Venture capital The industry does not have a good track record when it comes to ethics.
Like many professions associated with power and wealth, venture capital sometimes attracts people who don’t care about doing the right thing. And with limited regulatory oversight and a lack of transparency, investors can often be left out of place by not integrating ethics into their investment philosophy.
We’ve seen startups take money from investors who back companies that have a negative impact on the climate or spread misinformation. Sometimes, we find venture firms that raise capital from foreign governments that don’t have the best record on issues like human rights.
But not every investor is a bad guy, and the industry seems to be taking steps to clean up its act — albeit slowly. Startups and investors are paying attention to who they want to work with and where their money is coming from. Investors are looking for startups that not only make money, but also have the potential to leave society and the planet in a better place.
To find out how much ethical capital exists today and how far it can go, TechCrunch surveyed six investors about how they practice ethics in their daily lives. And we’re happy to say that the entire industry is not doing enough to police itself when it comes to ethical issues. They want to do more to make the industry fairer and better.
We’re broadening our lens by getting more investors to participate in TechCrunch’s surveys, where we poll top experts on the challenges in their industry.
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Many investors say more transparency in the industry could help alleviate some of the growing ethical problems, such as seemingly endless opportunities for bad actors and companies to cover up questionable practices.
“The transparency of venture capital creates a major barrier to implementing self-policing,” says Gerry Kirillova, a partner at Laconia Capital. “More transparency in decision-making processes and capital flows, whether voluntary or mandated, would help.”
Logan Allyn, founder and managing partner of Fin Capital, agreed. He said it would be good to see some consequences and accountability from government bodies like the National Venture Capital Association (NVCA) or the SEC so that cases like this don’t happen again and again.
But without any regulation, many organizations are taking matters into their own hands. While they may not be responsible for regulating the industry themselves, they personally hold the moral high ground when it comes to investing and raising capital.
To find out how some players approach various ethical issues, we conducted a survey:
- Gerry Kirillova, Managing Partner, Lakovia
- Vital Laptenok, Founder and GP, Flyer One Ventures
- Logan Allyn, Managing Partner, Fin Capital
- Warner, Co-Founder and Partner, Check Ada Ventures
- Laura Gonzalez-Stephanie, Founder and CEO, TheVentureCity
- Soraya Darabi, Co-Founder and General Partner, TMV
Gerry Kirillova, Managing Partner, Lakovia
How much does a company’s ability to make a positive social or societal impact influence your investment decision? What if the startup effect could be negative?
Negative externalities, especially harmful social and environmental impacts, are often deal-breakers for us. We especially hate companies that perpetuate human exploitation, social and economic inequality (a joke from a VC), and environmental damage.
Capital is never enough to make a business or relationship successful. Laura Gonzalez-Stephanie, Founder and CEO, TheVentureCity
To what extent should VCs incorporate ESG metrics into their investment decisions?
Applying ESG frameworks to VC is hazy. VCs usually have a fiduciary duty to their LPs to ensure that they have high returns. If they believe ESG, however, is defined and implemented in their investment process, it will have a positive impact, they should incorporate it.
If ESG is relevant to the mission of LPs, it seems logical that VC investments should not at least be counterproductive to these efforts. But this question is suitable for LPs themselves.
Will the ethics or reputation of another VC firm influence your willingness to pursue their investment or co-investment?
Yes, they are in our decision-making process, especially when it comes to our risk analysis of the business.
How do you think about ethics when raising and receiving LP funds?
Apart from following standardized KYC/AML procedures, we have a high bar for aligning ethics and values with our LPs. Our LPs are included in our Anti-Harassment, Non-Discrimination and Diversity Policy.
Is the venture capital industry doing enough to police itself? What should be done to remove or remove bad actors?
The transparency of venture capital presents significant barriers to implementing self-policing. Greater transparency in decision-making processes and capital flows, whether voluntary or mandated, would help.
Red flags often associated with founders make investing in a startup seem like an attractive investment?
If we are not confident in the integrity and judgment of a founder, we will not invest.
Do you believe founders can learn from past mistakes? Would you invest in a company run by someone with a troubled past?
We believe founders can learn from their mistakes.
Beyond the financials, what compels you to invest in a company?
Given the pre-seed and seed investment focus, financials are never the most exciting part for us. We are drawn to mission-critical solutions, led by founders who have some form of proof of market need, a deep understanding of the customers they serve, and the ability to build a great company.
How do you prefer to receive leads? What’s the most important thing a founder should know before calling you?
We review all submissions. The easiest way to submit is through this form. Founders can learn more about our investment process and strategy here.
Vital Laptenok, Founder and General Partner, Flyer One Ventures
How much does a company’s ability to create a positive social or community impact influence your investment decision?
We believe that technology should be designed to change the world we live in for the better, not the other way around. Unfortunately, this is not always the case – facial recognition technology, for example, can be used for both beneficial and negative purposes.
For us, it is important that the company we consider as an investment uses the technology for good and profit. [do so] With a sense of responsibility. That’s why we have a large number of edtech startups in our portfolio – we believe this industry will be transformed by startups around the world.
What if the social or community impact of a startup has the potential to be negative?
Technology is primarily a tool for good and harm. That’s why we carefully examine the ethical guidelines of the founding team – it ultimately determines the direction of the startup.
If we find out that the founders are willing to negotiate on some issues, we will definitely reject the deal.
To what extent should VCs incorporate ESG metrics into their investment decisions?
The VC industry has a huge impact on how our world will be in 10-15 years, so we think the industry should have more ESG standards than it does today.
After all, VC-backed startups today will become large corporations in seven to ten years, and their products will be used by hundreds of millions of people.
Will the ethics or reputation of another VC firm affect your willingness to pursue their investment or co-investment?
