Aoifinn Devitt: This podcast series is kindly sponsored by Evanston Capital. For over 20 years, Evanston Capital has had a key focus in identifying early-stage investment managers it believes are capable of generating long-term value-added returns in complex, innovative strategy areas. The series is also sponsored by Alvine Capital. Alvine Capital is a specialist investment manager and placement boutique with a particular focus on alternative assets, a significant presence in London and Stockholm.
Thomas Knowles: Fortunately, in traditional finance, we’ve created very clear ways of measuring performance. For us, the way that we do it is on an investment-by-investment basis. So when we’re investing in a company, throughout our diligence process, we’re trying to underwrite what is the potential impact of this business from really a systems level. So we really do want to avoid more band-aid type solutions, really getting at things that we think are solving the root cause problem. We come up with what we call a theory of change, which is a bit more typical in the nonprofit sector, but because it’s a great framework for thinking about inputs to driving outputs and outcomes. And then we come up with a couple key performance indicators with the owner of the business, the founder, that aren’t necessarily just about impact. They are also business drivers as well. Our view is that the impact should be the competitive edge for the business as well. So we come up with 2 or 3 measurements that we can clearly look at on an annual basis and see if we’re making progress towards that impact goal.
Aoifinn Devitt: I’m Aoifinn Devitt, and welcome to the 50 Faces Podcast., a podcast committed to revealing the richness and diversity of the world of investment by focusing on its people and their stories. I’m joined today by Thomas Knowles, who’s managing partner of Gratitude Railroad. He’s also an operating partner at the Builders Fund, and prior to that held a series of other roles, including corporate development for two technology companies and started out in venture at SVB Capital, the asset management arm of Silicon Valley Bank. Welcome, Thomas. Thanks for joining me today.
Thomas Knowles: Absolutely, happy to be here.
Aoifinn Devitt: Well, delighted to have another representative from the Gratitude Railroad, as we did feature Howard Fisher some years ago, and we heard a little bit about the mission then, but I’m really excited to catch up on that and hear about your own personal career journey. So can you talk us through that, just your background? And you’ve had a really interesting background touching on technology, innovative structures like the Builders Fund, and take us from there.
Thomas Knowles: Sure, yeah, I’ll keep it short, and if there’s any questions you want more information on, let me know. But I started kind of my journey into impact investing really in undergraduate. I went to college at a Jesuit college called Santa Clara and got introduced to the idea of microfinance while studying economics there. And I always thought it was such a compelling way of providing social mobility through the capital markets. And this was back in the mid-2000s. And coming out of school, it really felt like if you wanted to go have social impact, you went into the nonprofit sector, and if you wanted to make money, you went into the for-profit sector. And at the time, for a series of, of reasons, I felt like I needed to go be financially successful and then come back to social impact down the road. And spent the early part of my career, as you mentioned, in venture capital in Silicon Valley and loved that and went through the financial crisis, which was a great learning experience as someone starting off their investing career and kind of saw some of the challenges of the capital markets and our current system of investing. And then went to the operating side and worked for a couple technologies to really understand what it meant to be a business builder and an operator. And all along the way, I just kind of always thought it’d be great to be investing in building businesses that had a real eye towards a solution, that were not just trying to fill a gap in terms of, you know, what XYZ technology company was interested in purchasing, but really trying to solve our biggest challenges, especially as it relates to early-stage venture. I just felt like it was an asset class that really should be used with a long-term lens and focus on the most critical challenges and the most hard-to-fix challenges. So starting in 2013, started exploring the impact investing space and got introduced to the great folks at Gratitude Railroad and joined officially in 2015 to be the first employee and have been leading that organization ever since.
Aoifinn Devitt: Fantastic. Well, I’d like to drill in a little bit to some of those problems that you said need solving. What are some of the compelling areas, for example, that maybe intersect with this impact lens, but equally are solid venture capital investments in their own right?
Thomas Knowles: Yeah, absolutely. I think it is pretty wide-ranging. So we, about half of our investment capital goes into the climate sector. So really thinking about areas of energy transition, energy efficiency, waste to value, et cetera. And then the other half go into social impact areas around education, healthcare, financial services. So these are obviously massive drivers of GDP. They are the challenges that the government and philanthropy have been working on for centuries at this point. And really our view is we really need business in the capital markets to start thinking about these issues and also seeing them as massive opportunities. Obviously, there’s a lot of change happening in any given one of those areas that I mentioned. And so having entrepreneurship and finance and the capital markets being part of the solution, really there’s opportunity in each of those areas.
Aoifinn Devitt: And just to separate the two out, so the Builders Fund, can you tell us about the philosophy of that organization? And because I think that’s quite distinctive in its own right. And then we can revisit the Gratitude Railroad.
Thomas Knowles: Absolutely. So Builders Fund is, we call it kind of a sister organization to Gratitude Railroad. We were started at the same time back in 2013 to 2015. And for the Builders Fund, really the thesis there is identifying what we view as a gap in the impact investing market in more of the lower middle market, private equity and growth stage of businesses. So these are companies that are doing roughly $20 to $100 million in revenue and starting to become cash flow positive. At the time we started, and still today, there’s not a lot of values-aligned investors in that category that are also willing to get operationally involved and really help grow businesses at that stage. And I think when you think about a lot of the owners of those businesses, kind of in the middle market, these are folks that have been running the companies for decades that are thinking about their legacy, the next evolution of the company. They care deeply about their employees, about their community.. And many of them have been afraid of taking on private equity at the risk that that starts to change the mission and orientation of the, of the company. So for Builders Fund, we really try and partner with those founders and leaders and bring all the great aspects of private equity in terms of operational know-how and the growth capital, access to the capital markets, but really center that mission and values alignment and partner with those business owners.
Aoifinn Devitt: And then the Gratitude Railroad, my recollection from the conversation with Howard is rooted in capitalism. There is a requirement for return. But quite a broad-ranging set of focuses when it comes to the areas of impact. Maybe I have that maybe different— the wrong interpretation of your mission. Could you maybe refresh my memory in terms of the mission of the Got2 Railroad now and how you go about achieving a return as well as impact?
