some time with them as they process where God has them and how they are seeing him at work. The questions they have, the prayers they’re lifting up, and it’s a special privilege to be with them for their perspectives about all of those things. Hopefully with gold today that we will all know more about how God loves us and we would accept the invitation to participate in the work that He’s doing, building the world when it is easy and when it is hard, when there are clear points for us to follow and when things are a little bit muddier. So today we go to Israel with Mordy and Bader. Gentlemen, good morning. Thank you so much for being with us. I know it’s been a crazy couple of weeks. Mordy, I’m going to start with you. I know that you get a sense this summer we were at the Christian Economic Forum together and you were starting to really feel keenly that something was afoot. You’re troubled. You very eloquently shared with us at the Christian Economic Forum what was going on in Israel. And now we found ourselves a couple of months later in a precarious situation that you and and your friend Bader right in the middle of. And Mordy, what are you thinking about this evening? Israel time. What’s going on?

Mordechai Wiseman: Thank you, Henry. It’s a privilege and an honor to share with the FDE community. Yeah, It always seems like life in the Middle East is pregnant. There’s something’s going on or something’s about to happen. But it’s definitely, for me, at least since really early 2022 even 2021, there’s this growing sense of apprehension in terms of what’s lying ahead. And as you shared really with this latest government and some of the internal processes within Israel, I’ve been feeling grieved at things that I knew were coming but were hard to observe in real time sort of emerging before us. And then this crisis broke out eight days ago. And I think Israelis in general are reeling because we’ve never faced something quite like this and comes after eight months of internal conflict, nine months of internal conflict. So I guess the pressure of feeling squeezed now for a while, feeling like God is moving us in a, yeah, undeniable way towards a certain direction, and then a real spike in pressure. Actually not a lot of fun, but we have to trust that God is squeezing out of us things that He is seeking to either remove or to produce from our lives. I’m just hoping I’m producing light in salt.

Henry Kaestner: As you process all of this. You’re doing this in the midst of a number of family, including your son. You served in the IDF. Your son is in the IDF. What what are you praying for?

Mordechai Wiseman: My first prayer is mercy. The enemy seeks to steal, kill and destroy, and war is his favorite tool. And yet God will use the schemes of the enemy to advance his kingdom. He turns evil to good, and he will. So we have to believe that despite everything that is going on, God is doing something profound. And yet all we can do is pray for mercy. Pray for to be given the strength to stand up under the pressure to be used for good rather than participate in the orgy of death. It’s easy to get drawn into the male storm of pain and suffering and trauma. And to some degree, that’s what being in the world, yet not of it means. It means that we mourn with those who mourn. We feel the pain of our people. And yet we also have a different identity and a different reality that is within us. And that’s easy to say. It’s very hard to walk through. So, yeah, I’m a veteran and actually my son is the fourth generation of our family serving in the Israeli military. And it’s easy to worry. It’s not just.

Henry Kaestner: I would imagine it is.

Mordechai Wiseman: Yes. I mean, I have literally dozens and dozens of my friends serving right now of our tiny congregation of 400 people. Over 50 are under arms right now, either as enlisted or reservists. So it’s easy to surrender, to fear or worry. And it’s that daily choice to look to the Lord and trust him that he is in control. And it’s really not how do I change circumstances, but how do I respond in a way that glorifies God?

Henry Kaestner: Mordy, thank you, Bader I’m going to ask the same of you. Such a privilege to have you, as Rusty mentioned in the intro and your story at the most recent conference. So gave me more of a perspective of what it looks like to be a Palestinian Christian in Nazareth. How are you processing this? What are you praying for?

