Serena Guarnaschelli (PhD '03), Behavioral Economist and Impact Investing Leader

When done correctly, impact investing is one of the rare things in life that can achieve the best of both worlds. In this unique space, individuals, as well as institutional clients, can commit funds to a range of development, environmental, and social justice projects that are not purely charitable in nature, but are capable of returning actual investment dividends. In the discussion below, Serena Guarnaschelli recounts her thesis research in behavioral economics at Caltech, her surprise pivot away from academia that started her professional career at McKinsey, and a budding passion for international development that led her ultimately to become a partner at KOIS, a leading impact investing firm that connects clients interested in supporting environmental challenges, broadly conceived, with the organizations and individuals capable of executing that vision. Guarnaschelli emphasizes the relevance of the expertise she gained during her time at Caltech: from assessing the motivations of her clients, to analyzing the economic feasibility of a given initiative, successful impact investing requires a mindset firmly grounded in the best of what social science can achieve.

DAVID ZIERLER: This is David Zierler, Director of the Caltech Heritage Project. It's Wednesday, January 31st, 2024. It's my great pleasure to be here with Dr. Serena Guarnaschelli. Serena, it's wonderful to be with you. Thank you so much for joining me today.

SERENA GUARNASCHELLI: It's a pleasure. I'm really, really honored to be interviewed.

ZIERLER: Wonderful. [laugh] Serena, to start, would you please tell me your current title and institutional affiliation?

GUARNASCHELLI: I'm a partner at KOIS.

ZIERLER: What is KOIS?

GUARNASCHELLI: KOIS is an impact finance firm. We have two sides of the business. One is asset management, where we manage or co-manage about a half a billion of funds in what is called impact investing. I can explain if that's helpful: it's a series of funds where there's an intentionality to address a certain social or environmental challenge. Just as an example, we have a venture capital fund in India that focuses on the intersection of healthcare and technology to bring affordable healthcare to low-income households in India. A lot of our funds have a motif, whether it's social, environmental, or both. I sit on the advisory side, which is the second part of the house where we design and structure such funds but also a number of other impact finance products, including products that are a little bit more focused on innovation, and creating evidence around what works or what doesn't work in funding, for example, in the development space, and other products that are of a larger scale, like designing green bonds or social bonds that help, for example, bring in institutional investors into the impact space.

The Origin of Impact Investing

ZIERLER: Serena, tell me more about this particular style of investing. What is its history? How far back does it go?

GUARNASCHELLI: That's a good question. I think the terminology was coined around 2010–2012. But I must say this as a philosophy of investing probably has a longer history, particularly with family offices or foundations, in terms of trying to figure out ways to use their capital in a philanthropic way with a specific mandate. Often the way to think about this is there might be a thematic that, let's say, a high-net-worth individual is particularly passionate about. Rather than just giving grants to a not-for-profit, they're trying to use their money in a way that also preserves their capital, by making investments in that thematic. For example, by investing in social businesses that might be solving that particular challenge. Just to say, impact investing has a long tradition, and we start seeing common principles and approaches.

As the term itself was coined in the early 2010s, since then there have been a number of networks that have monitored how impact investing is growing, and it's now believed to surpass 1 trillion USD — I wouldn't say it's an asset class, per se. It does contain, as I said, venture capital, private equity, a lot of asset classes, but it contains a number of funds that are thought of and designed specifically and intentionally when it comes to the impact of their capital.

ZIERLER: Now, does KOIS go back to this time period, the 2010s, or does it have a deeper history?

GUARNASCHELLI: It does, as my two co-founders started doing impact investing using their own money. They have made about 10 direct investments into businesses, and for example I sit on the board of one. It's a company based in Mexico that offers more affordable terms for leasing equipment in healthcare. It does allow, for example, more remote clinics to offer diagnostic services to pregnant women. That's one way to think about access to healthcare. By experiencing that directly, KOIS co-founders came up with the idea of working through partnerships to attract larger pools of funds, and then deploy those funds with the same intentionality. This is how we started working through funds. That part of the work goes back to 2014, I believe, as we're about to celebrate our 10th anniversary this year. That's what brought us to launch a number of funds as partnerships and catalyze or, say, bring in private and institutional investors, so that we can pursue specific thematics in the development space.

ZIERLER: Who are the key clients of KOIS?

GUARNASCHELLI: It depends on which side of the business, but there are some commonalities. On the fund side, this would depend on the nature of the fund, from high-net-worth individuals, family offices, all the way. We used to have a fund on affordable housing that was a real estate fund that attracted institutional investors and sovereign wealth funds. Again, typically the nature of the fund typically caters to a certain type of investors. On the advisory side, because we originate these financial products, our client base tends to be broader. It does not just encompass investors, but it also could include, for example, philanthropies and foundations that want to give us, for example, seed funding to come up with an idea for a fund that can deploy more capital in a thematic that they care about. It could include public governments. I advise,d for example, the UK Government on how to spend part of their climate financing budgets into sustainable land use in Latin America. I helped them identify what projects or funds meet their objectives as the Government, and then advised how to structure their financing into these funds. But some of our work more often starts with a problem that we want to solve, and finding a social business or a not-for-profit that has a very innovative and effective solution to that problem, and then helping them think about how they can scale that work. Obviously, as part of their scaling, this often involves thinking about how can they think about future sources of funding, how to diversify their funding away from grants, how to tap into new sources of capital.

ZIERLER: It sounds like, in certain cases, KOIS has an investing idea, and it goes out and finds the right partner. In other cases, KOIS is a known entity, and potential clients come to KOIS with an idea.

GUARNASCHELLI: Correct. Yeah, we do both. I like the first one because we often start with a problem we would like to solve, and then we come up with typically very innovative ways of solving that. A not so recent example—we've been particularly passionate about the topic of migration and refugees which, as you know, it's always relevant. Just the geographies change. We realized that, in the aftermath of the Syrian war, 80% of the refugees were stuck in neighboring countries. These are resettlement situations, and we realized that a lot of these resettlement situations are longer than expected. We're talking about a protracted crisis where people could live in a camp for 5, 10, even 15 years. A lot of donor funding that comes into the humanitarian space really deals with basic needs: water, sanitation, healthcare, and so on. But there are political sensitivities about thinking about livelihoods, because it's also politically quite sensitive to offer a permanent job to a refugee, and it's heavily regulated as well. The program we came up with was a partnership with a foundation called Near East Foundation that created home-based businesses, which are informal businesses. As a result, they're considered as more viable from the government perspective. But they also offer the chances for, say, a Syrian refugee woman to work from her home, round out their income, and help in a protracted crisis. These are the ideas I like because we would've never come up probably with it unless we thought long and hard about what's the problem, what is it that we want to solve, and how. We have a few examples of that across different themes and geographies.

ZIERLER: Serena, of course, there's so many problems in the world. What are the limiting factors by which KOIS will say, "This is an area where we could make a difference," versus, "We're not going to get involved in this particular area"? How do you make those decisions?