Thomas Knowles: Yeah, I mean, I’ll bring it back to something I mentioned before, which I think historically we’ve really thought about investing as primarily profit generating and really exclusive to that. And then philanthropy is really about solving problems around these social environmental issues. And for us, we really view that there’s an opportunity to bring both of those together to create kind of a better way of deploying capital and supporting businesses. So it’s really identifying where there are entrepreneurs and market opportunities that both drive great social and environmental outcomes, but also build incredible economic value. The other way I think about our mission is we’ve become very short-term oriented in the way that we think about investing And for us, impact investing, if you just had a 30-year horizon in terms of the way that you invested or ran a business, I think that would cover the vast majority of the things that people think about in terms of impact investing. It’s, you know, how do you make decisions that benefit your community, your employees, your stakeholders that ultimately drive long-term economic value as well? So really we’re trying to get investors to think differently about investing, think more long-term, and really be inspired by the entrepreneurs and fund managers that share that philosophy and are solving important problems, but building really incredible businesses as well.
Aoifinn Devitt: The actual measurement of impact, how do you go about that? Because that, I think, is something that many asset managers wrestle with, how they get to that point. So how would you say that that works for you?
Thomas Knowles: Yeah, it it is, is a challenge of the industry, I think, especially if you start thinking across different asset classes or certain impact areas to try and find a way to look at an asset manager or look at a portfolio from an asset manager and kind of measure the impact of that. Portfolios having. Fortunately, in traditional finance, we’ve created very clear ways of measuring performance. For us, the way that we do it is on an investment-by-investment basis. So when we’re investing in a company, throughout our diligence process, we’re trying to underwrite what is the potential impact of this business from really a systems level. So we really do want to avoid more Band-Aid type solutions, really getting at things that we think are solving the root cause problem. We come up with what we call a theory of change, which is a bit more typical in the nonprofit sector, but it gives a great framework for thinking about inputs to driving outputs and outcomes. And then we come up with a couple key performance indicators with the owner of the business, the founder, that aren’t necessarily just about impact. They are also business drivers as well. Our view is that the impact should be the competitive edge for the business as well. So we come up with 2 or 3 measurements that we can clearly look at on an annual basis and see if we’re making progress towards that impact goal. The other part of measurement that I would call out that I think is important is measuring how an asset manager integrates impact into their entire investment process. So how’s it showing up in the firm culture, their recruiting, how’s it showing up in their sourcing, their diligence, their decision-making, their post-investment support. And there’s some great tools out there. I’ll call out Bluemark, which came out of Tideline, as a way of assessing how an asset manager integrates impact throughout their investment process. So kind of in summary, the way we think about it is the high level of assessing it within the investment process, and then a very down to the ground level of in a particular investment, how does it show up and how do you measure that over time?
Aoifinn Devitt: And it’s interesting, I was just reflecting today, I saw some results of a trial that Stripe had done in terms of giving capital to small businesses, offering them small business loans, and then they tracked the growth of those businesses. And it was the capital alone that had the impact often. So I think you can sometimes make things quite complex, but I think sometimes access to capital, which I think has been described as the last frontier for many smaller firms and perhaps more community-led organizations, the very fact that you’re on the ground providing capital And is it countrywide? Do you have any geographic focus?
Thomas Knowles: Yes, we are focused across the US. We don’t invest outside the US at the moment. And I mean, to build on your comment, I think that’s right. I mean, a lot of the early-stage companies, there’s a typical thought in traditional venture of not investing in categories where there is reliance or intervention in the government sector. And the reality is, if you’re going to go after big issues around energy, healthcare, education. The government’s part of it and is going to be because of the size and scale. So I think the fact that there are certain investors that are willing to show up and support those types of businesses and be involved, I think is important on its own.
Aoifinn Devitt: And I’d say the market backdrop hasn’t exactly been a smooth ride when it comes to venture recently and impact investing in particular. I know there are still many managers that starve for capital and perhaps attention. Were there any obstacles or challenges over the course of the last few years that you’ve learned lessons from and maybe adapted your processes in response?
Thomas Knowles: Yeah, I would argue that we’ve kind of gone through an impact investing cycle. When we started, it was very much about building awareness, and then all of a sudden impact investing was, was all over the mainstream news and in traditional media and in films. And I think last year will be very much a view of that was somewhat of a bust for the impact investing market. And I think it was a combination of factors. One, just a natural cycle of interest within the capital markets, which we’ve all seen. Definitely the challenge in the macroeconomic picture, because a lot of the impact investing capital has been in the private markets and definitely not immune to the lack of liquidity and exits and the overallocation to the private markets from many asset owners. And then definitely the administration’s change of We went from an administration that arguably was probably the biggest tailwind to a lot of these areas that impact investors are focused on, to an administration that was very much a headwind to a lot of these categories. And so there’s just been a lot of uncertainty with all those factors in place. And the impact investing market now is at kind of a 10, 20-year history. So there’s a lot of maturity where things are either going to work out or they’re not. So it definitely will, I think in my view, will go down as a year of a real big transition for impact investing. Our view is that the mid to long-term trends have not changed. If you think about where asset owners, primarily individuals and families, are wanting to invest their capital, we see continued interest and excitement for, call it values-aligned investing, mission-driven investing, impact investing. And then on the talent side, continue to see the next generation of talent want to be in these categories. You still go to all the top business schools and ask you about, know, what areas do they want to work in from a startup perspective or invest in and impact and climate and social impact continue to be very important. So I think those are the things that keep us optimistic about the future for sure.
Aoifinn Devitt: We’re going to take a quick break to hear from Evanston Capital Management, one of the sponsors of this podcast series. I sat down with Adam Blitz, CEO and co-CIO at Evanston Capital Management, and I asked him about some of the nuances of manager selection and in particular whether polish mattered when it came to some of the managers in their stable.
Speaker C: We’re not investing in people based on their presentation skills, right? We’re investing in them based on how we think they’re going to perform going forward from an investment perspective. We’re looking for people who have investment talent, have built up a good team. Obviously, we want people with excellent character. All of that is super important. Someone coming in and doing a slick presentation isn’t necessarily a bad thing. It doesn’t mean that they’re not going to be a good manager going forward, but it certainly doesn’t mean they’re going to be a good manager going forward. And then someone who might be stumbling over their words a little bit, again, that doesn’t necessarily mean that they’re not going to produce good returns going forward. So it’s human nature a little bit to be drawn to folks who are compelling presenters. There’s probably a slight correlation between if you can present well to prospective investors that maybe there’s a slight positive correlation with being a good being a leader of a firm or being able to entice strong people to join you and be around you. But it’s only a very small correlation there.
