What Impact Investing Is & Why It's Important

In this week’s episode of Lawline's Lawyers Who Lead podcast, Sigalle discusses the concept of leading through impact with Chintan Panchal, the founding partner at RPCK, a global boutique law firm that brings a unique perspective to the practice of law by developing an impact investment practice. Chintan discusses his road to impact investing, the incredibly powerful work he does, and the leadership principles he uses to create and retain a sustainable and inspired team. Listen to the full interview or read the highlights of Chintan’s interview below! Transcribed answers were edited for readability.

Leading Through Impact with Chintan Panchal

On What Impact Investing Is

It’s multiple bottom lines where returns are both financial and in service of an objective that tries to leave the world a better place than you found it.

There are lots of buzz words being developed and it's a relatively new thing. So it's growing and that definition is constantly changing. But I like to think about this concept of multiple bottom lines, right? As lawyers, we advise clients who have a bottom line, oftentimes that is a financial bottom line.

It's measured in terms of we're going to make this profit or we're going to get a settlement for this amount. Our objectives are determined and defined by reference to this bottom line that the client is seeking to achieve. And in the impact investing space, what we're talking about is a broadening of that aperture, right? This idea that the client has multiple objectives that they're trying to satisfy simultaneously. 

That's not terribly new or earth shaking. That's the practice of law. Clients have complex situations and objectives so that is something that's going to be familiar to all of us. But here there is a very strong “why” that is driving the “what?” The “what” being, what are those multiple bottom lines? [The] “why” is this common thread that these are folks who are looking to make a meaningful change in the world, solving some significant challenge that humanity faces, climate change, poverty, malnutrition, diseases, etc. It encompasses investing in solutions to those issues. 

Sometimes I think of this as a higher goal, but I don't know if that's entirely the right way to think about it because these are all folks who are looking to make money. And this is one of the things that is a common misconception in impact investing. That this was just some derivative of philanthropy or these are the folks who don't care about making money. 

I think that everyone in this space is interested in making money and people define their timelines differently. They define the trade offs that they're willing to undertake differently. They define how they think about success, who the winners and losers are, right? But this idea that you can do multiple things at once. You can build a great business or you can build a really innovative product that people out there in the market are really excited about. The idea is that you can do these things in service of an objective, that includes trying to leave the world a better place than you found it. 

On the Typical Impact Investing Client

Mission led investors (individuals or organizations) that have capital to invest, but want to do it in a meaningful way

Our client is typically the investor, the impact investor, the party that says, hey listen, there are all these amazing entrepreneurs out there, these brilliant companies, really cool products or innovations out there that we want to back. We have capital. We have our own capital, if they're a family office or a foundation. We manage large pools of capital if they're fund managers, those are probably the most common kind of client profiles for us. 

So you're going to see a spectrum here. If you're a family office, it's a fancy way of saying you're an extremely wealthy person, right? You can choose to invest in any number of things and family offices are invested broadly generally. But here there are a couple of unique pieces or characteristics that make it really interesting. 

One is that it is closely tied usually to the personality and the objectives of the principles. And many of these folks are looking to get past this idea that you have this left pocket and right pocket. The one pocket is focused on making money and the other pocket is focused on giving it all away. This is one of the really interesting evolutions in finance. This idea that you don't have to wait until you made a bunch of money and then give it away. It's also an evolution of the idea of just merely giving money away. It's not the only way to solve problems and oftentimes it's not the best way to solve challenges. You can bring those together. So as a family office, the first piece is it's largely driven by the priorities and objectives of the principals. 

The other interesting feature or characteristic of a family office is that they don't have a fiduciary duty to anyone else in the same way that a fund manager does, in the same way that an investment advisor does, etc. This is their capital. They can invest it in whatever thing is interesting. 

So if you have the conviction to use your capital to address an issue, you can invest in solutions to that issue and you don't really have to answer to anyone. And so that's a really unique and cool thing. It allows family offices to be what we call in this space, very catalytic.

On How ROI Works in Impact Investing

It’s Establishing Both Financial Returns and Impact Generation 

It speaks directly to this multiple bottom line perspective, right? Depending on who you are, you will view it from different lenses. 