GUARNASCHELLI: As a small business owner, I think that our strategic priorities should be driven by the passion of our employees. Often it's our employees that pick the topics. If you can choose what you want to work on, you're more likely to be happy when you come to work. [laugh] That's a very simple and pragmatic way. As you said, there's so many topics, and all of them are important, so it's very hard to prioritize. When it comes to a limiting factor, that's whether you can find a funder, or whether there's willingness to spend, or willingness to spend your money differently in that thematic. You might come up with a great innovative idea but, in a lot of areas, the donors might want to just give a grant because they think it's simpler. Again, in this space of either impact investing or innovative financing, you can take a grant, but usually you want to use it in a different way than a traditional grant. You usually want to use it, for example, as a way to de-risk an investment, or subsidize some of the cost of setting up a new fund. Again, not every donor might want their money to be used in these different ways.

Capital Preservation and Social Good

ZIERLER: Because there are obvious policy implications to what KOIS does, who are your strategic partners, both in the government and non-governmental spaces?

GUARNASCHELLI: That's a great question, because technically when I talk about clients, I'm talking about people who allow us to do our work. But often our clients are also our partners. They can become our advocates or our agents of change, so to speak. Typically, our partners range. Basically, for this to happen, you need an organization that is able to implement. We're not an implementing organization; we're an intermediary. Our role in the market is one of an intermediary: be able to package things in a way that speaks to different audiences. In that sense, a lot of our partners sit at different sides. In many of our products, we have donors that come in with a different objective, and we have investors that want to preserve their capital but, as I said, want also to do so with meaning. In that case, we act as a translator. But the key partners to then achieve impact are the people on the ground, whether it's a social business, a social entrepreneur, a not-for-profit organization. They're the ones who have to distribute the product, implement the services, and then report back on the impact that was achieved.

ZIERLER: Now, when you say preserving their capital, is that to say the idea is a high-net-worth individual will invest a certain amount of money, and then will get a return that essentially brings back what they put in?

GUARNASCHELLI: Correct. In the beautiful, colorful world of impact investing, you could have investors who are seeing this as a portfolio diversification. This tends to be, by the way, smaller portions of money amidst different asset classes. But they could see that investing in a project that helps refugees is completely decorrelated from anything else that they're doing in their portfolio, where they may be investing in ETFs or energy or agriculture. In a way, it's a small but meaningful diversification of the portfolio. You could also have impact investors which are foundations. We're seeing this other trend. More and more foundations are setting aside a pot of money for impact investing with the idea that if the money comes back, they can reuse it. They see it as a way to multiply their money, because when the project pays back, they can reinvest it in the next project. It's about making their money go further. But having said that, they're also OK if they lose their money, because they have an endowment, and this is a small portion that they use to experiment and find new ways to support projects.

ZIERLER: How does it compare when considering charity and the tax write-off from charity versus making an investment and preserving your initial investment? What are the quantifications to consider there?

GUARNASCHELLI: That's a good question —obviously pure philanthropy has offered a lot of tax benefits, and this is how a lot of endowments and foundations were created. In some markets – the US is a notable case – foundations are in fact allowed to complement their grant budgets using programmatic related investments, or PRIs in short. As long as the foundation does not expect a market-rate returns, then the taxman would treat these investments in the same way as grants. The main difference here, for example as compared to the foundation using their endowment to invest and preserve their capital, is that the main purpose of PRIs is to achieve impact, rather than generate income. So there is no trade off taxwise, it's just another tool in their belt to achieve the same impact they would through grants.

ZIERLER: Are you seeing differences in a generational regard? People in their 50s, and 60s, and 70s, are they passionate about things differently in a way from people in their 20s and 30s and 40s?

GUARNASCHELLI: I've heard this from banks in terms of how wealth management is changing, and that younger generations tend to be more passionate and more interested in knowing what their money is doing, in a positive way. I think you might be familiar with some of the terms in investment around socially responsible investing, SRI, or environmental, social and governance, ESG. These lenses are primarily around risk management. I want to invest my money, and I want to make sure that I'm not investing in companies that hire children or that have bad labor practices. They are a risk management lens, and that's typically what has been happening. We see newer generations saying, "I'm not just interested in managing those risks or staying away from bad companies. I want to shift my money towards companies that are making a positive impact." That's certainly a trend that we have heard both from banks, from the wealth management side, as well as from the family offices. This typically happens around the younger (second or third) generation: searching for meaning. The topics can be quite diverse, and driven by personal reasons, and hasve also led to a lot of interest in new topics in climate that go beyond carbon credits, for example to include soil health and sustainable land use, as well as other topics also on the social side, such as disability or gender. They may be passions from the family perspective.

ZIERLER: When considering partnering with a particular client, an institution, or an individual, are you concerned at all with interrogating their motivations? In other words, are they sincere in their concern? Are you ever concerned that it's about image, and greenwashing, and putting on a public face? How do you deal with those kinds of things?

GUARNASCHELLI: I love that question because that's where I've tried to apply, in a minor way, my degree around behavioral finance to our advisory work. Certainly, first investigate: there has to be a common vision and understanding about what they want to get out of a new financial tool or product, and some guidance around "if this is what you want, this may be a way to do it." Having said that, you're right, there is sometimes an exercise of, they've heard about it, but they might not understand the implications further down the line, when it comes to investment decisions. I approach it in a very practical way, similar to the revealed preferences method, because we do have [laugh] products to offer. And I'm more interested in their journey, what it is that they don't know that they don't know when they start the journet, and then facing them with options that help them clarify those strategic objectives. Typically, this implies already offering them a suite of products that already exist or are ready for investment, to further test whether what they say is what they want to do, versus an exercise of trying to design something new, more bespoke for them. Typically what I say is that it's going to be a journey. as an example, I have helped quite a few corporates set up their own impact fund. Similar to the funds that we manage on the asset management side, I've set up new funds for clients where they will always have the fiduciary responsibility, the investment responsibility in terms of managing the portfolio, making decisions. Having said, I usually stay with them for about six to nine months because what they tell me at the beginning of the journey, and where they land nine to twelve months can be quite different. They only learn through choices. I present them with options of potential investments, and I say, "Do you like this or that? By the way, you told me that you like this." It's a point of comparison and reflection. That's a small way in which I've tried to apply my PhD. [laugh]

ZIERLER: Let's make this conversation now more specific to you. You mentioned it's good practice for your employees to work on things that they're passionate about. What about for you, what are the issues in the world that you're most passionate about?

GUARNASCHELLI: That's a good question. I like them all. I think that was initially my problem why when I started my journey in consulting, I was appealed by the fact of thinking about a problem and solving it, but not specifically a problem. I ended up never proclaiming, so to speak, expertise in a thematic area. I worked across healthcare, energy, agriculture, and topics like disability, refugees, menstrual hygiene management, and I love each and every one of them. I just like to solve problems. So I specialized more in a functional expertise, which is impact investing and innovative finance, and apply that over and over to a problem, and then, based on the funders that are around the table, and the objective, see what comes up on the other end.

The Relevance of Behavioral Economics

ZIERLER: Now, your area of academic expertise, what do you call yourself? Are you a behavioral economist? Is that the best term?

GUARNASCHELLI: Yeah, that's the best term.

ZIERLER: What does that encompass? What does behavioral economics work on?