Aoifinn Devitt: And now back to the show. It’s interesting what you say about the fact that maybe you got a very high profile. It seems to me that with impact investing, you don’t want to be kind of flavor of the month because then there will be a fad and, as you said, a bust cycle. It almost seems to me that this— also we used to talk a lot about intersectionality. And I think there are some values and areas of, of impact that seem to transcend political positioning. And certainly we look at opportunity zones, socioeconomic mobility, a huge focus by the current administration on perhaps the in former industrialized areas that are now hollowed out and a desire to return, I suppose, some prosperity to those areas. So I, I suppose it’s about finding common ground and ways that can intersect when it comes to the client use case. I think you mentioned individuals, high net worth individuals, families. Who want to make an impact. Do you see that any causes are resonating in particular today, whether that be water, wildfire mitigation, when it comes to the socioeconomic point I mentioned?
Thomas Knowles: Yeah, and I think to tie it back to the point about what have we changed, I think this is somewhat the case that we’ve, we’ve always had somewhat of a generalist impact investing strategy. As I mentioned, we do invest across multiple impact areas, and part of that is a view that there are times where there is more headwinds and tailwinds in any given issue area and where there’s opportunity in terms of the market adoption or entrepreneurial talent. And so I think one of the things that we’ve experienced through this more challenging environment is the importance of that in our portfolio and not being overweight in one impact area or another where things might dramatically change in any given year. So I think we’re gonna continue to persist there. And related to the question you just asked, there is always kind of some, interest areas that families come into the impact investing space. And some of it comes from their coming at this with maybe more of their philanthropic hat on. And philanthropy historically has been very issue-driven or maybe place-based. And so I think for us, we’ve tried to take that interest in and the passion and the willingness to deploy capital and then kind of mirror it with where do we think the real investment opportunity is. So, you know, consistent areas of interest have been around food and agriculture. I think that’s one where a lot of Families and individuals realize that there’s this intersectionality of the environmental impact and the potential of improving our food and agriculture systems and the human health aspect that comes along with improved food and agriculture systems. Oceans and water continue to be an area where people are trying to understand more. Is it investable? How do you invest in that category versus, you know, another category like education was very much an area where there was a lot of impact capital that went in, and there’s a lot of uncertainty right now in the education market. People are trying to understand, are there really investible education technology companies out there that deliver great outcomes and financial exits? So I think these conversations around themes are very much evolving over time, and that’s part of Graditude Railroad, why we have this community aspect of what we do. We’re constantly trying to learn from our investors, bring ideas, you debate, know, where we think we should be deploying capital at any given time.
Aoifinn Devitt: I think you made the point that our investing and business culture is short-term oriented, and that that can be a problem sometimes for impact investing. How do you kind of overcome that? Do you try to, with impact, given some of these, the impact could be long-dated and a long time coming, do you seek to have sort of early wins and early indication of impact so that you fulfill that desire to see short-term, I suppose, results?
Thomas Knowles: Yeah, I mean, this is one of the long-term goals for me of, I would hope one day to maybe start to address that issue. If I could have it my way, I you wish, know, we were operating with an evergreen fund structure and really could take a much longer view. I think you we’re, know, ways away from that. And we’ve always taken the point of view that impact investing’s a newer investing philosophy, and we want to of kind bring a limited set of new things to investors before we start to concern them of we’re trying too many different aspects. So we’ve kept with the traditional fund structure and timeline, But what we do try and do is communicate what would drive us to want to exit a business. And it shouldn’t just be because we’re trying to generate liquidity. It really should be at a point in time where we think it makes sense from a risk-return perspective. It’s not disruptive to the company, etc. We have focused on trying to deliver early wins, really more to prove the point that impact investing can be profitable and competitive. Again, I think in a way that hasn’t put our investments in a tough spot or exited too soon. But absolutely, I think that’s important. And frankly, the challenge of the impact investing space is there hasn’t been a ton of early wins that people have pointed to. So that has been important for us in our track record is start to show people this is how a company can exit, show exits in different sectors to different buyers, actually return capital. Very important for people staying committed to the category.
Aoifinn Devitt: Absolutely. And I would think also alignment with the right kind of investors and clients and partners who understand that these things take time, that Rome isn’t built in a day. And I think some of the big foundations get that because they know about the impact they’re making around the world. I’d love to move to some personal reflections now. So you’ve had quite a varied career from the private sector venture right through to impact now. Were there any highs and lows within that that you can speak to that maybe had an impression on you and changed the way you approach the world?
Thomas Knowles: Yeah, absolutely. I mean, I always talk about being early in my career and going through the great financial crisis in 2008 and 2009 and working for a large financial services company. And at that time, I actually reflect on that for me personally as very much a positive experience. Obviously it was very negative for so many people and there was stressful times, but to be able to see how things can play out in a situation like that and really how people react in a situation like that, was incredibly informative and honestly built some great long-term relationships through that process. So I’m grateful that that was an early experience that I had in my career. You know, I think right now, honestly, we’re at a challenging time around impact investing. We talked about it a little bit. And I think for me and for our team, we’re really saying like, how do we make sure that we continue to show people what’s possible, commit to this investing philosophy, and really be focused on putting capital to work supporting these entrepreneurs My view is that over the mid to long term, this will very much come back to be not only the mainstream topic, but actually the mainstream way that people invest. There’s some challenges, and we’ve got to continue to show people that there’s possibilities in terms of the wins, keep people committed to moving capital and demonstrating the power of impact investing.
Aoifinn Devitt: Yeah, I think you’re right. I think impact investing has suffered from being conflated with ESG. And I think as that moniker has been chucked out, and probably rightly so, in terms of it being too blunt and too broad, it seems to have been in the same category. And equally, this concept of concessionary returns or return sacrifice, which you have, I think, consistently refuted that there is a concessionary return, I think that has been raising issues of fiduciary duty and integrity, I suppose. And that’s— none of that’s helpful because this is a complex area and soundbite summaries don’t really work. So I think you’re right, it is— there probably are headwinds, but I do think that these are probably some necessary flushing out perhaps of misunderstandings and misrepresentations around impact. So I can hear that from my vantage point in Europe, there’s very similar phenomenon. You mentioned also some of the people. I think we’ve always talked about people and partners here. Have there been any legends in the impact investing space or other people throughout your career have been an inspiration to you?
