Values-based Investing in Venture Capital: The Market

Thursday 14th January, 2021

This piece by our very own Lindsey Armstrong is the first in a three-part series on values-based investing in the VC market. This article on The Market will be followed by analysis on the Investor Perspective and the Founder Perspective.

The Landscape

There once was a time when consumers, founders and investors only cared about financial returns. Whilst no doubt this remains the priority (or at least a priority), wider environmental and social concerns are today increasingly difficult to ignore for those operating in the VC world (in our view, rightly so).

Tackling social issues has always been at the forefront for not-for-profit entities, charities and the “third sector”, but historically these issues have not been a key concern of the business world.  The last two decades have seen Social Enterprises start to bridge the gap between “doing good” and generating profits.

At the same time, many businesses have embraced Corporate Social Responsibility (CSR) by engaging in or supporting volunteering or ethically oriented practices and some have taken a step further and begun implementing Environmental, Social and Governance (ESG) policies. These policies set out environmental, social and governance factors (the clue is in the name!) that the company should consider when carrying out their day to day operations.

A further fundamental development in this arena came in 2015, when the UN set out a collection of 17 interlinked Sustainable Development Goals (SDG) addressing global challenges, such as poverty, inequality, climate change and the environment (find out more here) and identified such goals as “the blueprint to achieve a better and more sustainable future for all”.  The intention was to achieve these goals by 2030.

So where does the VC market sit with CSR, ESG and SDG?

Whilst 2030 may be an optimistic target for many global companies, we have seen the VC market move nimbly into this space. Investment Funds with investment criteria that include sustainable goals have been on the rise and we have seen the next generation of Founders come to the fore by founding businesses, the core aim of which is to have a positive social impact.

Companies and investors alike are coming under more and more scrutiny from (largely) the younger generations of consumers who have grown up in a world which is increasingly conscious of issues surrounding the environment, sustainability and social justice.  In addition, there appears to have been a spike in the number of founders who are passionate about starting businesses that have social and environmental aims at their core.

Against this backdrop, we are now seeing growing numbers of Investors adopting a policy of Impact Investing, backing companies that can generate a measurable, beneficial social or environmental impact alongside a financial return.

Whilst there is still a long way to go, now, more than ever, there is an alignment between financial growth, being the fundamental purpose of the venture world, and its desire to create a positive impact and, ultimately, to improve lives. Look out for the subsequent instalments of this series, which will cover Values-based Investing in Venture Capital: The Investor Perspective and 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.