GUARNASCHELLI: Behavioral economics is the application of psychology to economic theory, and the study of how different perceptions and preferences might affect choices. Economic theory, the general economic theory is that there are a set of parameters and information that everybody agrees on. There's a perfect world. There are different economic theories about people's rationality, what people would choose based on utility, or the information that they start from, and so on. Behavioral economics debunks that, and says that there's no perfect information. In a world of imperfect information, some of these preferences and innate abilities might influence what choices you make. It has been interesting because you have traditional economic theories, and then a lot of the behaviors that you see in real life or in the financial markets are considered irrational through the lense of these theories. Behavioral economics would tell you, that's not irrational. If you change the parameters, if you assume that there's no perfect information, if you assume that people are not rational, if you assume that people don't start with perfect information and they learn, you might be closer to what you observe in reality.

ZIERLER: Now, I know at Caltech, the social scientists, because it's Caltech, are very insistent that they're doing science; that it's called social science—

GUARNASCHELLI: [laugh]

ZIERLER: —because it's science. Serena, in your working life, where are you operating as a scientist? Where is experiment and theory? Where are you using data? How are you putting models together to make quantitative decisions? What does that look like for you?

GUARNASCHELLI: This is where I think I landed exactly where I wanted to be. I do have the tools from theory, and from its experiments. What I like about my work at impact investing and finance is that I'm using similar approaches as what I did in my PhD. You first try to use a financial model to put chaos into clarity, so you have to make some decisions about the parameters of – for example, a blended fund that we will design and operate. But then what I like about my background in behavioral finance is that you know that people are going to look at this fund, and have different opinions and perceptions. One that typically comes quite strongly, well, is whether both a donor and an investor would agree on the financial terms, as they will look at it with different objectives. The financial model has to basically square that circle. A donor will want to have the most impact. The investor will want to minimize risk, and have the best financial returns. In a way, you're using the financial model to be very clear about where the commonalities are and where the trade-offs are between different funders.

You drive the negotiations on the term sheets based on the financial model. But then the behavioral side of me also says that when I'm negotiating with a donor, I use very different language than when I'm negotiating the very same terms on the other side with an investor. With a donor, I use a lot of terms around value for money, or buying more outcomes for the same amount of money. I try to frame their decision using the parameters of their spending policies. When I talk about an investor, I talk about pricing the risk, and the risk-return profile, and the IRR curve. [laugh] But, ultimately, the financial model is one, and I can see it, and I can translate it in different ways depending on whom I'm talking to.

ZIERLER: For feedback mechanisms, is it all about ROI? What else do you use to determine if you're on the right or wrong path?

GUARNASCHELLI: That's a good question. Typically, a lot of our products have to hit a balance — not necessarily a trade-off. There's not necessarily a trade-off between financial returns and impact returns, the balance is in how you play the importance of having a financial return with a relative certainty, so about risk management for example, and what impact you're trying to achieve. Now, where we have made our reputation and brand in impact investing on the fund management side is that we've found portions of the market where the more impact you have, the more money you make. Where there's an absolute positive correlation between impact, that's the sweet spot.

For example, in our VC fund in India, the problem we're trying to solve is, how do you bring affordable quality healthcare to low-income households in India? That was the impact objective. Commercially, you think about what kind of businesses can serve this population while making money. That led us to investing at the intersection between healthcare and tech, where you're basically looking at low-cost, low-CapEx models for reach. That's where it can work. As a result, in the aftermath of COVID, it's no susprise a few of businesses started entering developed markets very competitively. And our fund grew from $10 to $162 millions. Again, this is where impact and financial returns are positively correlated, and these tend to be our most successful private funds. But there are other areas where—examples can be energy access or access to healthcare services in Kenya—going to rural areas is going to cost more. That's going to come with a trade-off on the financial return. The blend there, hence the way we make that structure work is by having some donors partly subsidize that cost. You see, these are often dual mandates. Based on the business model and the problem you're trying to solve, it's going to lead to a different kind of fund, and requiring different forms of capital. The way we use different sources of capital is to make this equation work.

From Milan to Pasadena

ZIERLER: Serena, let's go back and establish some personal history. Before you got to Caltech, tell me about your education in Milan. What were you working on there?

GUARNASCHELLI: In Milan, I went to Bocconi, where I initially studied international economics for the first three, four years. Then for my Laurea, for my thesis, I decided to specialize in decision theory. There was the beginning of my journey into behavioral economics, behavioral finance, and experimental economics at Caltech.

ZIERLER: How did you get involved in this field? Was it a professor? Was it a book that you read? What sparked your interest?

GUARNASCHELLI: It was a professor. He was one of my favorite professors. First of all, I really like all the analytical classes, even the quantitative classes. Even though I was doing international studies, I really selected all the courses around math, statistics, and anything quantitative. Then it was a professor who had a passion and experience in decision theory, and he was the one who also suggested that both Caltech and a few other universities in the US were particularly advanced at the forefront of this. He was the one who recommended and supported me in the applications for my doctorate across various colleges. What attracted me to Caltech was this combination of both. We talked a lot about behavioral finance. But one of the things we also did at Caltech, which was one of the things that Caltech was one of the pioneers of, was experimental economics, this ability to test your own ideas and theories. Even though it's still an experiment, it's a controlled and hence simpler environment compared to the financial marketplaces or some of the markets that I work in, like rural Kenya. It's interesting, because it's an iterative process, where you test the concept, and you perfect it or you learn more about it, about what works and doesn't work by testing it in a controlled environment. That combination was really interesting because it was not just pure theory, it was a little bit of testing and applications as well.

ZIERLER: Who was this professor? Who are you referring to?

GUARNASCHELLI: The name of the professor that started me on this journey is Erio Castagnoli.

ZIERLER: Did he have connections, did he have colleagues or partnerships at Caltech?

GUARNASCHELLI: Yeah. He had sent another student who used to teach at Caltech, Paolo Ghirardato, also Italian and also from Bocconi, who became my advisor, one of my advisors, alongside Peter Bossaerts for my dissertation at Caltech.

ZIERLER: The Laurea is like a master's degree? What is that equivalent to in the US?

GUARNASCHELLI: It's an undergraduate degree. But in Italy, it used to be—now it's changed— it used to be longer. It used to be four to five years, and involved one year of research for the final thesis.

ZIERLER: What year did you arrive in Pasadena?

GUARNASCHELLI: 1997.

ZIERLER: 1997. How was your English at that point? Had you grown up speaking English?

GUARNASCHELLI: I learned [laugh] English from the Beatles.

ZIERLER: [laugh]

GUARNASCHELLI: But I also spent some summers in London and Dublin as an au pair, so I think I had a British accent, and a proclivity for British grammar.

ZIERLER: Yeah, you do have a little Irish in your accent. I did notice that. [laugh]

GUARNASCHELLI: [laugh]

ZIERLER: What was it like when you got to Caltech? What do you remember?

GUARNASCHELLI: My first impression was that it was an incredible campus. But the day we arrived—because we were international students, we were brought in earlier than anyone else—it was very quiet [laugh] compared to Milan. I remember crossing the street, and I couldn't see anyone, so I felt like I was in this new wide, wide world.

ZIERLER: Tell me about the course of study. What were the most important courses to take for you as you got started?

GUARNASCHELLI: At Caltech?

ZIERLER: Correct.

