Founder Stories: Ethic
Many investors these days are looking to align their investments with their ethical convictions. This is honorable and something fairly easily controlled by the investors themselves when considering direct debt and equity investments. But when it comes to investing in the public markets, ensuring mission fit can be extremely difficult. It is hard to find the impact data needed to make a decision on your own and many traditional wealth managers just don’t have a progressive view on value when it comes to these types of investments.
This is where Ethic, the subject of this year’s first Founder Stories, comes in. In short, Ethic makes it easy for an investor to make sure that his or her public market investments match his or her personal ethical decisions. Not only have we partnered with Ethic, but Ethic is also one of our portfolio companies that we have invested in, which provided the capital necessary to complete product build out and initial go-to-market efforts.
We recently visited with the three co-founders of Ethic, Jay Lipman, Doug Scott and Johny Mair, at their New York City office to discuss why Ethic exists, how they got to where they are today and what they are working on that gets them excited. Here is what the three had to say.
What is Ethic and why does it exist?
Jay: Ethic is a sustainable, technology-driven asset manager. We create sustainable equity portfolios that are designed to tightly track your chosen benchmark. We empower a team of elite technologists, designers, quants and data scientists, and apply their energy to accelerating the global transition to sustainable investing. Ethic exists to harness the power of the capital markets as a force for transformative positive change.
What are you hoping to accomplish or what kind of impact do you hope Ethic makes in this world?
Doug: Investment capital can be harnessed as a powerful tool for positive impact. At Ethic, we are helping address the defining issues of our time by directing institutional investment capital toward sustainable companies and away from unsustainable ones, without sacrificing investment performance. By positively impacting the flow of significant pools of passive equity investment capital (think trillions of dollars), we are striving to improve the lives of millions and address critical issues like the climate crisis.
Jay: Making corporations respect their resources: people and the planet. By changing the way corporations view their responsibility to be a steward of these two resources, Ethic can create dramatic shifts in corporate behavior.
Johny: The goal is that there isn’t investing and sustainable investing, all investing is sustainable. We are starting to see that happen. More and more capital is moving into companies that are sustainable, driving impact, creating change and solving real world problems. The next generation of purpose driven companies are attracting the best talent, more efficient, reduce material risks, have sustainable futures and provide great returns for investors.
Describe your path to what you are doing now?
Doug: I was raised in Australia by two forward-thinking social and environmental parents, who worked hard to protect our natural environment and to help those in need. After I completed both finance and engineering degrees, my path led me to M&A investment banking, which in Australia meant I worked for large corporates in the energy, metals, and mining sectors. This experience was defining. While I derived energy and enjoyment from working alongside very talented people, I ultimately realized that my life trajectory was in no way aligned with the social and environmental values that my parents had instilled in me. I recognized that I had strayed from my true north. I recognized that what I really wanted to do was to harness all the intellectual capital of the talented people around me to help address the defining issues of our time. This is when I founded Ethic with my co-founders Jay and Johny, who both had similar experiences and realizations.
Johny: I would say it’s been like a game of snakes and ladders.
How does Ethic help people align their values with their investments?
Doug: Ethic has built market-leading technology to automate the creation of sustainable equity investment portfolios, which are designed to track your chosen benchmark. We help institutional investors explore and discover their values, principles, and point of view on sustainability by using technology to simplify the entire spectrum of environmental, social and governance issues. We help such investors re-engage with issues they’re implicitly supporting through their investments, and work with them to align their capital with positive impact.
What do you think makes the Ethic team — and how you all work together — unique?
Johny: I wouldn’t say there is one thing that is completely unique to Ethic but it’s more the way all these pieces are combined. When we were getting started we really wanted to create an environment where very talented people could be empowered to use their skills and talents to solve really hard problems and have purpose.
This starts with the people; the background of the team is wide and varied. We are five nationalities in a nine person team. People have worked in a lot of different industries doing many different roles, which brings a lot of different viewpoints to solving problems. People’s interests outside of work are also very different which brings a curiosity to the environment and culture.