So in a 1% loan example, a foundation may have a mandate to give away at least 5% of their money every year. They have to just give it away. And so they just need to get capital out the door, but what they need to get back is impact. They need a charitable effect in order to gauge how well they're doing, because they're a tax exempt organization, they're a foundation. So their ROI is going to be much more heavily skewed towards weighted and, I would imagine, much more detailed and granular around the impact that is being generated. 

On the other end of the spectrum. Let's just go wildly to the other side. A typical client of ours is a fund manager that is competing in this space, both for LP capital as well as for investment opportunities. These are folks who are the typical that you would see right now, or maybe most common is that you would see someone with a venture capital strategy. So these are folks who are looking for unicorns. They are looking for 10X plus returns on their capital. And these are folks who are doing that, knowing that they are investing in solutions to major challenges that affect millions or billions of people. And if you can find a simple, oftentimes technology driven solution, that is something that is typically scalable, right?

So now we're talking about venture scale, venture strategy. Now not all problems can be addressed by these, right? So you need the full spectrum if you care about moving the needle forward on lots of different things that are out there, right? 

Real World Impact Investing Scenarios

Great Examples Can Be Found in EdTech, FinTech, and Energy Technology

In education technology, as we all know, accelerated by the pandemic, right? This idea of remote learning, the idea of the gaps that learners are facing? There's all different kinds of areas to invest in this ecosystem. But without naming specific companies or funds, there are a lot of really phenomenal success stories, unicorn style businesses that have been able to use a technology solution to help address this problem that is being faced by millions of kids around the world, but not just around the world, in our backyard, in this country right now. 

The idea of being able to bring energy producing technology to small individual villages that are disconnected from municipal grids. What can you do to accelerate the ability to bring clean energy to people who are not connected to a grid and are not going to be in any one's multiple lifetime foreseeable future. Well, you can apply a technology solution. A solar generator is a pretty common thing now. A lot of what you would see in a camping store, for example, a lot of that innovation was developed in solving these issues in developing countries. There are a lot of phenomenal success stories where companies have been able to take this technology, bring it to millions of people and combine this energy producing solution and FinTech, which allows people to effectively make micropayments towards the generation of power so that they can use that power.

Now, all of a sudden, if you're invested in the company that's developing this stuff, there are millions of people that are making millions upon millions of payments for tiny little bits of energy that are being developed. And you have a market-based solution, right? It's really cool to be able to see and some of the companies that I'm specifically thinking about are over a decade old now, and some are thinking about IPOs. So these are significant economic payout opportunities for the impact investors who were looking to solve these problems that they knew had a massive potential market if that problem could be solved. 

On How to Measure Impact

Find alignment upfront and identify companies where the impact is deeply embedded in the company's DNA.

The measurement question is in some ways the most important and tricky question in the impact space. We have a dual ledger accounting system, whereby we can measure success along the financial bottom line, but how long did it take to develop the dual ledger financial accounting system? 200 years, at least. And if you follow IFR gap accounting, these are developing fields.

There is constant development, change, refinement happening in just that single bottom line. We often think did you make a profit at the end of the year? Great. You were successful. Or did you hit it on target IRR? Okay, great you were successful, but even embedded in that, the question, did you make a profit? There is a lot of complexity around what's above the line? What's below the line? What do you count and how are you depreciating certain assets? And all of these questions are questions that are very familiar to lawyers and accountants who are used to working with corporate entities.

Now add other additional bottom lines, right? And think about how complex it is. There is no common system of measurement. There is no common agreement around what you are measuring, no common language around this, no common understanding of how you go about capturing and recording value, and then measuring it or comparing it across this company versus that company, which one did better. So that's not to say it's futile. That's just to say it's challenging. And it's at the very early stages of its development. There are many folks out there that are working on this challenge. There's none that I think have emerged as the standard. Now that's not to say that people aren't doing it and I'll tell you some of the things that we do. 

So one of the things that we try to do is to find alignment upfront, because if you can successfully argue to me that the impact is so deeply embedded in the DNA of this company, if the company does well, I know that impact is being had.

So just to use a simple example that everyone's familiar with. So Elon Musk's story behind Tesla. He wasn't setting out to build a new car company. That's not what the objective was. The objective was to solve climate change issues. At least the story goes, I have not spoken to him about this. If you agree with the assumption that every electric car that's on the road replaces an internal combustion vehicle on the road, then you are buying into this idea that if the company is successful, i.e. putting out a lot of cars on the road, that particular avenue of impact you can measure in how many new electric cars. You can also measure how many and say that's a pretty good approximation for how many internal combustion vehicles are not on the road. And so that's one way of going about it. 

