Values-based Investing in Venture Capital: The Investor Perspective

Thursday 28th January, 2021

Lindsey Armstrong is taking us through the developments in values-based investing in the VC market. In this article she looks at The Investor Perspective. Catch up on the first instalment of “Values-based Investing in Venture Capital: The Market” by clicking here.

Whilst some investors may have initially been concerned that a focus on Environmental, Social and Governance (ESG) considerations would have a negative impact on a company’s financial position, it is now broadly accepted that there is a positive link between ESG and (i) increased financial returns; and (ii) reduced exposure to reputational damage.

With the rise in the number of “socially conscious” consumers and companies, it is difficult for investors to avoid the question of whether a financial return really is (or should be) the sole aim of investee companies. Whilst the approaches taken by investors are varied across markets and sectors, certain VCs have taken it upon themselves to take positive action and adjust their investment strategies to align with Responsible Investing or Impact Investing, focussing their sights on those companies which are “doing good” socially as well as financially.

Responsible Investing refers to the decision-making processes implemented by investors (rather than companies), the key aim of which is to side-step investments in companies which either (i) do not adhere to the investor’s social and/or ethical guidelines or (ii) have (or may have) a negative impact on the environment and/or society.

Impact Investing is defined by the Global Impact Investing Network (GIIN) as “investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return”.  It goes a step further than Responsible Investing (which is generally regarded as more of a negative screening process) and indicates that investors are proactively seeking to invest in companies whose core values are to generate social and/or environmental impact (alongside financial return).

A great example of a thriving impact investor is Bethnal Green Ventures (BGV), a “tech for good” VC fund. It prides itself in investing in founders who aim to use technology to tackle social and environmental problems.  We spoke to Melanie Hayes, Managing Partner and Investment Director at BGV, and asked her what BGV looks for in founders when deciding whether a business proposal fits with its ambition to use tech for good. Here is what she had to say:

Intentionality is at the core of what we look for in investee companies. The intention of the founders must be to use technology in a scalable and innovative way to address an identified problem, with the aim of improving the lives of millions of people. The nature of that problem must be thoroughly understood by the founders, who must be flexible as to how best to approach their proposed solution. The solution must have the potential to allow the business to grow exponentially with intrinsic social or environmental impact.”

Look out for the third and final Instalment of this series, which will cover Values-based Investing in Venture Capital: The Founder Perspective.

 

This article is current as of the date of its publication. The information and any commentary contained in this article is for general information purposes only and does not constitute legal or any other type of professional advice.  Marriott Harrison LLP does not accept and, to the extent permitted by law, excludes liability to any person for any loss which may arise from relying upon or otherwise using the information contained in this article.

Articles by Lindsey Armstrong