Thomas Knowles: Yeah, absolutely. I mean, I think the co-founders who you had the chance of speaking with, Howard Fisher, other co-founder Eric Jacobson, definitely folks that I would highlight that were successful in quote unquote traditional finance and traditional entrepreneurship and got to a place and you said, know, how do we start to address these issues? Philanthropy and policy can’t be the only lever that we pull, and really took on not only their own personal capital in investing in impact investing, but decided to use their social capital and really try and convince other investors to think differently about the world. And that’s not an easy thing to do, and really they didn’t have to do that. So I give them a lot of credit for being willing to kind of step out, use their social capital, and try and convince other investors to step into the space. For me, I’ve always looked at my career as following people. I’ve never viewed it as trying to build a resume or optimize for any particular outcome financially. It was much more about how do I identify people that I think are just incredible ethical human beings that are ambitious, that are wanting to solve hard problems, that are thinking long-term. And so absolutely, I’ve had the chance early in my career, as I mentioned, that experience through S2B Capital and Silicon Valley Bank, which unfortunately went through another crisis, but just worked with some incredible leaders there, a gentleman, Ken Lovelace, who continues to be a great mentor of mine and just a leader in the venture capital field, just people who are willing to put a lot of energy and effort and time and mentorship into younger folks. And so I try and bring that forward and do that as well, especially as it relates to impact investing, kind of back to this idea of how do we keep the momentum going, you know, showing up for this younger generation that has a lot of interest and passion for these areas. And just showing what’s possible and introducing them to people that they’re going to look up to and say, okay, there is a path here to, to really build a career.
Aoifinn Devitt: I’d love to ask something that’s not in the script but just occurred to me as you mentioned some of these people who have started. I’m thinking of people who have a loud megaphone, say, when it comes to the impact investing they do. I’m thinking of Bill Gates, Mackenzie Scott. She’s a little less high profile, but we know the impact of her donations. Equally, Howard Fisher. All of these individuals had bridged a gap between traditional finance or technology and impact investing. And it seems that maybe they gained credibility and a voice on one side, which gave their voice so much more power on the impact side. And do you think that— and Howard would be similar, having been at Basso Capital and now Gratitude Railroad— why is that, do you think, that there seems to be a kind of a perhaps a need to have credibility on both sides of the aisle and the pure capitalist side in order to have perhaps more of a voice on the impact side.
Thomas Knowles: I think that is a great point that that has been the case, and I don’t think that’s necessarily right. I think the reason that persists is we ultimately are trying to move more capital from where it is today, which is not necessarily directed at these issues, to directed at these issues. And so having people who have built credibility around capital markets, entrepreneurship, technology. They’re the ones that are going to open up the capital to move towards these issues. And there needs to be trust, right, and credibility for people to do it, to then hopefully there’s a reinforcing cycle of showing it works and capital moving back. But for us, we’ve always thought we wanted to understand the issues at a really fundamental basis. So when we actually do diligence on investing, we are talking to philanthropic leaders, people in the government sector, people been, people who’ve I mean, who’ve been working on these issues I mentioned for decades and centuries. And so I do think there’s a little bit of a concern of people with capital who have done well in finance or business or technology that they can just automatically apply that expertise to these issues and do a great job. And that’s not true. We really do need both to work well together. But I do think unfortunately at this moment in time, for other players in the capital markets to take it seriously. You do need those leaders to step up and say, I’m doing it, I’m doing it with my own capital, have some faith and trust, let’s go do this together, learn. But they shouldn’t be doing it in a vacuum, right? It’s very much leveraging the ecosystem that’s been built around trying to work on these incredibly challenging issues again for decades and centuries. So you’re calling out attention that I think is very much there and I think when done well, using that credibility and that capital married with people who have the expertise and have been working on these issues, but maybe have been resource constrained, that’s where I think the unlock happens.
Aoifinn Devitt: It’s so interesting you use the word trust because I think that’s where it perhaps is still in short supply or there’s a deficit because I think of this narrative that it’s an either/or, it’s an either, it’s an impact or it’s it’s a, a financial reasonable return. Not the end. And that the trust, I think, has to come from perhaps players that are where there is no doubt that there is always going to be a financial return. And whether it’s also around things like metrics, such as perhaps efficiency in running an organization and an ability to show return on investment and those type of things, not only in the actual investments themselves, but in the organization itself, that it’s run well. So I think we will need to continue to shore up that trust in order to rebut the presumption that it’s an either-or situation. So a really interesting analysis of that. My last question is around any creed or motto that you have, or any piece of advice that either you would give to your younger self or, or just have developed over the course of your career. I would imagine in the impact sphere you do come across some fairly meaningful creeds.
Thomas Knowles: Yeah, fair enough. I don’t think there’s anything in particular. I mean, I mentioned the idea of following good people. I think that’s really important. I you think, know, the idea of really being willing to learn by doing, I think that’s been always something that I’ve just seen in my career is people willing to test and iterate and recognize where it didn’t work and make adjustments. And I think that’s been helpful for me in my career and also important for our firm and for the impact investing space broadly, I think is really critical and important. So those are some of the things that I think I, I keep in mind and, and try you and, know, come to each day with. And, and lastly, I do think this idea of putting one foot in front of the other, making progress, taking a long view. As you’re mentioning, I mean, this is not something that I think we should have expected would’ve made perfect sense in, you know, one 10-year cycle of trying to do something different as it relates to investing in business when we’ve been operating in in a, a system that’s been around for multiple decades. And so I think this is gonna take time and faith and trust and along the way being very transparent about what’s working, what’s not working, testing assumptions, Being collaborative, those are important aspects of our work for sure.
Aoifinn Devitt: Well, thank you so much, Thomas. It’s been a pleasure to hear what it’s like in the arena. And I think to hear your frankness about, as you said, the ups and downs that the impact investing cycle has been through. And it’s so, I suppose, heartening to see players like yourself, like the Graduate Railroad, like the Builders Fund persisting despite the headwinds and finding the areas to, to have the impact that you do. So thank you so much for coming here and sharing your insights with us.
Thomas Knowles: Thank you so much. Appreciate it.
Aoifinn Devitt: I’m Aoifinn Devitt. Thank you for listening to the 50 Faces Podcast. If you liked what you heard and would like to tune in to hear more inspiring investors and their personal journeys, please subscribe on Apple Podcasts or wherever you get your podcasts. This podcast is for informational purposes only and should not be construed as investment advice, and all views are personal and should not be attributed to the organizations and affiliations of the host or any guest.