This particular example is one where you can try to avoid the difficult task of building into the agreement, right? Where you have this ability find these direct alignments of one for one. Right? In fact, more often the case that it's not one for one, that's where we need to start baking in things into these agreements saying, all right, as an impact investor, we are investing because we care about this bottom line and this bottom line. 

What’s Written in Impact Investing Agreements

It's a bit of a different way of doing business and calls for opportunities for lawyers to build in connectivity and alignment.

So what are the types of things we bake into agreements? After you take our money, you aren't going to become a completely opposite or misaligned business strategy. I care about the education-related work that you're doing for underprivileged communities and inner cities and you aren't going to go and become whatever it is, right? 

And if you think about a typical scenario for a startup, a common phrase in startup land is pivot, right? So as you start a company and you have this great vision, you raise a bunch of capital and then for whatever million number of reasons, it's not working. And so you've got to pivot, right. And pivots are situations where it calls for a conversation.

If your investors are basically saying, yeah, cool I don't care. Just here's the money and return my money at all costs. That's one thing. If investors are saying, listen, we're backing you because we think that you're going to do these sets of things that are highly aligned with something that we care about, then we need to know that you're going to be doing those things. And if you need to pivot, then that's an opportunity for conversation.

So that kind of speaks to this other point. Which is, it's a bit of a different way of doing business. It calls for opportunities for lawyers to build in connectivity and alignment. And then this is the lawyers podcast, so I can go into topics that might put other folks to sleep, but it calls into what you do in due diligence. It calls into the nitty gritty of writing your agreements, right? If it's a debt agreement, then we're thinking about the covenants and what do those look like? And you typically will have a series of financial covenants and you will have a series of impact covenants. If it's an equity relationship, there are investor rights and investor controls, and you're thinking about redemption rights.

You're thinking about the typical tools that an investor will have or a founder will have. Cause you can look at this one now on the side as well. From a founder's perspective, you're trying to maintain the freedom and the space to build and grow your business in the best way that you see fit.

And there is this tension between the investors trying to control you and I've been talking a lot about the venture and startup phase. But these concepts are equally applicable to heavy duty, private equity, to M&A, to global finance and lending and these are all areas in which we do a lot of work and therefore these concepts find their way into all of these different fields or disciplines because there is this common objective. Why are you buying this company?

On Lawyers Who Want to Enter the Impact Investing Space 

Smart, thoughtful, creative lawyers who have experience in M&A, corporate finance, venture, private equity, debt finance, securities, regulation

I started this firm [RPCK] 12 years ago. I came out of a big international firm doing whatever normal, complicated cross border lawyer stuff. And I started this firm to focus on this work and this world, even though I didn't have a real idea that this impact investing world really existed at the time.

But when I think about how we recruit, there's no such thing as well, I'll just go to the pool of impact investing experts. It just doesn't exist, right? And so our ability to grow is highly dependent upon smart, thoughtful, creative lawyers who have experience in any of these disciplines, mergers and acquisitions, corporate finance, venture, private equity, debt finance, securities, regulation. These are all disciplines that are fantastic training grounds for the types of work that we do. 

On Why He Left BigLaw

The work sounded cool on paper but there was “an immense feeling of emptiness.”

I became a lawyer because I really enjoy solving complicated problems, it's just super interesting to me. And I like helping people achieve things. Those are common reasons why people become lawyers. My goal was to become an international lawyer. Just sounded cool. I was in high school I think when I first heard of it. I had this intention and through a series of journeys and adventures. 

I got to this place where I felt that I had gotten to the top of my own personal proverbial mountain top.

I remember this very clearly. I'm living in Hong Kong at the time. I'm working on all sorts of really interesting matters. I'm leading cross-border deals and I'm doing all this stuff that on paper or at a cocktail party sounds really, really cool.

And I have an immense feeling of emptiness despite doing all this stuff and that had been nagging at me, had been bothering me. Finally I was just like there's something wrong. 

