The evergreen theory of investing in enterprise cash flows, directly, begins with a model of the economy as an expanding universe of intellectual and interpersonal connections between people for doing work and sharing wealth that is more or less constantly being reconfigured as times change, and people make prosperous adaptations to life’s constant changes, adding new connections to new and better choices, and letting others go.

The fundamental building block of this economy is technology, in the authentic Greek meaning of the word, as practical knowledge of how the world about us works, and how we can change the way the world works to make it work more a way we choose. The use of technology almost always requires a concentration of effort. It almost always produces a surplus of artifacts – in the anthropological sense of the word, as the work of human hands – in excess of what is needed by those who do the work to effect their own, individual choices.  This surplus can be traded with others for the surpluses created by their efforts, and voila! We have an economy, in which many can live much better, together, than any one individual can ever hope to live acting entirely on their own.

All technology is provisional, suited to the circumstances, but subject to change as the circumstances change.

And the circumstances are always changing, not the least because we change them, when we make use of our technologies.

This is the true story of human history, and the real engine of our prosperity, through change, and evolutionary adaptation to change.

It begins with enterprise, and enterprising individuals, who see the way the times are changing and also see the way new technologies can be evolved in adaptation to that change.

When enterprise needs money, finance provides it.

Finance is how society chooses which technologies from making prosperous adaptations to life’s constant change can, should and will be pursued through enterprise.

Giving us the simple, common sense truth that at the level of enterprise and technology, there is a universally applicable, predictably recurring pattern of rising and then falling popularity – and cash flow – over time, as times change, and people make prosperous adaptations to life’s constant changes.

The Wall Street system is built to ignore this common sense truth, and so it constantly gyrates through alternating cycles of boom and bust, as Finance finances growth, while the economy delivers change, and evolutionary adaptation to change. In the Wall Street system, we go and grow, until the economy will not support that growth. Then, we crash. After each crash, we pick up the pieces, make the necessary evolutionary adaptations, and get things going and growing again! Until the next crash. Every boom is really a bust that has not happened yet.

The evergreen system is built to recognize this simple, common sense truth, and to ride the ups and downs in technology popularity and enterprise cash flows.  There are no booms, and so, also, there are no busts. There is only sustained, and sustainable prosperity through change, and prosperous adaptation to life’s constant changes.

At the level of the enterprise, look for strategies for matching enterprise investments in organizational capacity to the predicted patterns of rising, recurring and eventually falling popularity for the technology the enterprise is organized to make available to others.

This is the story of the future history you want our retirement system, our university endowments and our endowed foundations to finance.

complete and cohesive

In the evergreen theory, enterprise is organized for a single purpose. That purpose is to monetize a portfolio of artifacts – used in the anthropological sense, as “works of human hands” – constructed through the application of a specific technology – used in the authentic Greek meaning of the word, as “practical knowledge of how the world about us works, and how we can change the way the world about us works, to make it work more a way we choose”.

This one-to-one identification of enterprise with technology is new with evergreen.

Or, is it really a return to the way things were BEFORE, before we invented the Wall Street system, and the corporation as a mutual fund managing a portfolio of enterprises evolving diverse and sometimes even disassociated technologies, in an effort to manufacture growth in share price through consolidation when there is no longer any real possibility for market expansion?

We see this as the simple, physical work of actually creating wealth. Success requires the right mix of:

• Knowledge of the technology that the enterprise is organized to evolve, including and especially, an intuitive sense (this cannot be calculated) of its value to others;
• Networks of connections to those other people and organizations who are not technically inside the enterprise, but whose contribution to the work of the enterprise is essential to its success, including those others who value the artifacts to be monetized, and who as customers provide the cash inflows that are happiness to every enterprise; and
• Routines executed inside the enterprise for completing the work for which the enterprise is organized, effectively, efficiently and at the scale that the technology supports and that the market demands.

The currently dominant and default construct for thinking about enterprise is the management organizational chart.

In evergreen, we see this as an ownership and control construct. Not a wealth creating, cash flow generating construct.

Since our interest is in cash flows, we look at enterprise through a different construct, a cash flow construct.

every enterprise needs to know where it is on its journey, and have a credible sense of the pattern that journey is likely to describe

One thing that happens when you do as evergreen does, and identify enterprise with one, specific technology, is that you acquire the capacity to  build an expectation for the future cash flow generating history of that enterprise based on the universally applicable pattern of rising and then falling popularity over time that applies to every technology, as times change, and people make prosperous adaptations to changing times.

This cannot be calculated with precision.  Technology is a creative process. Not a scientific process. It is a unique process, and not random.

New technologies evolve out of what was known before through a process of inquiry and insight that begins with dissappointment when what we think we know does not deliver the experience that knowledge leads us to expect. Changes are identified that make old knowledge no longer adequate to new experience. New knowledge of new experience is constructed to form new expectations that will be satisfied, more or less – and for a time. Until other things change, and new knowledge is once again needed to understand the new experience.

This is why the university, and the community, are so important to the evergreen method.

It is in the university and the community that we can and must look for early indications that a change is taking place in the economy that is creating the need and the opportunity for the evolution of a new technology which will diminish the popularity of currently popular choices.

This gives us a baseline pattern that we can use for managing technology risk, which is the only real risk in an investment in enterprise cash flows directly. (There are, of course, the human risks of dishonesty, inattentiveness and incompetence, but a properly exhaustive analysis of strategy should be sufficient to bring any such fatal flaws at the human level into focus. Then, the only prudent course of action is to simply choose not to do the deal.)

The primary tool for managing technology risk by superfiduciary sponsors of enterprise cash flows is the base case time period within which a fiduciary return is expected to be realized on a priority payout basis. Beyond this base case is the evergreen tail, which provides upside participation to superfiduciaries as an incremental reward for taking on technology risk in their investment.

It is important to get this base case right.

Too short a base case, and the financing places an undue burden on the enterprise. It also requires the superfiduciaries to find reinvestment opportunities with other enterprises sooner than is necessary, placing an undue burden on the superfiduciaries.

Too long a base case, and the investment may never actually return its fiduciary minimum.

Just right, and the investment is affordable, empowering and supportive of fiduciary purposes and prosperity in society more generally.