GUARNASCHELLI: All the basics. A lot of the basic groundings were done through hard-core econometrics. [laugh] I also remember that I took some classes from the physics department. As you said, while being called the social sciences, there's a lot of very quantitative underpinning to anything. There was the broad curricula in the first years, including political science, but where I leaned towards was more experimental economics. I wrote my first paper, which I loved, on jury decisions. Then also I remember one of my—this is where I felt I was very privileged, now that I think about it—one of my first research projects was trying to simulate the carbon market in California, which may have informed how the carbon market in California was, by answering the question, "if we were to put a cap on the carbon credits, what would we see in terms of pricing and market dynamics?" I loved that. I now think about it, given what I know about how carbon markets have since evolved, we approached it like a theoretical game, that we were trying to model and predict a market, but also could have offered parameters for how to think about policy setting.

ZIERLER: Where did the data come from for these experiments?

GUARNASCHELLI: Primarily for experiments, we would use students. We would have research budgets where we were able to design basically an experiment, a game. This is what I love, translating a theory into a game to test that theory. We would invite students to come and play, and we would use certain words and framing to control the environment. Then we would just open up what we would call the market, let them trade, and observe. You would do that repeatedly, and sometimes change the parameters, and compare. All the data was generated by the students' experiments.

ZIERLER: How computational was this work? Were computers fully embraced at this point?

GUARNASCHELLI: Yeah. We used computations. I remember, now that you say it, I also studied computational economics, where we were trying to model what we were expecting to see, by using computational economics. For example, some of my work was on Bayesian updating. As you flow information into the market, or as the market learns from trading, how do they update their choices? My work in jury decisions was based on computational methods, trying to iterate, and finding out what the equilibrium of the market might be by designing and programming right into a computer what the market would look like, and then letting the computer figure out the different scenarios or the future state, equilibrium state.

Calculating Risk Aversion

ZIERLER: What was the process for figuring out who your thesis advisor would be at Caltech?

GUARNASCHELLI: That's a good question. It's one of those things where I always wonder how I make these decisions, even like how did I choose my career and so on.

ZIERLER: You can apply your own analyses to these questions. [laugh]

GUARNASCHELLI: [laugh] Yeah. I think ultimately it was the combination of interest and application. One of my advisors came from Bocconi to the US, specifically to study the very same thing. Our research was quite similar in terms of topics and interests. My other advisor was Peter Bossaerts who was more interested in finance. We saw the application of my work to predicting behaviors in financial markets. One of the big premises, as I said, about behavioral economics is that you change the parameters when compared to traditional economic theory. For example, when you have an expectation about how events might unfold, called the probability distribution over the outcomes, then you can talk about risk aversion. But when you don't know all the parameters, or some of the parameters are missing, for example, you might not know exactly what the distribution looks like. You might only know the upper bound of it, or some features. If I told you it's more likely that it will rain tomorrow than it will not, you will be the one trying to figure out what is the distribution, based on this imperfect information, and whether you should bring an umbrella when you go out. So we were interested in the applications of these new theories to financial markets. I used my modeling to figure out whether what is called ambiguity aversion has an impact on the prices that you would see in a capital market when compared to just purely risk aversion. Based on the application of that theory to that topic, I ended up with my two advisors, who then became the co-authors of the paper that was published from my thesis.

ZIERLER: How much of this paper comprised your thesis? What else did you work on for your dissertation?

GUARNASCHELLI: That research was the primary one, plus a collection of other research. It was seminal. Since I left academia, I know that that work has been continued by both my professors and some colleagues in different forms and shapes.

ZIERLER: What were your primary conclusions? What did you find?

GUARNASCHELLI: We did find that attitudes towards ambiguity have an indirect impact on prices, as the experiments found a differential that you could measure when compared to a market as predicted purely on risk aversion. If you are averse to ambiguity, you may be willing to trade in order to end up with a less ambiguous portfolio – and the different price you trade at, either a lower price or a higher price, you can attribute that, so to speak, as the premium that is put on having more information. There might be most people may be more ambiguity averse, and some that are ambiguity loving. But you could say, on average, you might observe these behaviors in the capital market as compared to the case when people may only be averse to or loving risk.

ZIERLER: Besides your advisor, who else was on your thesis committee?

GUARNASCHELLI: Oh gosh, I'm not sure I remember that. [laugh] I think, probably because it was experimental economics, I would assume it would've been Charlie Plott, who is the pioneer of experimental economics.

ZIERLER: Of course, Charlie Plott, of course.

GUARNASCHELLI: This was one of the attractions for Caltech: they combine decision theory and experimental economics. I'm sure he must have been part of it, and John Ledyard, who was the Chairman of the Division of the Humanities and Social Sciences.

ZIERLER: Did you feel this is—I'm always curious about HSS, the division at Caltech. Did you feel well integrated with the overall campus community?

GUARNASCHELLI: That's a good question. I would say probably I was already a very social, extroverted person. As a result, I was very involved in the social committee as well. I was living in the on-campus apartments, and organizing social events like movies. In fact, that's how I met my husband, by the way. As the head of the social committee, at some point, I was organizing these events, where we invited a band from LA, and he was a musician in the band. [laugh]

ZIERLER: I'm very curious, the 1990s is when computation really serves as a connecting point between social science—

GUARNASCHELLI: That's true.

ZIERLER: —and the other divisions. The engineers, the neuroscientists, they're talking to the behavioralists.

GUARNASCHELLI: Exactly.

ZIERLER: Did you see that developing in real time?

GUARNASCHELLI: I think this connection got more traction after I left. I understand that they started doing experiments with students, where they'd also scan the brainwave, so relating neuroscience with the way people make decisions. Some people love ambiguity. - they're gamblers, and just love the fact that they don't know, and they think that that's an opportunity. There are people who don't love it. I think they started exploring how these differences would map with brain activity, what parts of the brain. But I think that was a little bit after my time. It might have started, as you said, as a concept. But maybe as a practice, it took place later.

Professional Start at McKinsey

ZIERLER: Serena, as you were wrapping up the PhD, thinking about next steps, did you consider academia? Did you think about postdocs and faculty appointments?

GUARNASCHELLI: I did, and I did a round of interviews. I also had an offer. What happened is that in the attempt to prepare myself for these job interviews, I was really nervous. In school they don't teach you some of these more practical skills. They teach you how to think, and go from concepts to applications, and results, and papers. As I felt unprepared, I did two things: I took an improv class, and then I did mock interviews with companies that I didn't know much about. One of these companies, my only interview outside of academia ended up becoming my job. I loved the interview process so much, and I think it was because they really picked my drive for problem solving. Just in the span of an interview, they asked me to do really fun things like estimate the number of golf balls you can fit in a plane, or what would be the price of insulin in a market like the US? I was like, oh, as an ambiguity lover, I love that. [laugh] I just felt, let me figure out how I do this. Then in the next interview, completely different topics. I was fascinated by having such a broad range of questions and sectors and companies, it was incredibly intriguing.

ZIERLER: What was the company?

GUARNASCHELLI: McKinsey & Company. It's a strategy consulting company. I literally just did the interview as a run test for my academia interview. I did not intend to apply for a job.

ZIERLER: Now, to foreshadow to KOIS, is there a social responsibility component to McKinsey? Did you develop those interests at McKinsey?

GUARNASCHELLI: I tried. Back then, it was not as well developed as it is today. A lot of consulting companies have now developed a more professional way to think about social sectors, and they've certainly also found good alignment with their business around topics like climate or sustainability. Back in the day, when I joined, it was 2002. It was post the IT bubble. There were some challenging sectors, cutting costs, and shrinking, in a way. It was a difficult time for many companies, and for the economy overall. While there was a desire to do that kind of work, it was limited to the not-for-profit sector, and it was not as professional or seen as part of what they wanted to do at large.