Aoifinn Devitt: This podcast series is kindly sponsored by Evanston Capital. For over 20 years, Evanston Capital has had a key focus in identifying early-stage investment managers it believes are capable of generating long-term value-added returns in complex, innovative strategy areas. The series is also sponsored by Alvine Capital. Alvine Capital is a specialist investment manager and placement boutique with a particular focus on alternative assets, a significant presence in London and Stockholm.
Thomas Knowles: Fortunately, in traditional finance, we’ve created very clear ways of measuring performance. For us, the way that we do it is on an investment-by-investment basis. So when we’re investing in a company, throughout our diligence process, we’re trying to underwrite what is the potential impact of this business from really a systems level. So we really do want to avoid more band-aid type solutions, really getting at things that we think are solving the root cause problem. We come up with what we call a theory of change, which is a bit more typical in the nonprofit sector, but because it’s a great framework for thinking about inputs to driving outputs and outcomes. And then we come up with a couple key performance indicators with the owner of the business, the founder, that aren’t necessarily just about impact. They are also business drivers as well. Our view is that the impact should be the competitive edge for the business as well. So we come up with 2 or 3 measurements that we can clearly look at on an annual basis and see if we’re making progress towards that impact goal.
Aoifinn Devitt: I’m Aoifinn Devitt, and welcome to the 50 Faces Podcast., a podcast committed to revealing the richness and diversity of the world of investment by focusing on its people and their stories. I’m joined today by Thomas Knowles, who’s managing partner of Gratitude Railroad. He’s also an operating partner at the Builders Fund, and prior to that held a series of other roles, including corporate development for two technology companies and started out in venture at SVB Capital, the asset management arm of Silicon Valley Bank. Welcome, Thomas. Thanks for joining me today.
Thomas Knowles: Absolutely, happy to be here.
Aoifinn Devitt: Well, delighted to have another representative from the Gratitude Railroad, as we did feature Howard Fisher some years ago, and we heard a little bit about the mission then, but I’m really excited to catch up on that and hear about your own personal career journey. So can you talk us through that, just your background? And you’ve had a really interesting background touching on technology, innovative structures like the Builders Fund, and take us from there.
Thomas Knowles: Sure, yeah, I’ll keep it short, and if there’s any questions you want more information on, let me know. But I started kind of my journey into impact investing really in undergraduate. I went to college at a Jesuit college called Santa Clara and got introduced to the idea of microfinance while studying economics there. And I always thought it was such a compelling way of providing social mobility through the capital markets. And this was back in the mid-2000s. And coming out of school, it really felt like if you wanted to go have social impact, you went into the nonprofit sector, and if you wanted to make money, you went into the for-profit sector. And at the time, for a series of, of reasons, I felt like I needed to go be financially successful and then come back to social impact down the road. And spent the early part of my career, as you mentioned, in venture capital in Silicon Valley and loved that and went through the financial crisis, which was a great learning experience as someone starting off their investing career and kind of saw some of the challenges of the capital markets and our current system of investing. And then went to the operating side and worked for a couple technologies to really understand what it meant to be a business builder and an operator. And all along the way, I just kind of always thought it’d be great to be investing in building businesses that had a real eye towards a solution, that were not just trying to fill a gap in terms of, you know, what XYZ technology company was interested in purchasing, but really trying to solve our biggest challenges, especially as it relates to early-stage venture. I just felt like it was an asset class that really should be used with a long-term lens and focus on the most critical challenges and the most hard-to-fix challenges. So starting in 2013, started exploring the impact investing space and got introduced to the great folks at Gratitude Railroad and joined officially in 2015 to be the first employee and have been leading that organization ever since.
Aoifinn Devitt: Fantastic. Well, I’d like to drill in a little bit to some of those problems that you said need solving. What are some of the compelling areas, for example, that maybe intersect with this impact lens, but equally are solid venture capital investments in their own right?
Thomas Knowles: Yeah, absolutely. I think it is pretty wide-ranging. So we, about half of our investment capital goes into the climate sector. So really thinking about areas of energy transition, energy efficiency, waste to value, et cetera. And then the other half go into social impact areas around education, healthcare, financial services. So these are obviously massive drivers of GDP. They are the challenges that the government and philanthropy have been working on for centuries at this point. And really our view is we really need business in the capital markets to start thinking about these issues and also seeing them as massive opportunities. Obviously, there’s a lot of change happening in any given one of those areas that I mentioned. And so having entrepreneurship and finance and the capital markets being part of the solution, really there’s opportunity in each of those areas.
Aoifinn Devitt: And just to separate the two out, so the Builders Fund, can you tell us about the philosophy of that organization? And because I think that’s quite distinctive in its own right. And then we can revisit the Gratitude Railroad.
Thomas Knowles: Absolutely. So Builders Fund is, we call it kind of a sister organization to Gratitude Railroad. We were started at the same time back in 2013 to 2015. And for the Builders Fund, really the thesis there is identifying what we view as a gap in the impact investing market in more of the lower middle market, private equity and growth stage of businesses. So these are companies that are doing roughly $20 to $100 million in revenue and starting to become cash flow positive. At the time we started, and still today, there’s not a lot of values-aligned investors in that category that are also willing to get operationally involved and really help grow businesses at that stage. And I think when you think about a lot of the owners of those businesses, kind of in the middle market, these are folks that have been running the companies for decades that are thinking about their legacy, the next evolution of the company. They care deeply about their employees, about their community.. And many of them have been afraid of taking on private equity at the risk that that starts to change the mission and orientation of the, of the company. So for Builders Fund, we really try and partner with those founders and leaders and bring all the great aspects of private equity in terms of operational know-how and the growth capital, access to the capital markets, but really center that mission and values alignment and partner with those business owners.
Aoifinn Devitt: And then the Gratitude Railroad, my recollection from the conversation with Howard is rooted in capitalism. There is a requirement for return. But quite a broad-ranging set of focuses when it comes to the areas of impact. Maybe I have that maybe different— the wrong interpretation of your mission. Could you maybe refresh my memory in terms of the mission of the Got2 Railroad now and how you go about achieving a return as well as impact?
