Doug Scott On Raising $100 Million To Enable Investors To Align Their Values With Their Investments

In a recent interview, Doug Scott shared insights into his unique journey, blending diverse perspectives from his international upbringing and experiences, including in oil and gas investment banking, to building a sustainable investment platform.

Today, we delve into the story of Doug Scott, tracing his path from unexpected beginnings to the founding of Ethic, a company pioneering sustainable investing.

Ethic has attracted funding from top-tier investors like Big Sky Partners and ONE WORLD Impact Investments LLC. Prince Harry and Duchess of Sussex Meghan Markle have also backed the fintech platform.

In this episode, you will learn:

• A diverse upbringing provided a global perspective that became the foundation for Ethic’s mission in sustainable investing.
• The journey from oil and gas investment banking to building a sustainable investment platform was fueled by curiosity, a trait inherited from his father, pushing him to solve real-world problems.
• Ethic challenges the norms of index passive investing, introducing transparency tools and personalized solutions for investors aligned with their values.
• Building successful teams involves focusing on individuals, promoting curiosity, humility, and coachability, and fostering an inclusive culture.
• Understanding investors’ motivations at different stages is key to successful fundraising, creating long-term partnerships aligned with Ethic’s vision.
• Ethic envisions a world where sustainable investing is the norm, emphasizing the importance of considering environmental, social, and governance factors in financial decisions.

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About Doug Scott:

Doug Scott is CEO and co-founder of Ethic, a personalized and sustainable investment platform for advisors and institutions. Ethic manages over $4 Billion in assets as of 7/31/23, and is backed by venture investors including Oak HC/FT, Nyca, Fidelity, UBS, and Sound Ventures. Doug was listed on the Forbes 30 Under 30, Business Insider’s Rising Star of Wall Street and is on the Board of Stanford University’s Long-Term Investing Initiative. Previously he worked in M&A investment banking at Deutsche Bank AG.

Connect with Doug Scott:

• TheOrg
• Crunchbase
• RocketReach
• LinkedIn

Read the Full Transcription of the Interview:

Alejandro Cremades: All righty hello everyone and welcome to the dealmakerr show. So do they have a really amazing founder. You know he’s building a rocket ship. We’re Goingnna be talking about it quite a bit. We’re gonna be talking about building scaling financing all of that good stuff. We’re gonna be talking about transitioning from corporate in his particular case investment banking to now building. Ah, startup from from the grownup. Also how to go about the first customers tips on hiring as well and and also developing people. Most importantly, as well as what has been the experience that he has gone through as a founder and an operator and leader of the company. You know going through multiple financing cycles. So we got without far ado. Let’s welcome. Our guest today do scott welcome to the show. So originally american mom irish father born in Sweden but grew up in Australia my god talking about worldview how was life growing up.

Doug Scott: Um, today pleasure to be here. So.

Doug Scott: Ah, like a quasi united nations in our household. Um, now it was. It was great I think one of the the benefits of having such a diverse and international upbringing. Is you get a real global perspective very early. So yeah, my my household we had. A lot of different perspectives and we grew up I spent most of my formative years in Australia but I had perspectives um from my parents that have very different upbringings so that was really I think a real benefit to me and. And ultimately in the long run in helping you know where we kind of are today as a company and my experiences in building ethic of course. So.

Alejandro Cremades: So now in your case you know, eventually you um, ended up exploring the oil and gas industry. Ah but tell us about how you ended up getting into investment banking. What was that what was that journey like.

Doug Scott: Um, yeah, it was not yeah it was not what I initially had set out to do so yeah I grew up my parents are 2 social and environmental advocates. You know I remember as a young person when we were in Australia there was a. Ah, terrible shooting in the early nineteen Ninety s in Australia and we went along to the anti-gun rallies and it was something that my parents were very passionate about in helping you know my mom has been a longtime supporter of helping resettlement for refugees and we’ve done a bunch of work. We grew up in ah in a kind of a leafy suburb in in Melbourne in Australia. And so my career I didn’t sort of said and day hey I want to go work in investment banking and ultimately in in natural resources oil and gas but it sort of I like to think of it as like pulling the thread of curiosity. So I just started being really curious about a lot of things that’s ah, that’s a trait I took for my dad my dad um. Grew up in Belfast during the conflict in Northern Ireland and and had a really um, a very different upbringing. Um, and I think that experience though for me where we’re kind of learning through some of the stories that he was able to tell and ultimately where I wanted to get to my life was in a position where I could solve real problems. And I was just a very as I said a very curious kind of person and so oil and gas investment banking as I said was not where I intended to be where I intended to be was just solving interesting problems for great people and so when I was going through university I ended up. Um you know, working with an investment bank while I was still at university and and doing all of that and.