It was considered more of a secondment. I did try and apply, because I was intrigued. My husband is a humanitarian worker. I ended up applying and not getting to work in the not-for-profit sector. So instead, I took a sabbatical year, and went to work in a refugee camp. I went back to McKinsey, and stayed three years. But that search of applying consulting in a professional way to the development world led me to my next company, and to specialize in development finance, which is the application of the principles of finance to the development sector.

A Formative Experience in West Darfur

ZIERLER: Tell me about your experience in the refugee camp. What was that like? Where were you?

GUARNASCHELLI: Best year of my life. I was in West Darfur. We were originally sent there to do a consulting project for Mercy Corps to look at the effectiveness of some programs, and then they ended up offering us a job. We were in a village close to the border with Chad, and we had the fortune to be one of the first NGOs in that camp. I applied a little bit of what I learned at McKinsey as well as in my research, to figure out what works, what doesn't work programmatically, and how to draw evidence from the data.

My husband has also got an MPH from Johns Hopkins, so we were using epidemiology to start health surveillance in the camp, and figuring out what programs we needed to design and implement. But we also had some funding to do what we wanted, so we just tried new things. We did a lot of distributions of non-food items, like soap and pots, but we also tried to start women empowerment groups, agriculture, and water and sanitation services. We built 35 temporary schools, and sent 5,500 kids back to school. It was really a little bit of an experiment, like a controlled setting, in a small village of 15,000 people. If you can do anything, and if you want to think about rebuilding their lives, what would you do? We did that for a year, and it was very enriching, and a very, very happy time.

ZIERLER: What did you discover about yourself with this opportunity? Being at McKinsey, being in a much more corporate for-profit kind of environment, what spark did this ignite for you?

GUARNASCHELLI: I realized that very, very simple things like basic tools in my job in went a long way in the not-for-profit world, for example, using an Excel sheet to do planning and procurement for a year in a resource-constrained setting like a refugee camp. As another example, I designed a distribution system where peaople would never have to wait more than 15 minutes to collect items, and then they would fill out a customer survey at the end about what goods they may want for the next distribution. I don't think anyone has ever done that in the humanitarian space. But I had worked in logistics at McKinsey, so I thought getting the customer point of view right at the point of sale [laugh] was a simple yet powerful principle. Even just knowing how to plan procurement for a year instead of a few months, all these things that seem so obvious and simple in the corporate world could make the difference for many lives, for the quality of life. That was very energizing, how far you can go with very simple ideas, you know, just roll up your sleeves, and use a few tools in your toolbox.

Pivot to Development

ZIERLER: Was your experience in the refugee camp sort of the origin story of KOIS? Is that where you started thinking about branching off on your own?

GUARNASCHELLI: That's where I started thinking about branching more seriously into development, so professionalizing the work and skills brought into the development sector. I first did that with a company called Dalberg, where I basically created a portfolio in development finance, from my passion for and background in finance. I co-led a practice called access to finance, which included impact investing, innovative finance, and later blended finance. I did a lot of work advising foundations, like the Bill & Melinda Gates Foundation, or investors like development banks, on how to spend their money for impact by expanding their financial toolkit.

Then that experience led me to KOIS, because I realized as a consultant, my end product was a presentation and a set of recommendations. Whether they implemented the recommendations or not was not in my control. You hand over your report to a client, and they're the ones who take your advice, and do what they want with it. That left me a little bit unsatisfied, because some things would happen, and others would not. Advice is just as good as what the person on the other side wants to hear. I became convinced that I needed to be involved in the implementation and the capital deployment if I wanted to see that impact happen, in terms of translating the ideas that I had into actual financing and actual impact. Because KOIS had been doing impact investing, but they'd not been doing advisory for very long, I saw them as an opportunity to bring that advisory toolkit to designing and bringing products to market. So at KOIS the idea was that we don't just come up with the fund idea; we stay, we help fundraise for it, we launch it, and in some cases we co-manage it, so we see it through.

ZIERLER: Now, I have your résumé pulled up here. I see that you started at Dalberg in September of 2008. This is right at the beginning of the financial crisis, the global financial crisis. What impact did that have on you and your career at Dalberg?

GUARNASCHELLI: It was a difficult market to talk about investments, I'll tell you. [laugh] Even in the aftermath of the real estate crash, and with ongoing tightening up of public budgets, these events also forced the question, if money is limited, can we use it better? In a way, this has helped positioning impact investing and more broadly the impact finance work that I do as a way to find meaning, make your money go further, and maybe also diversify and promote positive impact and economic growth along the way. If all you care about is the financial return, that's just one objective, abd you are going to be exposed to the ups and downs of the capital markets. But if you care about its impact, even though different investors have different expectations, what your money can do is going to ideally have a longer-term positive effect, and more meaning.

ZIERLER: I wonder if even on a deeper level, the origins of the financial crisis, the greed, the fraud, the shortsightedness, if that was really a launch point for people to think, how can we deploy our funds in a more meaningful way?

GUARNASCHELLI: Yeah, definitely, I think people realized the longer term effects of greed. I also see this trend from employees. Young generations don't just want to get a job to make money. They want to find meaning. Obviously, they do care about their salaries, and there are going to be negotiations. But, ultimately, if it's just about money, they might make different decisions. When they come to work, I notice more and more, they're also asking, "What are we doing as a company?" Again, it might be different business by business. They might be asking questions about inclusivity or the environment or other topics that they care about. But I think they're asking more meaning, and enough of the linear world where more money is better. And one of the big, more recent findings from behavioral economics is that more money doesn't necessarily make you happier.

ZIERLER: That's right.

GUARNASCHELLI: In fact, sometimes more money means that you're comparing yourself more to others and, as a result, you'll never be happy, because there will always be someone wealthier. And you hear it a lot now with what is called the top 1%, this exclusive thing. If you are just searching to make and make more money, there's not going to be an end to it. You'll never be happy.

ZIERLER: Now, your motivations for joining Dalberg, could you have done this at McKinsey, or that simply was not possible? McKinsey did not have this in their portfolio?

GUARNASCHELLI: McKinsey ended up doing similar work, but later. I also think that it's different when you are a larger company, and you see this kind of work as an additional service that you want to offer. But in the end your business model is built on a different premise in terms of economics and type of clients, versus a smaller business that has a very specific mission of professionalizing consulting for the development world. This was a big, white space in early 2000a. Now top consulting companies like BCG are doing more and more work in this space. But, again, it's still a small portion of their larger portfolio. As a result, it's quite different than when you're specialized, and that's all you do, day and night.

The World of Development Financial Institutions

ZIERLER: Now, were you part of the founding of Dalberg, or it existed before you joined?

GUARNASCHELLI: It already existed, it was founded by two McKinsey alumni. I very quickly related to the same reasons why they left McKinsey, and why they felt they had to start something new. But it was a small company. It was 25-35 people. It was a small, fast growing business, and a risky job, so to speak, joining a young venture. It's now an established brand in development.

ZIERLER: Did you have a lot of latitude in the kinds of products, the kinds of clients that you worked with?

GUARNASCHELLI: Yes, absolutely. In a newer, smaller company, you can set up your own agenda, the platform that you want to work, and so there's a lot more flexibility around that.

