Boosting the change: a unique opportunity for Venture Capital
Some times change bubbles up… other times, it trickles down… in the last decade it has been on both directions when it comes to how companies operate and capital is allocated.
Tailwinds, zeitgeist, emerging consciousness… like it or not, it got to consumers and to governments/regulators: business has a responsibility beyond making profits, because until recently it has been using resources unsustainably and not paying for the costs that the environment and society have been going through. And I’ll go beyond: business has the opportunity to be the game changer and turn many concepts on their heads, in order to create the world we all want to live in.
At the same time, Venture Capital has been struggling to be a profitable industry as a whole and to find its “alpha” again. It has been at the center of a lot of criticism, for instance when it comes to investing into underrepresented founders/teams and thus overlooking huge markets. Pressing the repeat button: over 80% of decision makers in investment firms are (caucasian) male, over 95% of the capital goes to all male teams. These firms created the concept of unicorns, companies valued at more than 1bi USD. And who benefits from all that? Mostly the pockets of a few.
So it’s past the time when the ones boosting and leveraging the technologies and solutions that will shape our future also take on this responsibility and answer to this calling. It’s not about being from the left or right party. It’s about caring for humanity in the long run and looking into really sustainable long-term returns. In the past, I’ve even called this “enlightened selfishness”.
Sometimes it feels like everyone is talking about impact and some other times it feels like it is still within a very contained bubble. In the recent past, I spoke to over 80 funds — both European and American — as an entrepreneur instead of a peer investor. A tiny part of them were impact funds. Another tiny part mentioned they considered ESG in their allocation strategy. The majority still questioned the whole topic of impact. They still didn’t get that there is quite an upside there to be unlocked, by genuinely working to make the world a better place. For most, an impact positioning represented more risk than opportunity.
When this impact movement started, back in the 90’s and early 2000’s it was mostly about how to avoid costs and mitigate risks (read more about the ecosystem evolution here). The minimum responsibility of businesses considering different stakeholders into the equation. ESG was just the beginning. Nowadays, as this ecosystem evolved, results have materialised, research has been published, the lenses changed. We are talking beyond ESG. We are talking about business models, products and services that truly solve social & environmental issues. We are talking about positive at par and at many times better returns, better customer engagement, superior partnerships quality, future-proof strategies, talent attraction and retention, competitive deal flow… plus the regulators stepping up! There’s no way to avoid the topic anymore and still many just continue in their old comfortable bubble that is about to burst sooner than later.
While some investors decided to embrace sustainability, or ESG, or Impact just for the sake of it (hello, #greenwashing ), luckily, I’ve seen now more and more funds that authentically want to embrace the new world.
For entrepreneurs, LPs and the ecosystem at large — how to differentiate these funds? What is greenwashing and what is authentic? As most things in life, it will normally require a second look to distinguish who’s for real behind the mask, because it’s easy to create a slogan, rearrange portfolios, sponsor an event or report. But hard it is to create a sound theory of change, rethink investment strategies and opportunities, redefine portfolio development guidelines, question hiring and team diversification, turn culture upside-down. It is hard just because it’s different from what has mostly been done for the past decades and thus it requires work. It’s a new path to be explored. And the talk must be walked.
In my next article I will outline what a true impact fund should look like and what its competitive advantages are — specially towards entrepreneurs and LPs.
If you are a GP and wondering how to navigate this shifting environment, I would be happy to help you in your transition — because we just need to quickly shift more capital towards solutions that truly make the world a more just and joyous one.
#VCsforGood