This is like a building thing, right? I feel like I had that [feeling] all along, but as a lawyer and certainly for me, you go through these phases. You get to this big firm. Everyone around you is an expert, so smart and confident and you have this imposter syndrome and you feel like, oh my God, do I belong here? And then you work through that and you're like, actually, yeah, I kind of know what I'm doing. And then you're like, oh my God, I have so much to learn. And then you get good at a couple of things, you know, you're going through this.

And so these are all distractions from that feeling, at least for me it was. So that feeling may have been there and I know it was. It's kinda like, what's the point of all this? 

There is significant dissatisfaction among attorneys. I think it's partially because the hours are crazy. The work is extremely complicated and just intellectually demanding, but it's not terribly rewarding. You can raise first year salaries. You can pay like coronavirus bonuses. You can do all this kind of stuff. But rewarding isn't a conversation about monetary remuneration.

There are plenty of studies about this, but I don't need to look at any of those studies to be able to tell you that this is true in my own personal experience. Once you make enough money to live basically the life that you want to live, anything over and above that is not terribly motivating. I mean, yeah, great. Okay cool, buy a nicer car, wear nicer clothes, or get a different apartment. There's only so much you can do and countless examples tell us how meaningless that is. 

Now add to that the dimension that as a corporate lawyer in a big, medium or small law firm that is engaged in corporate work, corporate finance, cross border or not, or whatever. Effectively, you're just facilitating business transactions and you get to this very kind of narrow vantage point into that transaction. 

The way I oversimplify, but I think this kind of captures it for me is, what I was doing was helping effectively a bunch of very wealthy people move a pile of money from over here to over there. And then from over there to over there, and then from over there to over there, or between moving the money from over here to over there, squeeze out a couple nickels and keep doing that over and over. Right? You can reduce every corporate transaction to that very silly oversimplification. 

I want to kind of be clear about this one point which is there's absolutely nothing wrong with business transactions or building great companies or investments. It's the oxygen that kind of allows the global kind of economy to breathe and build and grow.

But for me, the big question was why, right? Why am I doing this? Why are these people doing this? What's the point and where is that connection? That's what I think is really missing or was missing for me, the connection to something bigger, deeper, more meaningful. 

On How He Started His Impact Investing Firm

A bit of craziness, a bit of confidence, a lot of luck, hard work, and an amazing team

I looked around and I said, is anyone doing this? Is there any place that I can go that will allow me to do what I care about and what I enjoy as my job, right? Not as do your work during the day and nights and weekends, you can do the pro bono work and whatever that's the typical paradigm.

I had been doing that and that wasn't enough. I wanted the work itself to be meaningful. And for better or for worse, I couldn't find anything. And then I am a little bit of a strange bird as a lawyer. My relationship with risk is a little bit different than many of my friends. And so it wasn't a terribly big deal for me to say, ah, you know what? It doesn't exist. I'll just build it. Let's see if I can do it. 

Now you take a little bit of craziness and a little bit of confidence or overconfidence and a lot of luck and hard work and all this kinda stuff to start a business and to build it and grow it. 

And maybe most importantly, it takes an amazing team of people around you when you embark upon that journey. And so I think I've been super fortunate. I had people who believed in me, this is part of what gave me the confidence. A great community of people around me who believed in me and said, yeah, absolutely you can do this. And by the way, I'll be your first client. I'll be your second client. And so our first year it was me in my apartment in Brooklyn and no employees and nothing and whatever, but I was able to get a tiny little grain of successful outcomes and then build on that and build on that and build up.

I've done lots of things along the way like joining EO, which is the connectivity of how we got a chance to first meet through that community. But along the way I've met amazing and inspiring entrepreneurs. I've had the pleasure of working alongside many amazing lawyers.

On Why RPCK’s Mission and Purpose is Important

It gives lawyers the opportunity to leave the world a better place through their work.

RPCK is a firm built upon a mission to leave the world a better place than we found it. It is to be the home for lawyers who live by that credo and want to build that idea into their work. That idea to be able to do that in your work, I think is a bit of a revolutionary idea, is a very 21st century thing in general. But the experiment of RPCK is that there can be this journey for lawyers. And we're lucky that this impact investing space exists and is growing. 