Bader Mansour: It has been a very heartbreaking situation, you know, being a Palestinian and an Israeli. At the same time, my news feed is mixed with Israeli sources and Palestinian sources for a long time. So first of all, there is the grief and the sadness of all the people that have been killed in the massacre that happened just Saturday, You know, watching the news. Heartbreaking. I have lots of friends that lost loved ones. Also from the Israeli side, it has been very heavy on us here. At the same time being, I have maybe the privilege or maybe the the problem of belonging to these two troubled people, you know, So I am also a Palestinian. I am also in grief for my Palestinian people as well, that first of all, this was something they produced, you know, something horrible like this. At the same time, we are seeing the developments that are happening, the war and that is going on, you know, in Gaza and also the innocent people being killed. And at the same time looking at the whole situation and the whole history, it’s not a you know, this is I don’t see this as event in itself. You know, this is a continuation of my own life. And then before I was born of a conflict, you know, in this country what I am and it has been very heavy. We are praying, Lord, for mercy, you know, on the people of Israel, mercy on the people of Gaza and the whole people of this region, you know, on the Palestinians, also on the West Bank, on the people who are also in the surrounding countries. We are praying that this will not escalate into a larger war. We are praying for our safety. You know, Palestinian Arabs who are Israeli citizens don’t serve in the army. So I don’t have immediate family in the army. But we are afraid. We are afraid. Our prayers are for the Lord to have mercy and to send peacemakers. We need more peacemakers to come and help us. We probably couldn’t solve it ourselves, and we need people to come and help us get this whole Israeli-Palestinian conflict resolved in such a way that maybe we couldn’t do it on our own. We need help. So this is what I am praying for God to send more peacemakers and for the peacemaker himself to intervene and be with us at this time.

Rusty Rueff: Amen. Amen. You know, we live in this as we as Henry said, we live in this complex time. Mordy and Bader, you guys are right in the middle of probably one of the most complex issues going on right now in the world. At the same time, we have a background that’s really developing all over the world around a sense of identity. You know, where does our identity reside? And we’ve mentioned, you know, the two of you come from very different backgrounds, Bader you are Palestinian Israeli, Mordy, you’re a Jewish Israeli. Can you share with us, both of you, how your faith has helped you think differently about those who have different worldly identities? You talk a little bit about that Mordy Do you want to start first?

Mordechai Wiseman: Well, I think, again, just to provide a little bit more nuance. Israel’s home not merely to Jews and Arabs, but actually both on the Jewish side and the Arab side, identities are highly complex. I won’t speak to all the Arab community, but you have Muslim Arabs, you have Christian Arabs, the Bedouins, Druze and the Jewish side. You have people from not only that were native born or born in this land, but who’ve come from dozens of countries. And we have Jews from what we would call Middle Eastern background or Sephardic. We have European Jews, we have Orthodox and so many different identities mixed in that even the idea of Israeli is highly complex. Now, as a believer, I’m not only Israeli and I’m not only a Jew and I’m not only an Ashkenazi Jew and belong within even other subgroups within Israel, but as a follower of Yeshua, I have this sort of overarching identity and we tend to think of things I think in hierarchical. And I sometimes I find that it’s unhelpful to say, Oh, my citizenship is in heaven. So that kind of like vetos, all the other identities, I think that’s not helpful actually in daily life. And we see in Revelation chapter seven, verse nine, that people from every nation, tribe and language will be standing before the throne. God created our ethnic identities, created our cultural identities. And so my kingdom identity, my identity as a Jew who follows Yeshua infuses is at the center of all those other identities, informs them, hopefully transforms them, redeems those and that richness, the diversity that God created and making us so different then gets elevated perhaps through our kingdom identity. And sometimes it’s a veto. Sometimes there’s something in my background that is just wrong. There’s a cultural sin, a heritage that we hold on to that is just not pleasing to the Lord and that needs to be removed. But more often than not, it’s something that needs to be fixed or healed or redeemed because the root of it comes from God. So maybe that’s overly theoretical, but as a believer, for example, I’m a combat guy, right? I’m a veteran. My son serves in the army. There’s a side of me that understands the need to fight against those who have a murderous worldview. And yet, as a child of God, highly aware of my own sin, to recognize that these Hamas terrorists are people who need God, they’re sick in the sense that they were raised on hate. We’re raised to believe that their highest calling is to not only die, but to kill for Allah. And, you know, the highest prayer for them would be that they would get revelation and be saved. Just as Saul of Tarsus very sincerely persecuted the early church. And yet I also recognize that I have a mandate to protect those who cannot protect themselves. And so here I am, a combat veteran. Jesus says blessed are the peacemakers, right? I have a calling to protect those around me, and yet I have to pray for their salvation, even as I have to take a step in standing against them. It’s that complexity in that nuance that is not immediately resolvable in the here and now. And yet I have to see God to, in every given moment, respond in a way that honors him. So that’s how my faith informs my identities.