Doug Scott: Yeah I ended up in working in Australia natural resources is the big driver. You know it is the big part of the economy that makes a lot of things tick and I think the experience of me working with terrific people and solving really interesting problems but ultimately being in a place where I didn’t feel like I was facing the right direction. I don’t if you’ve ever had that experience where you feel like you’re solving really curious, fun, great, interesting things with with lovely people. But you know we were helping raise capital to I don’t know frac agriculturally sensitive areas or um, deep sea drill and in parts off Australia’s Northwest Coast whatever it might be which. Look are all really commercially important things in the context of serving that industry but was not where I wanted to dedicate my career and so that path you know, led me ultimately to ethic. But you know it was very much a ah roundabout way where I just I remember very clearly like one day just thinking. what is it What what is the what is the legacy or what are the things that I want to try and help build that in my sort of small area where is able to move the needle a little bit further or make something actually impactful on a bigger scale and so that was yeah, there was a bit of a. You know clarity moment of clarity after working in investment banking for several years serving the natural resource sector that I felt like I needed to go in a different direction with my life and and certainly in in what I was doing.

Alejandro Cremades: Now Obviously you’re making a good living as an investment background. This point you know making good money and then how is that moment where what? what? What were the sequences of events until you were like okay you know what? it’s time to um, you know, give the notice here and and go at it.

Doug Scott: You don’t pay.

Alejandro Cremades: You know on my own.

Doug Scott: Um, I mean the biggest risk in life is not doing what you want to do and I think I think risk is a concept that a lot of folks understand either poorly or or not quite in the right way in many instances where. You know some people will take risk with for example with their money and investing in things and and all of that kind of stuff other people are comfortable taking risk in their career. My view is I want to invest in myself in learning and I want to invest in something where I feel like I’m going to have both the the joy of building something that I care about and seeing. Um, seeing something come to life and seeing a business come to life from nothing and I wanted that that experience to solve a meaningful problem in the world and so when I left banking I remember thinking really clearly I said well I could go and you know go into private equity or you can go into some of these other. More typical paths and I was in in Australia so it’s a slightly different market there but similar similar type paths and I said you know what I’m going to go build something and because if I don’t take risk with my career now and I don’t take a risk in trying to do something different. My marginal appetite for risk may never be greater. You know and so I within a fairly short period of time um left not only my job but left the country so within about a month or so of that realization I had resigned.

Doug Scott: And I said look I’m going to move to the United States I had the fortune position my my mother’s american so I had ah an american passport which is a tough thing for a lot of people that are wanting to be moving to the us you know navigating the complexities of visas and things like that is not is not an easy thing to do and um. Anyway, so I moved to the us in yeah around 2015 or so just with a view that I wanted to build something special that could could move the needle yeah in the world. So I didn’t really know many people I had a um.

Alejandro Cremades: So what happened next.

Doug Scott: I might my had a little bit of family in the west coast that I stayed with but beyond that I hardly knew anyone and in the us we personally became my co-founder he and I had worked briefly together in New York Several years earlier he was still living in New York at the time I was in the bay area and he ended up coming out. Surely thereafter. And yeah, we just set off with this concept of can we help people build something can I help build something to help um the investment community more broadly and it was still pretty opaque at that stage I think there’s a false narrative that. There’s this these sort of aha moments in building companies where people just completely go from 0 to 1 and then stay on that mission and nothing ever changes I think the the reality is more as I said like pulling the thread of curiosity. So one of the people that I met by happens chance is that an individual who runs ah a think tank at Stanford University which I’m now a member of the.