Our approach to solving things is to do it the right way the first time. I think sometimes startups get confused between speed and quality and take shortcuts, which end up having massive affects that actually end up taking more time. This is a long term business for us and we treat building things the same way. We always look at how to build things efficiently, but we always do it the right way that will help grow and scale our business—it’s a long term view. We are also dealing with large amounts of capital, and we are very respectful of this. The nice thing is the attention to detail, dedication and thoughtfulness really comes across in the product and the feedback from clients comes back to the team which, in turn, inspires us to keep improving even further.
And lastly, we have a very honest, fun, trusting environment where people can collaborate and be totally open with their opinions. This pushes the product and people to always improve. Also, I think culturally we are very playful. We try to bring humor into all our meetings and sessions. When people are happy, they work better and produce better work.
How does Ethic help empower others to create impact without compromising financial performance?
Doug: Ethic creates sustainable equity portfolios designed to tightly track your chosen benchmark. That is, we seek to outperform in sustainability and match market performance. To achieve precise financial benchmark tracking, we implement powerful multi-factor optimization, which is a leading quantitative modeling approach that helps manage performance objectives by analyzing the underlying securities’ risk/return drivers.
What obstacles and barriers did you have to overcome in order to get Ethic off the ground?
Doug: As is the case with many founders, we went through the proverbial painful startup struggle. We initially funded Ethic with our our own capital, and worked for a long period of time through many rejections before we raised external financing. This scrappiness made us resilient and helped refine our focus and mission. We went on to raise over $3 Million from investors including Kapor Capital, Access Ventures and Justin Rockefeller, and are now scaling the company. In my opinion, at almost every successful milestone achieved by a company effectively means a graduation to new barriers and problems to overcome. Clever founders do not avoid barriers, they seek out barriers that when overcome will unlock a tremendous competitive advantage.
Is there a story you’d like to share about the kind of impact Ethic creates either in you, your staff, customers, or in the world?
Johny: An investor had put us in contact with a friend of theirs who had invested the majority of their wealth with a large wealth manager. They asked if we could review their portfolio. We ran their portfolio through our health check and found that they had 10% of their portfolio in tobacco companies, among other things. The tobacco was particularly upsetting as they had lost their father to lung cancer 2 years previously.
Ethic makes sustainability very easy to understand and creates transparency in your investments, so we see a lot of people shocked when they actually see what they are invested in. It’s really rewarding to build a product that not only shows people the risks in their portfolio but also presents the answer to their problem through portfolio construction. Previously there wasn’t a way to understand or address both issues, but we’ve worked really hard to use technology and design to solve this problem.
What’s the biggest risk you’ve taken as an entrepreneur?
Jay: Forfeiting my legal right to stay in the US (i.e. forfeiting my H-1B visa). I subsequently achieved a more difficult to obtain visa, which allowed me to stay in the US to found Ethic.
What kind of legacy do you hope to leave?
Doug: Our mission is to help accelerate the global transition to sustainable investing. We aim to inspire action towards addressing the defining issues of our time. The legacy that I and the entire Ethic family want to leave is to use our talents to impact the lives of millions.
Our mission is to help accelerate the global transition to sustainable investing.
Do you feel a responsibility to contribute to something bigger than yourself? Why?
Jay: The unfortunate reality is that on the current trajectory there may not be much of a natural environment left if we don’t work hard to protect it. We all have a responsibility as individuals and as broader society to apply each of our unique skills to help address the defining issues of our time. Ethic provides us a platform to do just this.
What are some personal principles you abide by?
Doug: Don’t ignore your dreams. Don’t work too much. Cultivate friendships. Say what you think. Be happy.
What advice would you give to someone starting their entrepreneurial journey?
Jay: Add value. Always seek to add value to people you encounter, without the expectation of anything in return.
What are some of the hardest challenges in your job?
Doug: The hardest part of the job of any company founder is to maintain perspective, energy and a focus on your mission during the very difficult times.
What advice would you give to someone new joining your team?
Doug: Be curious, be selfless and maintain a focus on the mission.
What’s next for Ethic? What excites you about the future of the product?
Johny: We are super excited about the future of Ethic because there is really so much opportunity with different asset classes, strategies and products that help investors create sustainable portfolios.
Everyone is incredibly focused and excited about what we are executing now. We have a big release in January on some very cool features—our clients who have had a sneak peek have been going crazy over them. That feedback is both humbling and give us a lot of pride.