Rusty Rueff: As beautiful as beautifully said, I mean, I’m really I’m emotionally struck there by what you said about Saul of Tarsus. And I think, boy, I wish we could stop. And everybody just think about that more often, that if you were a Christian at that time. Right. And you’re watching Saul and what he did, that there were people who were praying for him. Right. There must have been people who were praying to God, remove this person. Remove this person. And that his conversion from Saul to Paul, the blinding of the light, could have also been an answer to someone’s prayers. Never would have framed that without you speaking about that. Thank you so much for that. Bader anything to add here?

Bader Mansour: Yes, I think, you know, also my identity is probably more complicated. But, you know, I’m an Israeli and most of my, you know, newspapers or television I watch is Israeil television? I read Israeli newspapers, I speak Hebrew fluently. I’m an Israeli. I have lots of Israeli friends. And so I have lots of love to my country. I care about my country. At the same time, I am a Palestinian. Palestinians in 1948 were scattered. Some became refugees in the Gaza Strip, some became refugees in Lebanon and Jordan and some the West Bank and some stayed in Israel. I am one of them. You know, my parents in 1948 became Israeli citizens. So I am also an Israeli citizen, but yet I am a Palestinian. So I also have this sympathy and love to my people. You know, I love my country, but I love my people as well and feel for my people. And I also, you know, my prayer language or my home language is Arabic. And, you know, I am Christian Arab, but I also have lots of, you know, Muslim Arab friends and some are also religious, some are less religious. And I also read a lot of newspapers in Arabic and feed and have friends everywhere, also in Gaza, also in the West Bank, also everywhere. So to being able to see also the point of view of the Palestinians and trying to understand if there could be anything to be understood about this whole, I would say, barbaric attack. But at the same time, why did it happen and why did these people I don’t think these people came just because they wanted to kill. It’s part of a complex situation that has been going on for a long time with lots of injustice and neglecting the Palestinian cause for so many years by insisting that these people can be there for 16 years in a big jail and nobody cares about them, and seeing the world move on and they are still there, nothing. Nobody cares about them. So I don’t justify what they did. Try to understand what’s going on and what hope these people have and trying to have empathy for the people of Gaza in addition to the people of Israel. So as a follower of Jesus, I look at this in such a way, you know, you know, I’m not trying to give two points of view here. I’m trying to say that, you know, in addition to all this, I am a follower of Jesus of Nazareth, where most people in this country, you know, the 14 million people or 15 million people that live from the river to the sea, both Palestinians and Jews, most of them don’t know Jesus. They need Jesus badly. So what is my role as a follower of Jesus in this whole thing? And, you know, can a few thousand people make any difference in this whole craziness that’s going on? So I see my role as the follower of Jesus is to follow the footsteps of Jesus and whatever I do by showing love to everybody, by showing empathy like Jesus would meet the mother of the dead son, and will go and speak to her show love to these people and these people, and also spread the good news of Jesus that he is the savior of the universe, savior of the world. He loves us and he wants the best for all of us. And this is our calling. You know, it’s hard to do it these days, but at the same time, this is why we are here, to stand up for showing the love of Christ for everybody around us.

Rusty Rueff: So I want to go a little deeper into this because I’m going to frame this in a way when people have differing views and they bring that into the workplace, which we see more and more of happening. I was joking with somebody other day. I said, I’m old enough to remember when we didn’t talk politics or religion in the workplace. Right. And today, which I’m very happy that we can share our faith in the workplace. We also share here in the United States, we start to share our political views in the workplace. And our political views have been divisive in many ways. Yet you all are in a situation where you must live and work together with people who have much, much different views. Views that actually are beyond just opinions have turned into actions. Can you share your insights for other faith driven entrepreneurs about how best to live and work together with those who have very, very differing views and not only differing views for the short term, but for the long term because, you know, we pray for shalom, we pray for peace in the Middle East. And these wars, they seem to you know, they come, they go. They never really go away, but it becomes acute and then it becomes less acute. You have to go back and work together and live together. So you have a unique perspective I think you can share for our listeners on how to work together, live together with very, very differing views. Help us with that.