Doug Scott: Board of it’s called the Stanford long-term investing initiative. Um and he wrote a paper called organic finance and this is in 2015 and with it. The metaphor was ultimately trying to create a parallel to what happens in food where. The the commoditization of food and all of the different ingredients that get blended into the things that you eat that same metaphor actually applies in financial services where the increasing commoditization and structuring and structured products and all these different things which serve an important purpose mean. You’re further and further away from the actual underlying investment that you’re making and we felt that was a metaphor for something that we wanted to build and so we set out an f that was really the genesis in some ways of ethic. Um, where we set out with this view of can we help people make more informed decisions around how they’re investing. Can we help people understand the the second and third order consequences and what the area that we you know primarily focus on today is in this sort of index passive investing ecosystem where in two thousand there was I don’t know 1 or two percent of total assets under management in the us was invested this way. You know that’s over 50% now and so what ends up happening in that world is you’re investing in index funds which have an important return risk return characteristic in part of many portfolios most portfolios. But it also means you’re taking in most instances just a cap weighted large cap weighted.

Doug Scott: Bias in terms of investing an entire ecosystem and what we thought was well. There’s a lot of second order consequences around that can we help people make more informed choices can we help them build investment solutions based on the issues and causes important to them and important to the world. And building something so something very personalized and something. Ultimately, they felt was more sustainable and so that organic finance metaphor where you’re helping draw in Parallels in the food sector and agriculture into in investing where you’re thinking about everything from fees to. Sustainability practices to factor exposures to everything you’re helping create something that um is much more transparent and so that was you know as I said the early beginnings of ethic you know going from there. It’s really saying okay, well we need to I often think about.

Doug Scott: Scaling companies is like graduating to different problems. You know like your first problem is you know what what what problem do you want to solve who do you want to solve it with can you put together sort of a minimum viable product something that that can prove out the hypothesis. Can you then you know convince one customer or 2 customers that this is actually something that’s going to. You know, be in our belief. You know, materially more advantageous than anything that’s available. Can you then raise some money to be able to you know. To to scale that to initial small team. Can you then build a team of teams, etc, etc. And so you know once we had ah a clear picture of the problem we wanted to solve and and who we wanted to solve it with it was about hey can we build something um to show that to prove out that hypothesis and then can we also raise some money to to help that.

Alejandro Cremades: Um.

Doug Scott: Accelerate a little bit further down the down the path.

Alejandro Cremades: So I guess say for the people that are listening to to get it. What ended up being the business model of ethic. How do you guys make money.

Doug Scott: So yeah, we are a I mean the best way to put is we we manage Capital on Behalf of advisors and institutional Investors. So Our model is to build personalized investment portfolios that are centered on the issues and causes important to investors and to the world. And so our business model is centered on assets under management. So We act as a fiduciary on behalf of our clients where we’re building them portfolios and then managing those portfolios. Um, we serve the Advisory community and and and institutional community today as I mentioned primarily Intermediaries Model. So we are working on behalf of clients who are then working on behalf of clients. So kind of a B Two B to C type motion and we will essentially we’ve built infrastructure that allows us to be custodial agnostic so you can work with any type of Custodian you’re working with so some of the big major custodians here in the Us. And then we’ll build individual portfolio. So those Portfolios consist of individual Equities. So We’re not investing. It’s not investing in funds. You’re actually building what’s called separately managed accounts. Um, and we are really I mean a lot of what we try to help frame our problem Statement is not just building. Really customized portfolios really personalized in Portfolios really sustainable portfolios but also how do we help build the entire user experience and client experience that helps an advisor more deeply connect with their client or help a consultant more deeply connect with their with their client and that is a.

Doug Scott: Is quite a complex problem and so that’s you know in in a bit of a nutshell how the business works. Um, and it has been the same way since the very early days of ethic.

Alejandro Cremades: And what were the what was that journey to product market fit and to getting the first customers.

Doug Scott: Yeah I mean we we definitely didn’t come out of the gate as I said before I’m just a believer in curiosity and and sort of meandering piles at times. But so the early days we say look let’s the first thing let’s do is let’s help people understand what they’re investing. Let’s build tools. And transparency tools to help people know that hey you know I’ll give you an example like a client who cares about climate change. Let’s say who’s really focused on the climate crisis um may be investing in a index fund like an sandpfive hundred and behold securities that or companies that may. Not align with those value set. But the first thing to realize that is you need to have that transparency into where you’re investing so the first one of the first things that we built was tools around transparency to help people see that understand where they’re investing so that was sort of the initial one then we said can we help people then make better choices. And ultimately, what better choices obviously from our perspective meant was can we help people make it more informed the choice to build something that’s representative of the issues and causes that they care about in that the way that they manage their capital and so what we built is essentially ah, an engine to personalize investments at scale. So you can sort of dial up or dial down sensitivity. Um to underlying issues across the entire ecosystem on sustainability on factor exposure on tax management on all types of different characteristics to help people then build something that’s really unique to them. So.