ZIERLER: Who were some of your key partners during the Dalberg years? Who did you work with?

GUARNASCHELLI: During the Dalberg years, primarily a lot of my work brought me to work with development financial institutions, or DFIs. These are the private sector arms of every country's development aid finance, where they deploy money towards private investments in emerging markets. In the US, it's now called the Development Finance Corporation. There's one for each country, and there's also the IFC – a member of the World Bank Group. I did a lot of work for DFIs, thinking about the impact of their portfolio or designing new products to enter new markets or sectors. For example, I helped one of these development banks think about where their energy portfolio should be focused, on greening existing infrastructure, or should it invest in new projects like renewable energy? We're talking about 15–20 years ago, where there was a question whether renewable energy was too risky, or the projects were too small to invest.

I also worked a lot with foundations like the Bill & Melinda Gates Foundation, thinking about their toolkit, and how to go beyond grants. The foundation has a lot of expertise in volume guarantees, and they also had started doing programmatic-related investments. I worked with them and other foundations, thinking about innovative financing tools, and how to use grants in a different way.

I worked a lot in the world of innovative finance. I don't know if you're familiar with initiatives like the Global Fund to fight AIDS, Tubercolosis and Malaria, or GAVI, the Vaccine Alliance, I supported them and similar organisations set up or evaluate innovative finance mechanisms. This includes, as an example, new ways to raise money from capital markets, like IFFim, the International Financing Facility for Immunisation, and advanced market commitments, pulling and securitizing funding from donors for future purchases of vaccines, which then can incentivize—you can see a lot of behavioral finance language— research and development in products that would otherwise not be seen as commercially viable.

ZIERLER: I have a very American-centric question that's going to assume maybe more influence on the global stage than Washington has. You started Dalberg right at the beginning of the Obama administration. President Obama wanted to create a break with his predecessor, Bush. There's going to be renewed emphasis on international development, climate change policy, diplomacy, ending the war in Iraq. Did those policies reverberate in your world? Did you see a renewed American interest? Was that relevant at all?

GUARNASCHELLI: Policies do inform where we see momentum in funding, typically. They inform also what countries are willing to spend, and what they're not willing to spend on. As an example, for the the healthcare initiatives mentioned before, innovative finance came from a decision made at the intragovernmental level about the need to accelerate answers to healthcare challenges. We're seeing a little bit of that after COVID, when realizing that solving healthcare gaps in Africa and Asia is a good idea, for pandemic [laugh] responsiveness. You definitely see these policies create momentum towards a topic like healthcare or climate, and also towards a set of instruments. Some government policies set the importance of using private sector development as a tool for development, as balanced by grants. For example, in a humanitarian crisis, you just need to send in grants as fast as possible. But when you're thinking about how to reduce poverty or disparities—as we also know that inequalities lead to instability and conflict—the way is through economic growth. The policies support doing this work through private sector development, typically via development banks, by working bilaterally or multilaterally with local governments on how they finance the scaling of their programs, the electrification of their healthcare systems, the funding of their infrastructure.

ZIERLER: When did you start thinking of branching out on your own? The beginnings of KOIS, how did that happen for you?

GUARNASCHELLI: It got to a point at Dalberg where we were not a small, innovative and agile group anymore. We were now a company of over 300 people. There was still a lot of flexibility, by the way, as consultants can do anything and everything in terms of choices of projects and clients. But culturally the company felt like a larger, well-established firm, and as a result a recognized brand. For me it was that realization about consulting as a business model, so similar to McKinsey, it's a very fixed model, in the sense that you work on projects, and on the day that your mandate finishes, you send in your last invoice, your last deliverable, and then you wish your clients good luck. I was not very happy with that model where you are not part of the implementation. By the way, Dalberg did get more involved with implementation — after I left, again. But this was done primarily in markets like Kenya or India, where you are working with the partners that implement a program or the government, so you have that direct relationship where you can have a different way to engage with these partners. But, for me, sitting either in Geneva or London, it was primarily the case where you hand over the deliverable, and you're done. I was interested in seeing the action, being a part of how a project would be funded —I don't know whether it was my upbringing in finance, or my dad being in the banking world. I realized these limitations when I launched Convergence, which is a blended finance platform, and my colleagues thought the project was over, while I thought, well, it's just a 100+-page report. I decided to stay on, so I seconded myself to the organization for a year. That was the other realization, and an eye-opening one. I realized, as I was implementing those recommendations, that some of them were not exactly perfect. They were designed in a room by a team of consultants that didn't know about the operational aspects of launching such an initiative. What I realized is that even though the report looked great, it was a very smart product, it did miss the mark on a number of operational and implementation aspects. By staying on, and fixing or coming up with new ideas for revenue, adapting the product, the design, refining the pitches to potemtial members, I learned a lot from trying and doing. I realized that maybe my consulting days were over in terms of not being involved in the launch and implementation in some form, and then bringing those insights back into the design, from discussions with funders and from negotiating with investors. I'm now in a better position to design a product a little bit better, a little earlier.

ZIERLER: The idea is with your clients, you're in it for the long haul? You're not just there for the origination of the idea? You want to see it implemented all the way to success?

GUARNASCHELLI: Yeah, exactly. There are cases, obviously, where the client is going to manage the fund, where I'm still working more in a consultant way, but I have the opportunity in some cases to do more than just advisory support, to be part of the solution, be part of the implementation, and sometimes be part of the management as well.

Client Relationships for the Long Haul

ZIERLER: Who were the co-founders? Who else did you need to launch KOIS?

GUARNASCHELLI: The company already existed. Two Belgian partners had been working in impact investing, mostly on the fund management side, and they had started doing some advisory work. One project was a social impact bond in Belgium. Then they started working with the International Committee of the Red Cross on launching a humanitarian impact bond. Obviously, that was a dream because I'm very passionate about conflict areas and the humanitarian aspect, having worked in Darfur, and having tried to work on that topic as a consultant as well, which is quite rare in terms of projects that you can find. As they started thinking about advisory as a business, I really saw it as an opportunity for me to bring the experience of having run a consulting business but to do it differently, to do it in a way that would reflect what I liked about it but also to drop what I didn't like about it.

ZIERLER: What were some of your first projects that made you realize this was a very wise move on your part, and you were on the right track?

GUARNASCHELLI: What I loved about that first project with the ICRC was, I was going in to design the product but also to help place it. From day one, I was not just doing the slides, which I'm not very good at by the way, I was also trying to use the slides to bring in investors. It was that mix that I wanted between the conceptual design of it—I guess a little bit like Caltech—the theory, and the concept of it. But on the other side, you test it in the market. You try to pitch it to an investor. They tell you what they like. They tell you what they don't like. You go back. You rework it. From day one, it was that mix, and I learned a lot, and I helped placing a financial product. What that means is that I help my client convince investors, I support the investors' due diligences, but I don't give investment advice. But being part of that process, being in the room, hearing the questions that investors ask, and then trying to convince them, and using also sometimes my behavioral finance to reframe the pitch, to match their terms. I loved it. I felt I was part of the action. To me, that project made me feel I'm in the right place. The second project was for a product that we had come up with. At Dalberg, I used to mostly help clients answer a question and a need they may have. They're the ones setting the agenda. At KOIS, at times we'd be coming up with a concept, then pitching it to a partner to fund us, and that partner would then become the client. I think is the way it should be done—let's first start with the problem we want to solve, and then let us come up with what the product should look like based on the gaps in the market, and then, as a result, who should be funding it, so the other way around than the way that consulting is typically done.