So what we try to do, we try to be real and genuine and have real conversations around having an impact within our company as well as through our work. The impact that we can have through the lens of the work that our clients do and the work that we can help facilitate and lift up and propel forward. That's the work that we do. 

But it's also incredibly important for us to be as focused on how we treat our people, how we work as a team, you know what we look like as a community. What we choose to celebrate. 

On the Issue of Minimum Billable Hours 

There is a Tension Between the Business of Law and the Craft of Law

Here's an area in which there's tension between the business of law and the craft. Because the business of law seems to dictate that you got to squeeze every drop of billable hour out of a bunch of smart people in order to turn a profit. The craft of law I think tells you something different which is that smart people, creative people, especially to be creative need space, and they need the ability to take a step back and they need the ability to understand the big picture and they need the ability to rest and recuperate and be sharp on firing on all cylinders in order to their best work. 

And the piece that I add into that as well, is that for me, I want to live a good life. I want to have autonomy and self direction. I want to work with the type of people I respect and believe in. And I want the people around me to have that as well.

So what do we do? We said, all right, a typical law firm you get paid X hundred thousand dollars a year, and you got to do a minimum of 1900, 2100, whatever billable hours. And we said, all right, well, you know what? We trust our people. These are smart, motivated professionals. 

And so we say all right, not only is there no billable hour minimum, but we're going to just put in a maximum. And our maximum is significantly lower than most minimums because we can build a good business. We can be profitable and we can do whatever we have to do. 

Our ability to last for a hundred years as an organization, which is a goal of mine, depends on our ability to do amazing work for clients who do important, meaningful, worthwhile things in the world. 

How can we do that? Well, we need really smart, really capable people with the ability to fire on all intellectual cylinders. It means rested and, you know, covered. So we've said, all right, we'll just cover a hundred percent of health insurance costs so that it's not an employee side thing. We take vacations here so when people get to take it they turn their phones off. We encourage that. And it's not easy to do, right? It's hard to run a business in doing all that and I fully take the point that it's a little bit easier for us because we're a bit of a smaller team. But these are the core values that we're trying to develop. 

On How Alignment of Meaning With Your Work Can Create Growth

You can align profit, motive, and value alignment with incentive alignment. You can have very successful outcomes along both of those bottom lines. 

I mean, we are, we are growing and sometimes it feels like breakneck pace, but I would say, knock on wood, it does seem to be working. I think there is some universal truth that one can make a difference, a positive impact on the world through their work, not just through their philanthropy. One can choose to work with clients who they believe in and respect and are doing things that connect to that, meaning that search for meaning that we, I think we all have, whether we've been in touch with that recently or not.

I think we all have that search for meaning. We answer that in different ways, but one way to answer that is through your work and through your profession, it doesn't have to be pro bono. The other truth I 'd say is that you can align the profit, motive and value alignment with incentive alignment. That is a doable thing and you can have very successful outcomes along both of those bottom lines. 

On What Leadership in Law Means

“An enterprise in which one is organizing and leading tigers” 

You've heard that phrase, herding cats, right? Definitely not herding cats. It is organizing and leading cats who have a mind of their own, have sharp claws and teeth, are hyper-intelligent and will bite your head off if you step out of line. And so to be a leader of lawyers, I think one has to be on their best A game at all times because those lawyers are sharp, capable, very goal and results oriented and sometimes very aggressive, you know, folks. So to lead that group to me is organizing and leading a pack of tigers.

On Advice for Other Leaders or Future Leaders in Law 

“Start with Why”

I would say start with why. Simon Sinek made this saying famous and he's a brilliant guy. And I think there's a lot of value in that. Leading, starting something new, all these different kinds of journeys that people can embark upon. You often jump to what and how and when, but if you understand why you're doing it, it helps put all of that other stuff into perspective. And for me, it has been an incredibly helpful kind of mindset to bring to all the things that are before me.

Lawyers Who Lead is a weekly podcast that celebrates lawyers who are making powerful changes through extraordinary leadership. Each week, Lawline’s Chief Storyteller, Sigalle Barness, interviews a lawyer who is driving meaningful change in the legal industry. Guests represent a diverse and exciting range of experiences but with one common thread, the pursuit of bettering the legal profession. 

Each episode explores the guest’s journey to leadership, the underlying principles that helped them make an impact, and devises ways listeners can apply these concepts in their own lives.

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