Bader Mansour: It’s just something about, you know, here in Israel, you know, I’m also a little bit old here in Israel, and we spoke politics and religion at the workplace before you. You know, I worked also in America where we couldn’t talk politics here. We talk politics all the time. You know, it’s part of life here at the workplace. So when I worked in an Israeli company that was 400 Jews and one Palestinian, I was the first Arab to join the company. You know, it was a tough at the beginning, lots of prejudice, like, you know, a Palestinian in our company. Who’s this guy? What’s the story? And lots of heated discussions at work talking about differences. But I think this is where our role as agents of change, as people who are followers of Jesus, comes into the place where we can show a different face of our people, because people don’t know, you know, the Jews I worked with never met an Arab other than maybe somebody at the gas station. So they finally meet an Arab engineer and they talk to him. And I also did not have these close relationships with Jews at the time. So when people begin to talk and I think if we bring the ethics of the kingdom into our discussions where we also show respect, we can make change. It’s probably small, you know, it’s one person at a time or, you know, a few people. But I think this is where it has been challenging. But we grow together. Sadly, when we have war, we go back, you know, the tensions go high. People have very strong opinions and things go back. You know, the relationships can be very hard. But I think if we live together, we know that we are going to work together. We have the same goal and we can talk and we disagree. Like, you know Mordechai and I we can disagree about many things, but we can still be brothers in Christ and friends. So softness, empathy, love to one another. And that could be a way forward, in my opinion.

Henry Kaestner: That was that was beautiful. Maybe 80% of our listeners are listening to us in the United States and wondering what does this conflict have to do with them? And you just showed very much so. I mean, you know, one person of Arab extraction in a larger majority spot and sometimes Christ followers feel that way in the marketplace today. Now, a lot of our audience, most of our audience entrepreneurs and business owners, where they had this opportunity to set the culture. And I also think that in addition to just struggling with what does it look like to share our faith when some way and the reason for the hope we have and amidst a discussion with people of differing views, there’s also, I think, this sense in America of, you know, I just I just want to run my business. I want to grow my company. I want to grow 20% year over year, maybe quarter over quarter and cash. All this political stuff is just really just an inconvenient hindrance to me achieving my dream. Because what I’m really trying to do and I’m casting some disparagement against some folks generally here with hopefully that this ends up being encouraging in this appropriate level of challenge, which is, look, there’s a real battle here and it’s not against flesh and blood, it’s against evil and it’s in the marketplace. And God chose this for such a time as this. And we can see some of these things happen in Bible studies. We see this in our scriptural reading, and yet there’s this reminder that you guys are living through things right now, that there is a world at war and God chose us for a time. Is this and this concept of maybe coasting to our funeral and running our businesses and maybe we have triple the growth and we hand it to the next generation and we go ahead and we retire and we play golf and we move to the beach and God calls us home. You guys are live in a different narrative. You’re not thinking about. Well, maybe I’ll work a couple more years and I can kind of cash out and get that country club on the Red Sea or on the Med. Right. I mean, there’s some beautiful beaches in Israel, but you guys aren’t thinking about that right now. You think that guys put you on Earth for a different type of mission? You guys have both spent a lot of time in America, and I don’t want you to, you know, just unfairly rattle the cages of a Western entrepreneur. But what are you learning about faith and mission and purpose and where God has called you in a way that might be relevant for somebody who’s not in the battle right now? Maybe. But how do you reflect on that? You’ve been in a war zone for so long and yet you interact so much with folks in America and the West that don’t have the same type of perspective? What would be an encouragement or challenge to them as they look to learn more about the living God through their work?