ZIERLER: Now, being with the clients in a more fulsome sense at KOIS, being there for the implementation, for the follow-through, did that require more travel on your part? Do you need to be on site more often to just see what's happening from the initial partnership?

GUARNASCHELLI: It depends. I think it's always better. Again, I do have [laugh] a little bit of an allergy to be a person based in London telling a donor how to spend their money in healthcare in Kenya. I'm very humbled [laugh] but there's a lot of this. As I said, I don't proclaim to be a sector expert. My expertise is how to think about financing. But then often visiting, experiencing, learning about the local context, but then the ability to come back and try to boil down that complexity into a financial solution—this is why I love finance. It all brings down all that chaos and complexity into a simple financial model, as the backbone of an impact solution. It's a little bit of this combination of seeing, experiencing, grounding yourself, but then also being able to pull back, and come up with, from a little bit of a distance, a perspective on what might work.

ZIERLER: We've referred to it before, but now that we're up to it chronologically in the narrative, when COVID hit, the global pandemic, what did that mean for KOIS? How did it reshape your priorities?

GUARNASCHELLI: It was an interesting time, both personally but also professionally. It was a time where, as anywhere else, a lot of projects were suspended. Also, similar to what you referred earier in the aftermath of the 2008 financial crisis, initially there was a little bit like a pause, let's put a hold on decisions —but also people were not sure where to put money or what to do. There was a lot of hesitancy and uncertainty. But then bubbling out of it, we started working, for example, with some corporates about how could they use their supply chain to help with COVID vaccinations. How can you use innovative finance to support cold storage supply chains?

We realized that COVID had highlighted some challenges where finance could provide a solution, and so that led to some work particularly in healthcare access. It also led us to think about, how can you create a program that is more resilient? Some of our products pay an investor if and only if results are met. It's called results-based finance. You only pay for the results. Now, when COVID forced services to be suspended, just purely from a financial perspective, you have zero operations, zero results. What do you do with your contract between the investor and the donor? There were a lot of renegotiations. But then a lot of thinking came about how do we make some of these programs more resilient so that if another pandemic comes, how can we ensure delivery even then? I think it has made us think harder about the program design as well as some of the financial implications for the funds.

ZIERLER: Of course, the pandemic brought to the surface so many problems that were there, but they just became more apparent: inequities in healthcare, political tensions, things like that. What did you learn about the global system that was revealed by COVID that might've been, you know, it was there, but it wasn't so obvious?

Inequality is More than a Moral Effect

GUARNASCHELLI: I think I mentioned this interdependence, right?

ZIERLER: Yeah.

GUARNASCHELLI: That [laugh] we should care about what happens, not just because of the moral aspects—and in a way this used to be the old philanthropic approach: the right hand makes the money, the left hand makes donations because you have to do something good, but the two are not connected. In the world, we are interconnected. The fact that there's poverty, that there's inequality does have an effect on us all. It's not just a moral effect. I think it proved that it can have an economic effect, like the war in Ukraine on the oil prices. I think we're more and more exposed to how something so tragic from a human perspective can have broader economic implications. In a way, I do think it's good. Don't get me started on climate change. But some of these things, people still have beliefs, whether they're real or not. Somewhat COVID proved that they are, we just don't know it or see it or want to see it.

ZIERLER: One of the topics here that's relevant of course is social media, misinformation, disinformation, also the good that social media can do, getting the word out. How is social media both a strategic asset for what you do, and where does it cause problems?

GUARNASCHELLI: Good question. We don't use social media as much as we should. Having said that, we are starting to see and starting to partner with some programs that use technology platforms and mobile apps as a way to reach the hard-to-reach, for example. For example, in Kenya, we are working with a technology platform that provides adolescent reproductive health services to girls. This is a politically sensitive topic, but the idea is that because girls already have a phone in their hand [laugh], and they're already active on it, it is an effective way to bring services to them, and give them choice, also using some of the features of social media like ratings and nudges. Again, it's a way to drive social behavior using the lessons learned from social media.

It's one of the ways where social media showed us a way that the mean itself, the app, can be used to create demand. It creates information. It creates awareness. As a result, it creates more demand for these services than there would be otherwise. We are using some of the lessons learned from social media. By the way, we're very excited about this technology play more broadly because, you asked me earlier, what are the biggest limitations of our work? Sometimes it is reach, and distribution, and the cost of last-mile distribution. Using the same social media, the idea of ambassadors, influencers, and so on, as a way to reach more girls, or to sell the idea of access to quality services to more girls is really quite powerful, and can help overcome some of these limitations of more traditional progams.

ZIERLER: Another technology question, and it'll bring our story right up to the present. We're all talking about machine learning and AI these days. Have you embraced these tools? Are they yet relevant for the kind of data analysis that you do, or can you see a path in the future where it will become more important?

GUARNASCHELLI: We have started looking into this, but have not used it. There have been trends in the development sector that I've noticed, and it has huge promise in addressing and solving complex problems. One area is climate adaptation — as some of our work is in the environmental space, but this can be applied to the social spaces. For example, if a project or business says they are supporting sustainable agriculture or sustainable land use, how do you ensure the validity of those claims? This is where satellite images and image processing can not only help optimize yields, but also building towards a similar system of certifications for environmental benefits that could be monetized and traded the same way we do with carbon. It could incentivize investments in biodiversity, soil health.

The question in our work is always, what's the data? How is it valid? How do I make sure that it's uniquely attributed to this project? We're going to see more and more applications to deal with data complexity and validity right now. Another example in the social space—we're doing some work in Kenya looking at AI-focused point-of-care ultrasounds, addressing the gaps in the supply of equipment and trained staff for ultrasound screenings—we see this innovation as a way to bring more resilient, more affordable, better fit-for-purpose technology to the more vulnerable.

ZIERLER: We'll take the story right up to the present, January 2024, what are you focused on these days? What is most important to you?

GUARNASCHELLI: There's a variety of products at different stages. One of our priorities for this year is to close a couple of funds, which are new funds in very exciting areas. One is an assistive technology venture capital fund that is going to invest in early stage technologies that address a diverse set of disabilities, from mobility to hearing and vision impairment, in emerging countries. But as we work as a funnel of structuring, we also have some exciting projects that are still in a concept stage that we're hoping to test and bring to market soon.

ZIERLER: For the last part of our talk, Serena, now that we've come right to the present, I want to ask some retrospective questions about your career, and then we'll end looking to the future. First, as a scholar, as a behavioral economist who's a practitioner working in the field, are you still involved in academic societies, in journal writing, in lecturing? I can see so much value that you would bring to a classroom environment. Are you involved in any of those areas?

