Values-based Investing in Venture Capital: The Founder Perspective

Friday 26th March, 2021

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

So what does Values-based Investing mean for founders who are focussed on social impact? There is a spectrum of possibilities for founders, which ranges from simply avoiding activities which could have negative social impacts to specifically targeting positive impacts.   Towards the more “positive end” of the spectrum would be the company applying for the B Corporation Certification, which companies in the UK have been able to apply for since 2015 (further details found here).

The B Corporation Certification is awarded to companies that meet certain social and environmental standards, which are measured by reference to the following factors: governance, environment, community, customers and workers.  There are now over 3,000 companies globally which are certified a B Corporation (or B Corp).

A B Corp is required to include, in its articles of association, an objects clause stating that the company is committed to having a material positive impact on society and the environment, as well as realising a return for investors.  As such, B Corps are legally required to consider their social and environmental impact.

Some investors may be (and historically, have been) cautious of this objects clause, which could be seen to create barriers to financial returns (by removing an element of flexibility).  That said, many investors are becoming more and more comfortable with this concept.

Whilst becoming a B Corp is clearly one way of indicating that a company has social aims at its core, it is not (at least not for all investors) a pre-requisite for securing impact investment.

For those companies looking for impact investment, a key priority is for founders to demonstrate that they have a detailed and in-depth understanding of the social / environmental problem they are trying to solve and how to solve it. The positive impact that they are seeking must be clearly defined, achievable and regularly considered by the Board.  Impact investors will often ask companies to set out detailed “impact” targets (as well as measurement criteria for achieving those targets) and to report on their achievements, clearly communicating to investors that they are proactively taking steps to achieve their own specific positive impact (see Part 2 in this series where we talk to Melanie Hayes of Bethnal Green Ventures (BGV), a tech for good VC firm, about what BGV looks for in a founder by clicking here.)

We spoke to Matt Latham, co-Founder of Tickr, a B Corp which promotes sensible, sustainable and inclusive investing. Here is what he had to say about impact investing today:

“In recent years (and most recently in light of Covid), the mood around impact investing has changed. B Corp status is becoming increasingly recognised in the VC market and means we are instantly recognised for trying to do good. This status sets a rigorous high threshold enabling us to hold ourselves accountable and measure ourselves against our social goal.  For businesses looking for impact investment, generally, it is vital that their desired impact is not an excuse; it must be inherent within the business, which must itself be fundable and provide a return, providing a product or service that people actually want (and to the standard that people expect).”

To conclude this three-part series, it is impossible to ignore the rise of “values-based” investing and the growing number of companies and investors which have a social and environmental conscience.  For companies who have social values at their core, it is clear that the investment opportunities are there (and likely increasing), with VCs committing to investing in those companies which aim to “do good” socially as well as financially.  Whilst it’s impossible to deny that strong finances remain a firm and vital factor in the decision to invest, it seems that at least for some investors, it’s not all about the money after all.

 

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.