6 Investors share where to draw the line when it comes to potential ethical issues

venture capital The industry doesn’t have the best track record when you talk about ethics.

Like most careers that involve power and wealth, venture capital sometimes attracts people for whom doing the right thing is not a concern. Limited regulatory oversight and a lack of transparency mean that investors can often shy away from mistakes by not taking ethics into account in their investment philosophy.

We’ve all seen startups happily getting paid from investors who support companies that have a negative impact on the climate or broadcast anti-women rhetoric. Sometimes we also get investment firms raising capital from foreign governments that don’t have the best track records on issues like human rights.

But not every investor is a bad person, of course, and the industry appears to be taking steps to clean up its act — albeit slowly. Startups and investors are paying increasing attention to what kind of people they want to work with and where they want their money to come from. Investors are also looking for startups that will not only earn them money but have the potential to leave society and the planet in a better place.

To find out how far the ethics of venture capital is right now and how far it can go, TechCrunch polled six investors about how they approach ethics in their daily lives. We’re happy to report that they all say the industry isn’t doing enough to police itself on ethical issues. They also wanted to do more to make the industry fairer and better.

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Many investors said that getting more transparency in the industry would help mitigate some of the ethical problems that continue to thrive, such as giving bad actors seemingly endless opportunities and companies covering up questionable practices.

“Venture capital opacity presents significant barriers to influence self-censorship,” said Jiri Kirilova, partner at Laconia Capital. “More transparency in decision-making processes and capital flows, whether they are voluntary or mandated by regulations, would help.”

Logan Allen, founder and managing partner at Fin Capital, agreed. He said it would be good to see some of the consequences and accountability from industry organizations such as the National Venture Capital Association (NVCA) or government entities such as the SEC to help prevent such problems from recurring too often.

But without regulation, many companies are taking matters into their own hands. Although they cannot take responsibility for reforming the industry on their own, they personally put ethics first when they invest and raise capital.

To get a sense of how some players deal with various ethical issues, we surveyed:

Jiri Kirilova, Managing Partner, Laconia

How does the company’s ability to make a positive social or societal impact influence your investment decisions? What if the impact of the startup is negative?

Negative externalities, particularly adverse social and environmental impacts, are often a deal breaker for us. We especially hate companies that exacerbate human exploitation, social and economic inequality (the irony comes from venture capital, I know), and environmental damage.

Capital is never enough to make a business or relationship work. Laura González-Estéfani, Founder and CEO, TheVentureCity

To what extent should venture capital incorporate ESG metrics into their investment decisions?

The application of ESG frameworks to venture capital is unclear. Venture capital usually has a fiduciary duty to maximize the returns of the liquidity providers. If they believe that ESG, however defined and applied to their investment process, positively impacts returns, they should incorporate it.

If ESG is important to the mission of LPs, it seems logical that VC investments, at least, should not backfire on these efforts. But this question is more relevant to LPs themselves.

Does the ethics or reputation of another venture capital firm affect your willingness to pursue their investment or co-investment?

Yes, it is an important factor in our decision-making process, particularly in relation to business risk analysis.

What do you think of ethics when collecting and accepting LP funds?

Besides following standard KYC/AML procedures, we have high standards for aligning ethics and values ​​with our LPs. Our liquidity providers are also included on file Anti-Harassment, Non-Discrimination and Diversity Policy.

Is the venture capital industry doing enough for self-censorship? What can be done to remove or strip bad items?

The opacity of venture capital presents significant barriers to the effect of self-censorship. Increased transparency in decision-making processes and capital flows, whether voluntary or mandated by regulation, would help.

How often do founder red flags spoil an investment in a startup that otherwise looks like an attractive investment?

If we are not confident in the credibility and judgment of the founder, we will not invest.

Do you think founders can learn from past mistakes? Would you invest in a company led by someone with a troubled past?

We believe founders are able to learn from their mistakes.

Aside from financial matters, how about a company that forces you to invest?

Because of our focus on initial and seed investment, the financial elements are never the most exciting element for us. We are drawn to mission-critical solutions, with some form of market demand validation, led by founders who have a deep understanding of the customers they serve and the ability to effectively build a great company.

How would you like to receive offers? What is the most important thing a founder should know before they contact you?

We review all incoming requests. The easiest way to send is through Who is this. Founders can learn more about our investment process and strategy over here.

Vital Laptenok, Founder and General Partner, Flyer One Ventures

How does the company’s ability to make a positive social or societal impact influence your investment decisions?

We believe that the goal of technology is to change the world we live in for the better, not the other way around. Unfortunately, this is not always the case – for example, facial recognition technology can be used for both beneficial purposes and passive purposes.

For us, it is critical that a company we consider an investment uses technology for good and [do so] responsibly. That’s why we have so many edtech startups in our portfolio – we believe this industry will be transformed by startups all over the world.

What if the social or societal impact of a startup is likely to be negative?

Technology is first and foremost a tool that can do both good and bad. That’s why we investigate the ethical guidelines of the team of founders very carefully – they ultimately determine the direction of a startup.

If we find out that the founders are willing to compromise on some issues, we will certainly reject the deal.

To what extent should venture capital incorporate ESG metrics into their investment decisions?

The venture capital industry has a huge impact on what our world will be like 10-15 years from now, so we believe the industry should have higher ESG standards than it does today.

After all, the startups backed by today’s VCs will become big companies in seven to ten years, and their products will be used by hundreds of millions of people.

Does the ethics or reputation of another venture capital firm affect your willingness to pursue their investment or co-investment?

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