Mordechai Wiseman: Well, let me take a swing at that. Trying to tie the previous question to that last statement, I think they’re linked. Even if let’s say you’re not as informed or as mission driven to impact culture. If you are merely just trying to be successful and close to retirement, you would have to still acknowledge that. In these days, usually wealth is created through people, and people form culture, and politics is merely an expression of our culture. And so when the debate is about who’s right and wrong, and that’s what we’re fighting over, and we believe that actually our propositional truth will achieve victory, convinced someone to come to our side, then we get into all kinds of trouble. And in the Middle East, when we recognize that we could talk all day, we’ve been talking for thousands of years and, you know, necessarily convinced each other that truth needs to be incarnational. So that’s why Jesus showed up in the flesh that my calling as an entrepreneur is to engage people. And in fact, the way I produce value and hopefully the value that I attempt to produce is fundamentally around the flourishing of human beings around them encountering God and his kingdom. I can’t convince them of that. I can’t argue them into that state. What I can do is be curious about them to actually try to understand who they are. Why do they take the way they do? This is really how we have to handle conflict here in the Middle East. We’re not going to win when I walk with my Arab and Palestinian brethren. Our organization of first fruits, our board, our staff and the people we serve are Jews and Arabs and Gentiles. We do not agree on a lot of stuff, and yet we have a commitment to walk together. We have a commitment to care for each other and to care with each other for others. And so truth is no longer a club in the sense of hitting people over the head, but rather truth is incarnational. And truth is how I engage you. And how do I want to understand why you are the way you are, why you behave the way you do? Not so I can convince you that I’m right and you’re wrong, but rather that I could show love, that I could see how God might have called us to walk together. And I believe that entrepreneurs who get that will build better cultures. So it’s not even about politics. It’s about creating a culture of listening, of caring, of engaging people. When we do that, we build not only organizations that are more effective, but we are the outcome that we wish to produce, which is people that care about people, people who invest in people. And then our unity is not about uniformity or agreeing on a set of principles, but rather the choice to walk together, which is what marriage is two people that are different, that don’t agree and yet choose to produce life together, to do life and produce life together.

Henry Kaestner: That was beautiful. Mordy Thank you. Bader

Bader Mansour: Yes. I wanted to be answered a little bit differently about, you know, I think most entrepreneurs here who are, you know, followers of Jesus and also others, I think, have a deep passion to do something a little bit different than just making a successful company. They want to see change in the society they are in at Nasdaq. You know, most of the people here serve in the church or in some kind of para church organization. And we see this is part of our calling, not just to make software and, you know, build the great company, which we are, but also to make change as Christians in our sphere and our society. And I think a lot of people also in America are, you know, faith driven entertainers and others as well who have a deep passion to help others. I like to mention a story that touched my heart. And I actually broke my heart a few days ago. One of the entrepreneur, he’s a Jew and Israeli Jew, one of the most successful entrepreneurs in Israel. Eyal Waldman, he is the founder of Mellanox. Somebody I admire because he has built a very strong company in Israel. And he has been also one of these companies who hired lots of Palestinians also to work in his company. Some of the managers in the company are also Palestinians, which is not taken for granted in Israel. But he also decided to open a branch in Gaza Strip and also opened a branch in the West Bank. And few days ago, his daughter was killed in the barbaric attack during the party and all that was going on near the of the Gaza border. He went and he found his daughter. And I don’t know him, but when I read this, I cried and I went home to sleep, you know, just like I was so devastated. And he said, I still believe in peace. I still believe in peace. And I tried to find his email and sent him a note, you know, just an encouragement and condolences. Lots of people here in Israel, you know, have passion to see a different kind of Israel and a different kind of situation, you know, going on here. We as faith driven entrepreneurs are called to do more on this. You know, I admire my friends at first fruit that are doing excellent work, you know, bringing Arabs and Jews together, working together and you know, others as well. So I think entrepreneurs usually in these places have passion. And I think lots of people all around the world have passion to see change in their societies. Here it’s a bit about conflict and about these kind of things, you know, because we are, in essence, a war zone. But, you know, I encourage all entrepreneurs to take a stand on a subject that they care for and do something about it. In addition to cashing out a great company and going to play golf, you know, the Pacific Ocean.

