Sarah Cone, founder and Managing Partner at Social Impact Capital, shares her decision-making strategy for success.

Sarah Cone has always been one of those ‘save the world type people.’ After graduating from college, she followed the path that many young altruists take and immediately went to work in the non-profit sector. However, after five years Sarah began to feel disillusioned. As she explains, ‘I sort of picked up my head and looked around the world and thought: You know? I really haven’t moved the needle on saving the world as much as I would have liked to.’ With this revelation, Sarah went back to the drawing board.

Taking inspiration from start-ups and venture capital firms while retaining her commitment to world betterment, Sarah conceived of the concept behind Social Impact Capital. After fifteen years of researching and preparing, Sarah raised Social Impact Capital’s first funds in 2019, kickstarting their ongoing success story.

Putting in the ‘Pre-Work’

Sarah often jokes that she has the most inspiring Inbox in the world. Waking up to ‘hundreds of emails about how to solve the world’s hardest and most entrenched problems’ means that Sarah must constantly prepare to make difficult decisions that dictate the direction of the firm. Sarah emphasises the importance of ‘pre-work’ to navigate this information overload. While she is the decision-maker at Social Impact Capital, Sarah relies on her team to gather the background research that guides her thought process.

Helping to change the world is a monumental task. The goal of Sarah and her team’s ‘pre-work’ is to identify areas where they can make an outsized impact. Referencing Buckminster Fuller’s concept of ‘trim tabs,’ Sarah says, ‘you are looking for the small wedge that you can move, and it ends up turning this large ship.’ Once she identifies these ‘trim tabs’, Sarah and her team narrow in on what is important.

“You are looking for the small wedge that you can move, and it ends up turning this large ship.”

Although Social Impact Capital is ‘a very research-driven firm,’ Sarah leaves room for moments of spontaneity in her ‘pre-work’ process. She explains, ‘sometimes we’ll run across a completely amazing idea that we hadn’t even considered.’ For this reason, her team ‘works both ways,’ remaining adaptable throughout the planning and fact-finding phases.

Seeing All Sides

As Sarah goes through the fact-finding and pre-work process, she engages herself in an internal debate, making arguments for all sides of a potential decision. Sarah often draws on her experience from law school by using a ‘dialectical’ thought process to make choices, playing out a ‘mini court proceeding’ in her head. She jokes, ‘to the outside world this sometimes makes me look crazy’ because she often takes polar opposite positions from one day to the next. However, this step in her decision-making process is crucial for anticipating and preparing for multiple outcomes.

When it comes to making well-reasoned decisions, Sarah emphasises the following advice: ‘Do what you can to structure the external environment of the decision to mitigate the downside risk.’ To accomplish this, Sarah thinks her way through the worst-case scenario. For example, when getting married, Sarah asked herself: ‘Would this husband be good in a divorce?’ Thinking through potential failures allows her to better prepare for and minimise downside risk.

“Do what you can to structure the external environment of the decision to mitigate the downside risk.”

Similarly, when selecting seed-stage businesses to invest in, Sarah has developed her own heuristic to account for the possibility of derailment. When evaluating firms, Sarah asks herself: ‘If the most evil company in the world acquired this company that I may invest in, would they be able to remove the social good component without the business going zero?’ If the answer is yes, Sarah doesn’t move forward.

Managing the Unknown

While ‘pre-work’ and dialectical thinking eliminates many uncertainties, all decisions are made with incomplete information. To mitigate unknowns, Sarah adopts a collaborative approach. While she carries responsibility as the firm’s executive decision-maker, she approximates that there are 40 to 60 people who supply information for every decision she makes. As Sarah listens to others’ experiences and perspectives, she has one central goal in mind: ‘What I am really looking for when I talk to these people are the things that I don’t know that I don’t know.’ (1)

Gathering data from others is vital to making informed decisions, but there are some circumstances where facts are insufficient or unknowable. While Sarah describes herself as ‘famously bad at trusting my gut,’ she highlights the importance of gut decisions as a ‘valid method of decision-making.’ As she puts it, ‘our unconscious is actually one of the biggest fact-finding engines in the world.’ Our gut stores data that our conscious mind may not be perceptive enough to pick up on, which is why Sarah believes ‘gut decisions tend to be the best decisions.’

“Our unconscious is actually one of the biggest fact-finding engines in the world.”

Placing Bets

Much of Sarah’s perspective on decision-making can be traced back to her appreciation of poker. The day she moved to California from Washington DC to begin her first venture capital role, Sarah was invited to participate in a poker game against her new colleagues. Unfamiliar with the rules of the game, Sarah poured over books about poker the entire flight. On arrival, she was prepared and exceeded expectations. Sarah still has a keen interest in poker, although her prowess intimidates some. She jokingly remarks that nowadays ‘people really don’t like playing poker against me, so I am not invited to too many games.’ Nevertheless, she believes that poker provides invaluable lessons for decision-making processes. For Sarah, poker is ‘a disciplined game of how to make decisions when you have imperfect information.’

Poker is easily paralleled to the methodology of venture capital. While in poker you are ‘making bets and then turning over cards,’ in venture capital you are ‘paying to overturn a certain card and getting more information.’ For Sarah, playing the game has accustomed her to making choices in the presence of unknowns. As Sarah explains, poker teaches you that ‘you don’t have to come up with the right decision; what you have to do is make a right-sized bet for the decision environment that you are in.’ Knowing how much to risk in the face of uncertainty is not only central to success in poker but in all decision-making scenarios.

“You don’t have to come up with the right decision; what you have to do is make a right-sized bet for the decision environment that you are in.”

Recovering from Failures

Over the long term, poker serves as a testament to the concept of ‘strategy over luck’. In poker, Sarah clarifies, ‘you are trying to have a decision-making process that leads to the right outcome in the majority of situations.’ While there are games where a player wins after getting some ‘ridiculous card on the river,’ Sarah loves that experienced players will not congratulate the winner on their lucky hand. Instead, she says, ‘they actually congratulate you because they can tell that you have played smart poker.’

This is why she believes poker has a lot to teach when it comes to accepting mistakes and disappointments. Sarah has embraced this lesson, acknowledging that ‘even if you have the right process and you win most times, you are always going to have these sorts of spectacular painful failures. Poker teaches you to just really ignore those.’

“Even if you have the right process and you win most times, you are always going to have these sorts of spectacular painful failures. Poker teaches you to just really ignore those.”

Despite the layers of thought and preparation that Sarah goes through when making decisions, mistakes and failures are unavoidable, particularly in venture capital. Instead of lamenting over missteps, Sarah focuses on developing a decision-making strategy for sustained success.

Sarah Cone is the founder and Managing Partner at Social Impact Capital. Referred to by Forbes as a ‘risk-taker who has proven herself,’ Sarah is an experienced venture capitalist who has proven that impact investing can generate strong financial returns while producing a positive effect on the world. Sarah invests from the earliest stages in founders that have innovative and impactful solutions to the world’s most pressing challenges.

References:

  1. Referencing Secretary Donald Rumsfeld’s famous concept of ‘unknown unknowns.’ ‘Defense.gov News Transcript: DoD News Briefing – Secretary Rumsfeld and Gen. Myers, United States Department of Defense (defense.gov)’. February 12, 2002. https://archive.ph/20180320091111/http://archive.defense.gov/Transcripts/Transcript. aspx?TranscriptID=2636