Amorality and impact in venture capital
The Facebook / Cambridge Analytica affair reignited an internal conversation I constantly have about where we put our dollars to work and why. I’ve always been somewhat bothered by a sort of blind (stated) belief that “technology is good” combined with a notion that the only metric for VC success is fund multiple. After all facebook was the greatest thing since sliced bread until it wasn’t and one of the VC industry’s defining stories.
It’s high time to take a hard look at WHY we do what we do.
There is nothing inherently good, or bad, about tech.
The act of founding a company is an act of creation. I always found it uplifting and inspiring to see young men and women embark on a path of ideation, creation and construction. We invent new things, assemble talent and build companies. Since the Enlightenment we’ve associated progress, science and technology with human advancement. In that sense, it is profoundly fulfilling to be involved in an industry that fundamentally creates.
But it’s important to remain acutely aware that there is nothing inherently good or bad about technological progress, the platforms we build and the companies we back. They are not moral per se.
The only thing we can probably all agree on is that technology’s rise is inevitable.
Ethical decisions are everywhere
Say you’re a company doing casual mobile games. That’s a perfectly worthy endeavour as you’re perhaps turning a dreary tube commute into an enjoyable distraction. Like any other company, you’re going to face a number of micro-ethical choices along the way: how do we monetize? Is it OK to monetize kids? How addictive do our games become?What do we do about big spenders (so called whales)? Do we cap their spend to protect them from addiction?
Inherent in all these business decisions are myriad ethical choices that will ultimately determine your long-term impact on society. To not be aware that you are making these choices is problem #1.
The profit-motive corruption
How about this for a well-known narrative: new service gets launched. It’s all about the users. The founders have a laudable mission. The company grows and is successful, raises a bunch of money. Calls for exit and cash realisation grow at the board. Perhaps the original founders step aside. Margins are optimized, the company is gradually re-engineered for scale and profits. The company IPO’s or is sold. Gradually users feel disenfranchised, disenchanted and start migrating to the next platform. Rinse and repeat. Returns maximization at the expense of everything else is problem #2.
Sustainability = true north ?
Personally I think it’s important for founders, management and investors to think not only of their own profit maximization but also of their overall societal impact. Constituencies to be served are many : consumers or customers, employees, partners, society at large. A continued focus on how to build sustainable businesses usually serves well — always focus on the customer, treat your employees well, develop a strong culture of respect for everyone and everything that your company impacts.
In theory, sustainable companies should be more valuable over time, although there are clear tensions here between short-term and long term value creation. Most of the time, short-term EBIT maximisation objectives win. That’s a shame. Great projects get tainted.
I’m amused by a lot of the current virtue signalling around the recent facebook debacle. I can 100% assure you that, independently of the serious and concerning election meddling issues, everyone in our industry knows what is happening to personal data and happily profits from it. I can also assure you that in the coming years, the need for better data privacy will be heartily embrace by the venture community who will rush to fund solutions to the problem.
Venture capital as a funding product is not immoral as much as it is amoral — it rushes in to leverage any opportunity that arises. The individual themselves are mostly (in my experience) of high integrity and have a clear moral compass, but I don’t think many venture partnerships stop to think : “why are we funding this team and can we embrace the mission of this company”.
Only idiots don’t learn from history and you have to assume that this is not a bad time to reflect, together and with our LPs, about the impact we have on society.
Take the next big wave : AI. I was at Entrepreneur First this week listening to a (compelling) founder pitching an AI-enabled process automation company; here he was on stage proudly declaring: “don’t you think John (an insurance claims processor) would *KILL* for the boring parts of his job to be automated? We could save him so many hours every week!”
The obvious irony that John’s job and that of his co-workers would be eradicated within a few years did not seem to cross his mind, such was his belief in his mission and his product.
I’m not throwing a stone: there is nothing inherently “wrong” about AI. To be assembling Ford T parts on an assembly line or manually processing claims are fundamentally tasks that are unlikely to nourish the human soul, and one would assume that over the long-term there are better uses for the potential of human beings than beings cogs in these machines. As noted above, it’s also inevitable.
What is wrong though is to hide behind a blind belief in the sanctity of progress and not realize what the consequences and implications are for society as a whole, or to act as a sort of uber-class of tech entrepreneurs and investors who somehow operate on a different plane that the “normies”. Cue: private islands and gated communities while the serfs watch reality TV.
Adding (some flavour of) ethics to the VC language
I’m not here grandstanding or pretending like I have solutions; ethics is a loaded word, but I can’t think of a better one. Hell is paved with good intentions and very often companies started with lofty goals end up in pretty murky territory (cue : Google AI, meet Pentagon drones). It’s important not to be a hypocrite.
However I do feel like we can and should start to embrace a much more aware and responsible attitude towards the companies we are funding. Talking about mission, societal impact and sustainability should become part and parcel of how we make investment decisions.
I have more questions than answers but I feel like it’s high time for all capitalists to reintegrate their place in the community and start thinking more holistically about our impact.
I don’t think this stands in the way of making great returns, either.