Doug Scott: I think this is an atage that most entrepreneurs will agree with but you know if you’re competing in a market and you know we’re competing against other well-funded large asset managers. Really some of the biggest in the world. You have to create something that you believe is 10 x better than anything that’s available. And that’s what we did and I think that’s very much true in an industry where you know I think the adage and in technology people ah talk about move fast and break thingss that just does not work in investment management. You just you just cannot do that. You have to build things that are really at the bill quickly and they have to build in a place that are really unique, but. You you can’t move fast and break things and so that journey to product market fit was one where we felt like we had to create something and convince one client that it is a better version and then the next client and the next client and it was very much you know do things that don’t scale. Go and understand exactly the pain points like the issue isn’t just building something customized. Their issue is actually connecting more deeply with their client. So how do we do that and that is reframing the problem and I think that’s where we’ve had a lot of success is building not just great. Products investment products in in our view but also really building investment products that are representative um of the things that clients care about and and and helping work through that with them and so yeah, some of our first customers and first clients who are great supporters. It was yeah it was tough. It was always tough to convince them.

Doug Scott: We spent a lot of time building technology as I said because you’ve got to compete with highly sophisticated investors across the ecosystem and so we built something that would stand up to institutional scrutiny from the from the very beginning ah because that’s what you have to do you have to go through. You know due diligence processes with every single client because you’re working with sophisticated institutional investors and advisors. So It is probably a little different to perhaps some other folks in the fintech or technology ecosystem in that regard. But it it was what served us and and certainly what served? um. Ah, certainly in our clients.

Alejandro Cremades: And what was that journey to of um, getting the right people here. What? what? what kind of fun things have you learn around. You know, really onboarding employees and also developing them so that they continue to be excited about the future that you’re living into.

Doug Scott: Move.

Doug Scott: Yeah, how long how long have you got made. It’s a lot of lot of journey you learn soft the the easy ways when people tell you the hard ways when people tell you don’t listen then you do it and then you listen then you learn through that experience I Guess um you know I’m a big believer in.

Doug Scott: Building developing people and helping I mean ultimately building teams is a really hard thing. It’s probably the most difficult thing that that I think I embark upon because it’s such an imprecise science you can go and speak to great entrepreneurs and company builders across the ecosystem and you can get diametrically opposed advice. Um, what makes a great team or what makes a great leader at different stages. But I think for us I take it to the first principles and at different stages of the company. It’s looking for people that are curious looking for people that are humble looking for people that are mission-driven um, looking for people that are coachable. You know I think coachability is a skill that is hard because. If everyone has something to improve on I’m no exception to that everyone has something that they can get better at and I think people who are embracing that mindset of the people that you want to surround yourself with there’s that old you know expression of you know you’re the average of the 5 people you associate most most with and I think. That is definitely true because when you’re building a company. You’re spending all of your time doing that I mean there’s no work-life balance when you you’re an entrepreneur the opposite of work-life balance especially in the early days and so for me recruiting some of our early people many of whom are still with us. You know 7 eight years later um, is being is always really challenging. But I think that the lessons I’ve learned is that are I think that there’s a framing and I work with some terrific mentors and friends who are entrepreneurs and building build big companies. But this model of.

Doug Scott: Your task is not the task but your task is the person so reframing away from solving like a go-to-market problem or a product issue or whatever it might be to how do I help develop this person. How do I help put them in a position where they can learn quicker when they can have more ownership where they can really take the take the lead and. Just feel like there’s so many experiences where um, some of the things that I’m most proud of is the is the team that we’ve assembled and the people that have been with us on this journey and the people that will continue to be with us in this journey both those today and and future folks. Um, and finding really. You know talent and I think what’s also challenging where we’re trying to promote a much you know diversity equity inclusion and having a really inclusive culture means you have to look outside your networks for people that you don’t associate with because I think one of the easiest things to fall into. Is you just hire who you know. Um, and while that can be a really helpful way to bring on people. It also just means that there are communities that you might not have associated with where there’s exceptional talent that will bring something that’s very diverse and different and a big believer in that as well. So we’ve had I’ve had so many lessons at at helping build people and and recruit people and help develop them and help them. Take more ownership and take more skill set and and I think that as I said the most difficult thing that I do because it is such an imprecise art form I would say yeah.