Rusty Rueff: So I want to switch gears for just a bit and talk a little bit about running a business in these kinds of moments, right, in these moments of crisis. So you’re both entrepreneurs. Just give us practical advice. How do you continue to lead a business during the midst of these situations going on in the background like the ones you’re facing?

Mordechai Wiseman: Well, I don’t know if I can give good advice. I can tell you what I did, which is initially I just gave myself another 10 minutes in bed. I just to collect myself and more seriously, recognizing that it’s so easy to throw yourself in. And in the moment of crisis, in the season of crisis, there’ll be many times that as a leader, you’re called to step up and step into the gap. But if you’re the only one doing that and you’re doing that constantly, you will not be around when sort of there, the key moment arrives. So you also have to pace yourself and you have to recognize you cannot win every battle and you don’t have to be the only person who steps into the breach. As an entrepreneur, you’re called to galvanize, and yet in order to galvanize. So you have to be able to lead by example. You often are the first to step up. You also have to acknowledge, though, you’re human. There’s nothing, in my opinion, more powerful in leadership than a vulnerable leader who, rather than being the He-Man or the she man or she woman or, you know, the one who seems to have all the answers and is always like, you know, once more to the breach, my friends, they first acknowledge that they’re afraid, that it’s hard, that they’re hurting, that they’re frustrated. If you don’t acknowledge humanity, it’s hard for people to follow you. That’s my experience as a military guy in the Israeli army. They do not follow you if they don’t trust you and they don’t trust you, if they don’t relate to you, if they don’t believe that you understand who they are and understand the risks that they’re about to take following you. And so listening, feeling, being vulnerable about our own feelings and expressing our pain, and then when everyone else is stuck and kind of like then stepping up and taking decisive action, being bold in your stance, galvanizing, and that shocks people out of that kind of place of I don’t know what to do and they will follow you. So you have to be first human and then you have to be leader. That’s sort of the pattern that I’ve seen effective in these times. And knowing that the crisis is not going to be momentarily. You need to have good oxygen. You have to assess how long is this going to happen, go on, and therefore pace yourself as well.

Rusty Rueff: I’m going to come to Bader in just a second. But can I just dive in a little bit more on that, you know, being authentic? What about those who might be listening, who are saying, I’m afraid to show that I don’t know what’s going on. I’m afraid to be weak in front of my team. I’m afraid to show that I have real emotions because, you know, they might look at me and say, well, you don’t have your act together. What words of encouragement can you give?

Mordechai Wiseman: The highest form of leadership, in my opinion, is creating a safe environment where people can make mistakes and grow if you are perfect. A No one actually believes that, but b everyone’s going to try to be perfect. You will not be able to learn and every mistake is catastrophic and therefore it all becomes a power struggle over your image. And without naming names or pointing out political figures, those leaders who spend their time working about and worrying about how they’re perceived versus those that step up and say, you know what, we made a mistake, but right now we need to take care of business and fight. There’s a clear I mean, within my culture where we have developed a clear understanding of what effective leadership is, we will not follow those people who are just concerned about their image. It’s clear that they have clay feet. We will not follow someone into death and fire if we don’t feel that they understand really what they’re doing, that they’re actually worried about us versus them. And so my only encouragement to a leader who’s afraid of showing weakness is to look to Jesus. You know, I’m assuming that everyone listening is a faith driven entrepreneur. Jesus showed pain. Jesus showed that he is struggling in the garden, in Gethsemane. He says, My soul is bitter unto death. He allowed himself to experience the pain and express it, and that gave him the reserves and the strength as a human. As he said, my heart, not my wills. But your be done. That wasn’t some sort of, you know, faith on Prozac. That was a surrender of saying, I have faced death in my soul. Now I’m ready to face it with my body. And that’s the highest form of leadership. It may not be helpful, but that’s the model that I have.

Henry Kaestner: It is very helpful.

Rusty Rueff: It’s good. Really good. Butter. Anything to add to that thing of, you know, how do we lead in these times of crisis?