Thomas Knowles: Yeah, I mean, I’ll bring it back to something I mentioned before, which I think historically we’ve really thought about investing as primarily profit generating and really exclusive to that. And then philanthropy is really about solving problems around these social environmental issues. And for us, we really view that there’s an opportunity to bring both of those together to create kind of a better way of deploying capital and supporting businesses. So it’s really identifying where there are entrepreneurs and market opportunities that both drive great social and environmental outcomes, but also build incredible economic value. The other way I think about our mission is we’ve become very short-term oriented in the way that we think about investing And for us, impact investing, if you just had a 30-year horizon in terms of the way that you invested or ran a business, I think that would cover the vast majority of the things that people think about in terms of impact investing. It’s, you know, how do you make decisions that benefit your community, your employees, your stakeholders that ultimately drive long-term economic value as well? So really we’re trying to get investors to think differently about investing, think more long-term, and really be inspired by the entrepreneurs and fund managers that share that philosophy and are solving important problems, but building really incredible businesses as well.
Aoifinn Devitt: The actual measurement of impact, how do you go about that? Because that, I think, is something that many asset managers wrestle with, how they get to that point. So how would you say that that works for you?
Thomas Knowles: Yeah, it it is, is a challenge of the industry, I think, especially if you start thinking across different asset classes or certain impact areas to try and find a way to look at an asset manager or look at a portfolio from an asset manager and kind of measure the impact of that. Portfolios having. Fortunately, in traditional finance, we’ve created very clear ways of measuring performance. For us, the way that we do it is on an investment-by-investment basis. So when we’re investing in a company, throughout our diligence process, we’re trying to underwrite what is the potential impact of this business from really a systems level. So we really do want to avoid more Band-Aid type solutions, really getting at things that we think are solving the root cause problem. We come up with what we call a theory of change, which is a bit more typical in the nonprofit sector, but it gives a great framework for thinking about inputs to driving outputs and outcomes. And then we come up with a couple key performance indicators with the owner of the business, the founder, that aren’t necessarily just about impact. They are also business drivers as well. Our view is that the impact should be the competitive edge for the business as well. So we come up with 2 or 3 measurements that we can clearly look at on an annual basis and see if we’re making progress towards that impact goal. The other part of measurement that I would call out that I think is important is measuring how an asset manager integrates impact into their entire investment process. So how’s it showing up in the firm culture, their recruiting, how’s it showing up in their sourcing, their diligence, their decision-making, their post-investment support. And there’s some great tools out there. I’ll call out Bluemark, which came out of Tideline, as a way of assessing how an asset manager integrates impact throughout their investment process. So kind of in summary, the way we think about it is the high level of assessing it within the investment process, and then a very down to the ground level of in a particular investment, how does it show up and how do you measure that over time?
Aoifinn Devitt: And it’s interesting, I was just reflecting today, I saw some results of a trial that Stripe had done in terms of giving capital to small businesses, offering them small business loans, and then they tracked the growth of those businesses. And it was the capital alone that had the impact often. So I think you can sometimes make things quite complex, but I think sometimes access to capital, which I think has been described as the last frontier for many smaller firms and perhaps more community-led organizations, the very fact that you’re on the ground providing capital And is it countrywide? Do you have any geographic focus?
Thomas Knowles: Yes, we are focused across the US. We don’t invest outside the US at the moment. And I mean, to build on your comment, I think that’s right. I mean, a lot of the early-stage companies, there’s a typical thought in traditional venture of not investing in categories where there is reliance or intervention in the government sector. And the reality is, if you’re going to go after big issues around energy, healthcare, education. The government’s part of it and is going to be because of the size and scale. So I think the fact that there are certain investors that are willing to show up and support those types of businesses and be involved, I think is important on its own.
Aoifinn Devitt: And I’d say the market backdrop hasn’t exactly been a smooth ride when it comes to venture recently and impact investing in particular. I know there are still many managers that starve for capital and perhaps attention. Were there any obstacles or challenges over the course of the last few years that you’ve learned lessons from and maybe adapted your processes in response?
Thomas Knowles: Yeah, I would argue that we’ve kind of gone through an impact investing cycle. When we started, it was very much about building awareness, and then all of a sudden impact investing was, was all over the mainstream news and in traditional media and in films. And I think last year will be very much a view of that was somewhat of a bust for the impact investing market. And I think it was a combination of factors. One, just a natural cycle of interest within the capital markets, which we’ve all seen. Definitely the challenge in the macroeconomic picture, because a lot of the impact investing capital has been in the private markets and definitely not immune to the lack of liquidity and exits and the overallocation to the private markets from many asset owners. And then definitely the administration’s change of We went from an administration that arguably was probably the biggest tailwind to a lot of these areas that impact investors are focused on, to an administration that was very much a headwind to a lot of these categories. And so there’s just been a lot of uncertainty with all those factors in place. And the impact investing market now is at kind of a 10, 20-year history. So there’s a lot of maturity where things are either going to work out or they’re not. So it definitely will, I think in my view, will go down as a year of a real big transition for impact investing. Our view is that the mid to long-term trends have not changed. If you think about where asset owners, primarily individuals and families, are wanting to invest their capital, we see continued interest and excitement for, call it values-aligned investing, mission-driven investing, impact investing. And then on the talent side, continue to see the next generation of talent want to be in these categories. You still go to all the top business schools and ask you about, know, what areas do they want to work in from a startup perspective or invest in and impact and climate and social impact continue to be very important. So I think those are the things that keep us optimistic about the future for sure.
Aoifinn Devitt: We’re going to take a quick break to hear from Evanston Capital Management, one of the sponsors of this podcast series. I sat down with Adam Blitz, CEO and co-CIO at Evanston Capital Management, and I asked him about some of the nuances of manager selection and in particular whether polish mattered when it came to some of the managers in their stable.
Speaker C: We’re not investing in people based on their presentation skills, right? We’re investing in them based on how we think they’re going to perform going forward from an investment perspective. We’re looking for people who have investment talent, have built up a good team. Obviously, we want people with excellent character. All of that is super important. Someone coming in and doing a slick presentation isn’t necessarily a bad thing. It doesn’t mean that they’re not going to be a good manager going forward, but it certainly doesn’t mean they’re going to be a good manager going forward. And then someone who might be stumbling over their words a little bit, again, that doesn’t necessarily mean that they’re not going to produce good returns going forward. So it’s human nature a little bit to be drawn to folks who are compelling presenters. There’s probably a slight correlation between if you can present well to prospective investors that maybe there’s a slight positive correlation with being a good being a leader of a firm or being able to entice strong people to join you and be around you. But it’s only a very small correlation there.