GUARNASCHELLI: No. I wish I did. I have stayed in touch with some of my friends, students, and professors. I recently went to a conference, a behavioral finance conference last year in Bulgaria that was hosted by a Caltech alumna, and one of my best friends, Elena Asparouhova, who's now at the University of Utah School of Business. I also met with Professor Peter Bossaerts, and Debrah Meloso. I'm staying more informally connected with that group. I would love to find ways to collaborate, but I haven't had time, working in a small business, as a small business owner. But I've tried to stay connected with the academic world, more from a practitioner lens, trying to bridge the gap between theory and applications, and I noticed a lot of business schools, for example, the Oxford Business School or Cambridge here in the UK that focus on social businesses, social innovations, or impact investing. I tend to go to some of their events and conferences, sometimes as a speaker, not as a lecturer, trying to connect the dots between what the students hear in a class, and what could be an exciting way of implementing those ideas through impact finance products.

ZIERLER: Relatedly, if you ever had the opportunity to contribute to an edited anthology, a scholarly book about all of the fields that you work in, what would you write about? What's the experience that you've gained, where you have the most academic insight in teaching these theories, these data points, these experiences to others? What would you write about?

GUARNASCHELLI: That's funny [laugh] because my husband wants me to write a book.

ZIERLER: There you go.

Development Finance As an Experiment Worth Testing

GUARNASCHELLI: It's exactly that, bridging the gap between the impact investing world and the concepts of development finance or behavioral finance, by applying the lessons learned as a practitioner, helping develop this market, which in some cases, interestingly enough, test and confirm some of the hypotheses and parameters I studies in behavioral finance. When we were discussing investors and funders earlier, a lot of people would use concepts like "value for money" to describe their objectives for funding projects. But when you look at their purchasing behaviors and the type of programs that they fund, there may be a mismatch. Bringing up this mismatch and reassessing those investment criteria can then bridge those gaps between the concepts, the policy on one side, and the action, the capital deployment on the other.

ZIERLER: Serena, because your work is truly global in its purview, are there paradigms that you use that allow you to group or to compartmentalize different parts of the world, however you might define it? In other words, during the Cold War, we had the so-called First World and the Third World, or we have the developed world and the developing world. We have now the rise of China. We have regional powers like Mexico and Brazil and Indonesia. Are there models or ways of looking at the planet that are very useful for conceptualizing what you do?

GUARNASCHELLI: I have a little bit of an allergy to all of those terms, so maybe I'm not a paradigm person.

ZIERLER: [laugh]

GUARNASCHELLI: I think they're more of a reflection of mental constructs. For example, I do hate the word "third world." Case in point, if you look at, recent Eurozone economic growth close to zero, are we the third world now? [laugh] If those terms were re-assessed today as GDP or GDP per capita growth, I'm sure the map of the world would look very different based on those paradigms. I'm more about debunking paradigms. Sometimes showing the irrationality, or maybe how those paradigms can at times be more mental projections than actual realities, can be helpful. What I like about my work is that I can always show you something that is exciting in a geography that maybe you considered poor, or a country that is considered too risky. The way I think about innovative funds or blended funds is trying to frame these differences as opportunities, creating some excitement around the fact that there's a lot of innovation happening. One of the big debates in the development finance world is—have you heard about sustainable development goals, SDGs?

ZIERLER: Of course, yes.

GUARNASCHELLI: When you look at the projections about what we need to achieve the SDGs by 2030, which is getting quite close, there are huge financing gaps compared to where we are. I like to always turn it over its head, so that gaps can become opportunities. There are a lot of projects and funds that could be made investible using blended finance. When speaking with investors, I like to use specific examples. I'm more about positive competition or making someone jealous, showing them, "Oh, this investor, or company, has done it," using their competitive spirit, "Maybe you could do it too, and you can make money while you do it." A little help can come from changing the narrative or debunking the existing paradigms about the world.

ZIERLER: What about nationalism? Where do you see nationalism becoming less important, and where is really maybe even tribalism an enduring human feature?

GUARNASCHELLI: Less important? I'm quite worried about that [laugh] at least about the way that the political debate right now seems to be about issues of migration. I don't know. Do you see less nationalism? I think this year is going to be very interesting for this specific question. More than half of the voting world is going through an election this year. So if you ask me this question again in January 2025, I might say whether I agree or not with that statement. [laugh]

ZIERLER: OK. [laugh] We'll stay tuned. Serena, of course, what brings us together is Caltech. What has stayed with you from your Caltech days? How does that help you understand the world? How does it inform what's most important in your work?

GUARNASCHELLI: The pure rigor, as I said, it has helped me to think very critically but also conceptually, and then compare notes with myself and with reality, and figure out as a result, if there's a mismatch, what else it could be. I do miss some of the rigor in academia. In my first job, even just what they call modeling was a simple Excel file. It was not very rigorous. My studies will always anchor me in terms of finding a framing to think about things differently but also testing my own hypotheses, and then being honest. If the results don't confirm, ditch it, and find something else. [laugh]

ZIERLER: Because it is about the truth? That's what matters?

GUARNASCHELLI: It is the pure truth, if it exists—

ZIERLER: That's right.

GUARNASCHELLI: —but as close as you can be.

ZIERLER: Finally, Serena, looking to the future, last question. All of your passions, all the things that you've worked on, what's out there? What's the frontier for you? What's the frontier for KOIS?

GUARNASCHELLI: The frontier for me right now is how to scale my work. We are a small company, and designed to remain so. We are 25–30 people, trying to think of and then manage a lot of products. One of the critical factors for our work will be partnerships, and either collaborating or maybe even open-sourcing some of our work so that someone else can do it in other markets where we are not present. The other big idea I'm thinking about or trying to work on is how to inform some of the debates around public and private spending to be more focused on impact and outcomes. I'm part of a group that is looking at outcomes-based financing as an approach, so basically replicating what the carbon market has done outside of carbon, so for biodiversity, for soil health. My dream would be whether we can create that for social impact as well, but it's to be seen. I'm still thinking about what that could look like, and whether that could be a market.

ZIERLER: Meaning that there's almost a grand unified theory to these problems, that they overlap, and you want to look at it holistically?

GUARNASCHELLI: More whether there's an approach to monetize what currently are externalities, so the same way carbon credits came to be by capping emissions, through policies. There are a lot of people saying we should value soil health. Can you value it? Can you price it, and can you monetize it? Can you sell soil health credits in a similar way to carbon credits, thus generating some revenues for farmers? It's just a general theme whether you can monetize and price positive externalities that come from our projects, and that whether that could be a source of funding.

ZIERLER: It's a win-win? It helps people? It helps make investors money?

GUARNASCHELLI: Exactly, it would, either as a subsidy to bring down the costs, or as a de-risking mechanism, if someone else was willing to pay for these benefits. It could create a market where, in a project that helps women improve their livelihood, a donor might be willing to pay for that livelihood as an outcome, but another donor might want to pay for the biodiversity outcomes or for the fact that the soil is regenerating. To be tested.

ZIERLER: There must be an open-mindedness to this where it's a good idea, but then you have to see what works in real time?

GUARNASCHELLI: Oh yeah, see what sticks and what doesn't. I'm going to try different approaches to test if this could work. I have different projects where I'm trying slightly different approaches, a little bit like an experimental setup. Not as controlled as a Caltech lab, I must say. I have to control for different factors. But the idea is there. Try a few things, look across, learn and adapt, Bayesian updating, and move on quickly. I don't think we have the time to go deep on just one approach. We just have to try a few things, and just learn as quickly as we can.

ZIERLER: Serena, this has been a wonderful conversation. I want to thank you so much for spending the time.

GUARNASCHELLI: Thank you.

[END]