Bader Mansour: Yes. I mean, Mordechai put it in a very good way. I just would like to say that, you know, in companies, what do you have? Crisis? We act as if like families, you know, the families, different people react in different ways. We hug everybody. It’s okay to work for half a day or a day or somebody wants to take a day off or somebody is not producing or somebody is home because his children are not at school or they are crying at nights, it’s fine. You know, it’s part of life. You know, we are patient, we love everybody and we pray for better days.

Henry Kaestner: I’m going to hand it back to Henry, but I’m going to ask the question again from another perspective. You know, Israel’s known as the startup nation, right? You guys, you know, the country actually stepped forward and many, many startups come out of the culture of innovation, out of Israel in this time of crisis. What do you tell those customers and business partners that you have outside of Israel in other parts of the world to manage their perspective of how your business is doing? And you know that there’s there’s stability and can we count on you in this moment of crisis, because entrepreneurs not only have to deal on the inside, but they also have to think about the outside and what’s the outside world looking at. So what are you telling your partners and customers from around the other parts of the globe?

Mordechai Wiseman: Well, I would say that 75 years of Israeli industry has proven that we are both resilient and productive, even during the times of crisis, that when the rockets are flying, we still export, we still produce. I think one of the ways in which Israelis deal with crisis is as much as we can maintain normalcy and not get bunker down, obviously, as Bader indicated and as we’re experiencing, there is a okay, gather yourself. There is a momentary pause where we’re not just doing business as usual, but there’s definitely strong narrative and pattern in Israeli society that even in crisis, we try as much as possible to maintain normalcy and try to move forward and take the next step. It’s not about solving everything. It’s about just keep moving forward and that history, that sort of. Proof that is in the pudding is what a lot of our international partners have come to rely on. And so, frankly, at least in my history, people are first asking, hey, how’s it going? How can we help? There’s actually a lot of care, even from, if you will, hard nosed business people, you know, before they say, hey, when is my product ready? It’s like, hey, is there something we can do? What’s going on? There is a season of favor. And Israelis have learned to, in that moment, gather strength and keep on moving forward. And yeah, I think our track record shows that as a nation, we’ve recovered and grown after every crisis. And I think that’s what the clients and customers of Israeli companies have come to expect.

Bader Mansour: Is our customers are also they all send emails with the troubleshooting problems or sales inquiries with first asking about us. And we usually tell them that we are fine and we don’t talk too much about the problem. We want to talk about the issues that are for them important, which are solving their problems, you know, on the other side. So we try to do business as usual as much as possible because we don’t want our customers to suffer or to think that we are not a viable company that will disappear sometime or something like this. And we have proved, you know, lots of things happened and we continue to do what we are doing on the other side. You know, we have spoken to a lot of our friends and business partners in the business world who are on the Jewish side trying to just send them a note and say, how are you doing as well? Because, you know, it all started with this I would call massacre, you know, on Saturday, you know, like ten days ago, mostly most people who were killed were Jews. And I know lots of my friends have friends that lost their lives or, you know, they are somehow involved. So, you know, in business, lots of people become your friends, even though you just do business with them. But they are friends also. In times of crisis, you ask about them, you just give them an encouragement. And I think this is the least we can do just to like people are asking about us. We are asking about the people that are suffering the most, which are the people of the south of Israel and also our friends in Gaza. But we don’t do business with but we have church relations with the Baptist church in Gaza. And we also ask about them, what’s going on, how can we help and how can we pray for you? So it’s the whole society, you know, people asking about each other, making sure everybody is doing fine in this world. And at the same time, we don’t want our customers to be worried that we are, you know, not strong. You know, we’re not going to be here in the future and we will be here, as we have always proven. And lots of companies, you know, have proven that they can be resilient. You know, they can be strong with all difficulties. You know, we will continue doing what we are doing.

Henry Kaestner: Bader we like to finish every one of our episodes by asking our guests what they’re hearing from God in his word. Maybe it’s today. Maybe it’s or of course, last week. But believing that God continues to speak to us through his people, through prayer and absolutely his word. What are you hearing from him?