Aoifinn Devitt: And now back to the show. It’s interesting what you say about the fact that maybe you got a very high profile. It seems to me that with impact investing, you don’t want to be kind of flavor of the month because then there will be a fad and, as you said, a bust cycle. It almost seems to me that this— also we used to talk a lot about intersectionality. And I think there are some values and areas of, of impact that seem to transcend political positioning. And certainly we look at opportunity zones, socioeconomic mobility, a huge focus by the current administration on perhaps the in former industrialized areas that are now hollowed out and a desire to return, I suppose, some prosperity to those areas. So I, I suppose it’s about finding common ground and ways that can intersect when it comes to the client use case. I think you mentioned individuals, high net worth individuals, families. Who want to make an impact. Do you see that any causes are resonating in particular today, whether that be water, wildfire mitigation, when it comes to the socioeconomic point I mentioned?
Thomas Knowles: Yeah, and I think to tie it back to the point about what have we changed, I think this is somewhat the case that we’ve, we’ve always had somewhat of a generalist impact investing strategy. As I mentioned, we do invest across multiple impact areas, and part of that is a view that there are times where there is more headwinds and tailwinds in any given issue area and where there’s opportunity in terms of the market adoption or entrepreneurial talent. And so I think one of the things that we’ve experienced through this more challenging environment is the importance of that in our portfolio and not being overweight in one impact area or another where things might dramatically change in any given year. So I think we’re gonna continue to persist there. And related to the question you just asked, there is always kind of some, interest areas that families come into the impact investing space. And some of it comes from their coming at this with maybe more of their philanthropic hat on. And philanthropy historically has been very issue-driven or maybe place-based. And so I think for us, we’ve tried to take that interest in and the passion and the willingness to deploy capital and then kind of mirror it with where do we think the real investment opportunity is. So, you know, consistent areas of interest have been around food and agriculture. I think that’s one where a lot of Families and individuals realize that there’s this intersectionality of the environmental impact and the potential of improving our food and agriculture systems and the human health aspect that comes along with improved food and agriculture systems. Oceans and water continue to be an area where people are trying to understand more. Is it investable? How do you invest in that category versus, you know, another category like education was very much an area where there was a lot of impact capital that went in, and there’s a lot of uncertainty right now in the education market. People are trying to understand, are there really investible education technology companies out there that deliver great outcomes and financial exits? So I think these conversations around themes are very much evolving over time, and that’s part of Graditude Railroad, why we have this community aspect of what we do. We’re constantly trying to learn from our investors, bring ideas, you debate, know, where we think we should be deploying capital at any given time.
Aoifinn Devitt: I think you made the point that our investing and business culture is short-term oriented, and that that can be a problem sometimes for impact investing. How do you kind of overcome that? Do you try to, with impact, given some of these, the impact could be long-dated and a long time coming, do you seek to have sort of early wins and early indication of impact so that you fulfill that desire to see short-term, I suppose, results?
Thomas Knowles: Yeah, I mean, this is one of the long-term goals for me of, I would hope one day to maybe start to address that issue. If I could have it my way, I you wish, know, we were operating with an evergreen fund structure and really could take a much longer view. I think you we’re, know, ways away from that. And we’ve always taken the point of view that impact investing’s a newer investing philosophy, and we want to of kind bring a limited set of new things to investors before we start to concern them of we’re trying too many different aspects. So we’ve kept with the traditional fund structure and timeline, But what we do try and do is communicate what would drive us to want to exit a business. And it shouldn’t just be because we’re trying to generate liquidity. It really should be at a point in time where we think it makes sense from a risk-return perspective. It’s not disruptive to the company, etc. We have focused on trying to deliver early wins, really more to prove the point that impact investing can be profitable and competitive. Again, I think in a way that hasn’t put our investments in a tough spot or exited too soon. But absolutely, I think that’s important. And frankly, the challenge of the impact investing space is there hasn’t been a ton of early wins that people have pointed to. So that has been important for us in our track record is start to show people this is how a company can exit, show exits in different sectors to different buyers, actually return capital. Very important for people staying committed to the category.
Aoifinn Devitt: Absolutely. And I would think also alignment with the right kind of investors and clients and partners who understand that these things take time, that Rome isn’t built in a day. And I think some of the big foundations get that because they know about the impact they’re making around the world. I’d love to move to some personal reflections now. So you’ve had quite a varied career from the private sector venture right through to impact now. Were there any highs and lows within that that you can speak to that maybe had an impression on you and changed the way you approach the world?
Thomas Knowles: Yeah, absolutely. I mean, I always talk about being early in my career and going through the great financial crisis in 2008 and 2009 and working for a large financial services company. And at that time, I actually reflect on that for me personally as very much a positive experience. Obviously it was very negative for so many people and there was stressful times, but to be able to see how things can play out in a situation like that and really how people react in a situation like that, was incredibly informative and honestly built some great long-term relationships through that process. So I’m grateful that that was an early experience that I had in my career. You know, I think right now, honestly, we’re at a challenging time around impact investing. We talked about it a little bit. And I think for me and for our team, we’re really saying like, how do we make sure that we continue to show people what’s possible, commit to this investing philosophy, and really be focused on putting capital to work supporting these entrepreneurs My view is that over the mid to long term, this will very much come back to be not only the mainstream topic, but actually the mainstream way that people invest. There’s some challenges, and we’ve got to continue to show people that there’s possibilities in terms of the wins, keep people committed to moving capital and demonstrating the power of impact investing.
Aoifinn Devitt: Yeah, I think you’re right. I think impact investing has suffered from being conflated with ESG. And I think as that moniker has been chucked out, and probably rightly so, in terms of it being too blunt and too broad, it seems to have been in the same category. And equally, this concept of concessionary returns or return sacrifice, which you have, I think, consistently refuted that there is a concessionary return, I think that has been raising issues of fiduciary duty and integrity, I suppose. And that’s— none of that’s helpful because this is a complex area and soundbite summaries don’t really work. So I think you’re right, it is— there probably are headwinds, but I do think that these are probably some necessary flushing out perhaps of misunderstandings and misrepresentations around impact. So I can hear that from my vantage point in Europe, there’s very similar phenomenon. You mentioned also some of the people. I think we’ve always talked about people and partners here. Have there been any legends in the impact investing space or other people throughout your career have been an inspiration to you?