Alejandro Cremades: And talking about people here to double click. Also you guys have raised quite a bit of money. How much have you guys raised to date.

Doug Scott: All in with raised in venture funding around 100000000

Alejandro Cremades: So as we’re thinking about 100000000 here what would you say is the biggest lesson that you’ve learned when it comes to raising money.

Doug Scott: The biggest lesson so they’re very there are very different Lessons you learn at different stages of the company’s development so there are plenty of lessons in the fundraising itself which is all around relentlessness and and grits and all of those. Important attributes. But I think working with investors is the the biggest thing is you have to empathize with what they care about so at ah, a seed stage or a preseed investor is markedly different from a gro stage investor. So unless you have a clear picture of. What the different investors motivations and what their cares are it’s going to be very hard to raise capital and that is something that I think we’ve done quite well where we really understand and we’ve done a good job at building a diverse cap table with different types of investors Fintech investors. Um, some of the big large financial services investors impact investors traditional venture investors. Um, and each of them have different things that they care about and so for me, that’s really important because once you understand what someone cares about um, you can then help understand how to translate. Things that you’re doing in service of those things and it’s it’s easy to um, put investors into categories of like you know there are these kind of investors and those kind of investors and but ultimately it’s the people at those funds or the people at those those venture investors and.

Doug Scott: You got to look with it because of that that that sort of lens one of the things that we’ve really tried to do is look very long-term with partners. You know if you bring up investor on the cap table. They’re going to be with you for for the most part for the entirety of the ride so you got to be really clear that That’s the those are the organizations. Those are the people that you want to partner with.

Alejandro Cremades: So you know what? well obviously vision obviously vision when you when you’re thinking about partnership is a big one. So imagine if if if you were to go to sleep tonight and you wake up in a world where the vision of ethic is fully realized what does that world look like.

Doug Scott: And so I’m very yes. Okay.

Doug Scott: For us. We believe in a world where sustainable investing is the norm where people consider sustainability factors in the way that they’re investing with a view that it’s just a facilitating a more inclusive and resilient form of capitalism. So where people don’t consider traditional investing and sustainable investing as 2 separate things is actually it’s all just 1 thing. It’s just a more informed approach to invest and that’s what we’re trying to help build and ethic is how we can help and people understand and investors understand that. Investing sustainability is ultimately a really strong way and our belief of course a strong way to invest and that these issues you know, look at things like the climate crisis or some of these other major issues you know, not considering them as a massive risk um in the way that one allocates capital and so. That is that is the direction that we’re facing that is really our north star.

Alejandro Cremades: So we’re talking about the future here but I want to talk about the past but doing so with a length of reflection imagine I was to put you into a time machine and I bring you back in time perhaps to 2015 that moment where you were touching. You know us soil and. But say you had the opportunity of you know, having a sit down with that younger self with that younger dog that is now in in New York City and you’re able to give that younger self one piece of advices for launching a business. What would that be and why given what you know now.

Doug Scott: Ah, the biggest thing the biggest piece of advice I would give would be around humility like continue to stay humble continue to stay grounded continue to focus on what really matters. It’s easy to get distracted. When you build companies and I think humility and focus are 2 of the most important ingredients and you know I was fortunate to have folks that and partners and cofounders and friends that really help me do that. But I think that is the most important thing from from my perspective. Is to stay focused and to say humble.

Alejandro Cremades: I Love it now for the people that are listening that are um, you know, really inspired that will love to reach out and and learn more about you and and ethic or connect with you. What is the best way for them to do so.

Doug Scott: Ah E think dot Com That’s definitely the place to go. You know we do. We put a lot of content out. We do a lot of work in the in the fintech community and impact investing community. But yeah I think dot Com is home base so feel free to check us out there.

Alejandro Cremades: Amazing! Well hey doc thank you so much for being on the deal maker show today. It has been and on earth to have you with us.

Doug Scott: Real pleasure. Thank you much.

*****

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