Bader Mansour: Yes, lots of devotions. We have lots of prayer meetings. Our church services turned into places of comfort. Everybody’s talking about this. People are turning to God. I wrote down two verses that spoke to me, and not only this week, but in general, but more strongly this week, Act justly Love, mercy walk humbly with God. This is one and another one, though the fig tree may not blossom nor fruit be on the vines, though the labor of the olives may fail and the fields yield no food, though the flock may be cut off from the fold and there would be no herd in the stalls. Yet. I will rejoice in the Lord. I will joy in the God of my salvation. This has encouraged me as day in our Sunday morning service. So the Lord is good. He is with us in the midst of this difficulty. But we need to be acting justly, not only with our people, but with all people and have mercy, Love it, love mercy, and ask God for mercy, but also have mercy on the others and be humble. I think we need to walk humbly these days, just trusting God more and not trusting our own abilities or our own strength, but just asking the Lord to work through us because we are weak.

Henry Kaestner: That’s beaufiful,Mordechai.

Mordechai Wiseman: Well, I deeply resonate with everything that Bader has just shared. Those two verses have definitely been hallmarks of what God has been speaking to me recently. As I said earlier, I’m on the heels of two years of feeling like God is squeezing me. And no matter how hard I try to get the outcomes that I’m seeking, Lord seems to have other kinds of outcomes that don’t fall in my category of success. And actually, a week and a half, I think ten days before everything kind of went crazy on this side, I felt like the Lord asked me if I will give him permission to squeeze me again. And, you know, the question that keeps asking me is, do you trust me? Are you willing to ignore the normal human signals of my favor and just trust me? And that’s a hard one because you just, you know, am I doing the wrong thing? Am I missing your purposes? And this season, I feel like God is squeezing all of us. And it’s not out of a desire to hurt us, but to produce in us something that is unique. And it is a choice for us as children of God on whether we cooperate with his discipline or not. The discipline is not so much about punishing us. It’s not about punishing. It’s about helping us to grow, to become who he’s called us to be and see things as he sees them and respond to things the way he is calling us to respond to them. And anyway, so that’s kind of what God has been speaking to me and a whole bunch of lamentation songs have been extra meaningful to me in this season. And actually that last verse from I think it’s Habakkuk that Bader mentioned very powerful.

Henry Kaestner: Let me pray for you all on behalf of the listening community. Heavenly Father, we lift up these two brothers, these two men. We ask that you would continue to bless them, Dear Lord. We ask that you would allow them to know you, to be protected by you, to be able to be faithful through this ordeal, just as you protect their families, that your will would come about on Earth and Israel Palestine as it is in heaven. Dear Lord, I turn this prayer back on us and ask that these really beautiful, important lessons that you are teaching, Mordechai and Bader, would be the lessons that you’re teaching us. Though the battles may not seem as apparent as maybe they are to Bader and Mordechai this morning, where we are in Kansas City or Seattle or London or Cape Town. But they are there. Dear Lord, I ask that you would allow us all to be able to lead in such a way that we would be real with people, to be able to be vulnerable. And yet with a sense that we’re on a mission. We’re on a mission to advance your kingdom under your power, not ours, but under your power. And that gives us a sense of hope, gives us a sense of gratitude that you’ve created us for such a time as this, with as much brokenness that exists all over the world. Dear Lord, you’ve called your faith driven entrepreneurs, your business owners, to be in the midst of this battle today. Allow us to understand what the times are like […..] allow us to be able to walk in with the full armor of God. In a way that we know that we have a joyful hope set out in front of us in a way that is this countercultural sign of hope and purpose that the rest of the world is looking for. That doesn’t point to us as strong leaders necessarily, but points to you as the healer, as the savior of the world. Find us faithful in Jesus name. Amen.

Bader Mansour: I put this in front of me, a friend of mine, an American, gave me this maybe 35 years ago. It’s known, but I’ll say it. Maybe it can be a good ending to this discussion. If our greatest need had been information, God would have sent an educator. If our greatest need had been technology, God would have sent us a scientist. If our greatest need had been money, God would have sent an economist. If our greatest need have been pleasure. God would have sent us an entertainer. But our greatest need has been forgiveness so God sent us a Savior. We are all sinner, we deserve. You know, the punishment of God. And he sent us a savior.