Thomas Knowles: Yeah, absolutely. I mean, I think the co-founders who you had the chance of speaking with, Howard Fisher, other co-founder Eric Jacobson, definitely folks that I would highlight that were successful in quote unquote traditional finance and traditional entrepreneurship and got to a place and you said, know, how do we start to address these issues? Philanthropy and policy can’t be the only lever that we pull, and really took on not only their own personal capital in investing in impact investing, but decided to use their social capital and really try and convince other investors to think differently about the world. And that’s not an easy thing to do, and really they didn’t have to do that. So I give them a lot of credit for being willing to kind of step out, use their social capital, and try and convince other investors to step into the space. For me, I’ve always looked at my career as following people. I’ve never viewed it as trying to build a resume or optimize for any particular outcome financially. It was much more about how do I identify people that I think are just incredible ethical human beings that are ambitious, that are wanting to solve hard problems, that are thinking long-term. And so absolutely, I’ve had the chance early in my career, as I mentioned, that experience through S2B Capital and Silicon Valley Bank, which unfortunately went through another crisis, but just worked with some incredible leaders there, a gentleman, Ken Lovelace, who continues to be a great mentor of mine and just a leader in the venture capital field, just people who are willing to put a lot of energy and effort and time and mentorship into younger folks. And so I try and bring that forward and do that as well, especially as it relates to impact investing, kind of back to this idea of how do we keep the momentum going, you know, showing up for this younger generation that has a lot of interest and passion for these areas. And just showing what’s possible and introducing them to people that they’re going to look up to and say, okay, there is a path here to, to really build a career.
Aoifinn Devitt: I’d love to ask something that’s not in the script but just occurred to me as you mentioned some of these people who have started. I’m thinking of people who have a loud megaphone, say, when it comes to the impact investing they do. I’m thinking of Bill Gates, Mackenzie Scott. She’s a little less high profile, but we know the impact of her donations. Equally, Howard Fisher. All of these individuals had bridged a gap between traditional finance or technology and impact investing. And it seems that maybe they gained credibility and a voice on one side, which gave their voice so much more power on the impact side. And do you think that— and Howard would be similar, having been at Basso Capital and now Gratitude Railroad— why is that, do you think, that there seems to be a kind of a perhaps a need to have credibility on both sides of the aisle and the pure capitalist side in order to have perhaps more of a voice on the impact side.
Thomas Knowles: I think that is a great point that that has been the case, and I don’t think that’s necessarily right. I think the reason that persists is we ultimately are trying to move more capital from where it is today, which is not necessarily directed at these issues, to directed at these issues. And so having people who have built credibility around capital markets, entrepreneurship, technology. They’re the ones that are going to open up the capital to move towards these issues. And there needs to be trust, right, and credibility for people to do it, to then hopefully there’s a reinforcing cycle of showing it works and capital moving back. But for us, we’ve always thought we wanted to understand the issues at a really fundamental basis. So when we actually do diligence on investing, we are talking to philanthropic leaders, people in the government sector, people been, people who’ve I mean, who’ve been working on these issues I mentioned for decades and centuries. And so I do think there’s a little bit of a concern of people with capital who have done well in finance or business or technology that they can just automatically apply that expertise to these issues and do a great job. And that’s not true. We really do need both to work well together. But I do think unfortunately at this moment in time, for other players in the capital markets to take it seriously. You do need those leaders to step up and say, I’m doing it, I’m doing it with my own capital, have some faith and trust, let’s go do this together, learn. But they shouldn’t be doing it in a vacuum, right? It’s very much leveraging the ecosystem that’s been built around trying to work on these incredibly challenging issues again for decades and centuries. So you’re calling out attention that I think is very much there and I think when done well, using that credibility and that capital married with people who have the expertise and have been working on these issues, but maybe have been resource constrained, that’s where I think the unlock happens.
Aoifinn Devitt: It’s so interesting you use the word trust because I think that’s where it perhaps is still in short supply or there’s a deficit because I think of this narrative that it’s an either/or, it’s an either, it’s an impact or it’s it’s a, a financial reasonable return. Not the end. And that the trust, I think, has to come from perhaps players that are where there is no doubt that there is always going to be a financial return. And whether it’s also around things like metrics, such as perhaps efficiency in running an organization and an ability to show return on investment and those type of things, not only in the actual investments themselves, but in the organization itself, that it’s run well. So I think we will need to continue to shore up that trust in order to rebut the presumption that it’s an either-or situation. So a really interesting analysis of that. My last question is around any creed or motto that you have, or any piece of advice that either you would give to your younger self or, or just have developed over the course of your career. I would imagine in the impact sphere you do come across some fairly meaningful creeds.
Thomas Knowles: Yeah, fair enough. I don’t think there’s anything in particular. I mean, I mentioned the idea of following good people. I think that’s really important. I you think, know, the idea of really being willing to learn by doing, I think that’s been always something that I’ve just seen in my career is people willing to test and iterate and recognize where it didn’t work and make adjustments. And I think that’s been helpful for me in my career and also important for our firm and for the impact investing space broadly, I think is really critical and important. So those are some of the things that I think I, I keep in mind and, and try you and, know, come to each day with. And, and lastly, I do think this idea of putting one foot in front of the other, making progress, taking a long view. As you’re mentioning, I mean, this is not something that I think we should have expected would’ve made perfect sense in, you know, one 10-year cycle of trying to do something different as it relates to investing in business when we’ve been operating in in a, a system that’s been around for multiple decades. And so I think this is gonna take time and faith and trust and along the way being very transparent about what’s working, what’s not working, testing assumptions, Being collaborative, those are important aspects of our work for sure.
Aoifinn Devitt: Well, thank you so much, Thomas. It’s been a pleasure to hear what it’s like in the arena. And I think to hear your frankness about, as you said, the ups and downs that the impact investing cycle has been through. And it’s so, I suppose, heartening to see players like yourself, like the Graduate Railroad, like the Builders Fund persisting despite the headwinds and finding the areas to, to have the impact that you do. So thank you so much for coming here and sharing your insights with us.
Thomas Knowles: Thank you so much. Appreciate it.
Aoifinn Devitt: I’m Aoifinn Devitt. Thank you for listening to the 50 Faces Podcast. If you liked what you heard and would like to tune in to hear more inspiring investors and their personal journeys, please subscribe on Apple Podcasts or wherever you get your podcasts. This podcast is for informational purposes only and should not be construed as investment advice, and all views are personal and should not be attributed to the organizations and affiliations of the host or any guest.
