6 min read
Follow the money: the rise of Conscious Capital and founder due diligence
If 2018 was dominated by the “techlash”, 2019 is due to deal with the fallout. Despite the tech industry branding itself as responsible and progressive, it’s clearly waking up to the fact that the general public will no longer accept poor governance masquerading as naive exuberance to “disrupt”, even if you are wearing Air Max.
2019 is looking increasingly like tech’s year of founder due diligence. It doesn’t sound sexy, but with the discerning media spotlight on tech unlikely to shift any time soon, it might be worth getting ahead of the game. First came grey-area employment loopholes, then opaque and questionable data-sharing practices. For 2019, it’s time to follow the money; who’s funding the funds that fund the startups?
At the end of last year Fred Wilson, Partner at Union Square Ventures (USV), published a blog explaining that a CEO of one of their portfolio companies had got in contact enquiring about the origins of the investment capital in USV’s fund. While this was their first request of its kind, it was one long anticipated, and what they believe will be the first of many. A lot’s been said about the upward trend of impact investing – choosing where to invest money based on ‘blended value’ of social impact and financial returns – but less about founders screening investors’ ethical credentials, turning the tables on investor due diligence. It looks like that’s changing.
After Patriot Act with Hasan Minhaj – Netflix’s answer to US satirical late-night shows – spent half an hour detailing Saudi Arabia’s interests in Softbank’s $100bn Vision Fund, alongside their part in the Yemen conflict and the death of journalist Jamal Khashoggi, people started looking again at the Japanese bank’s mega-investment rounds. In the last couple of years, these have included almost $19bn to Uber, NVIDIA and WeWork alone.
And as Malcolm Ferguson, Principal at Octopus Ventures told us, “reputation is key for an investor, something which takes a lifetime to build, but only a moment to lose.”
If it’s not founders’ own peace of mind that sparks them to ask questions of their incumbent and prospective investors, their stakeholders may well force their hand. Consumers have got used to enquiring after Fairtrade coffee, looking for FSC logos on notebooks and researching sustainable sources of fish, but transparency of digital consumption has yet to receive the same industry advocacy treatment. There’s no digital sticker to mark out mindfully-invested tech companies, but it may soon become a commercial imperative to ensure customers have suitable answers on investment origin.
The effectiveness of an ethical consumer fad should not be underestimated. If David Attenborough can sink the multi-billion-dollar plastic straw industry with a stern telling off from a Blue Planet II beach, there’s no telling what public outrage will come for next.
For many tech companies, their customers now also have skin in the game. Crowdfunding has created a whole new breed of stakeholder, at once irreplaceable brand ambassadors, and emotionally-involved investors, willing to hold power to account. In their last funding round alone, Monzo created 35,972 new punters with special bank cards and special interest.
Asked about the importance of sustainably funding the future, Matthew Jones, Principal at Anthemis also suggested that it is people, at every level, who are the key to responsible investing. “Conscious investing goes beyond just the source of capital. For us, it’s about bringing together diverse teams, diverse perspectives and insights to build a digitally native future. At Anthemis, our DNA is based on having an investing team that don’t necessarily have traditional financial services backgrounds, investing and nurturing diverse founding teams to really bring value to the customers they serve.”
With talent at such a premium in the tech industry, tech workers are increasingly choosing where they work based on many more factors than just salaries and share options. Whether it’s benefits packages, company culture or ethical practices and good governance, tech workforces are increasingly driven by the impact of their work, and that of their employers. They are unafraid to ask hard questions, and act on the answers. When workers walked out of seven global Google offices in November to protest claims of sexual harassment, it sparked headlines around the world.
While the vast majority of the tech industry was personally untouched by 2018’s techlash of public anti-Valley giant sentiment, there’s good reason to believe they’ll be tarred with the same brush if complacent. When the #GoogleWalkout workers set their sights on the industry rather than the company, with banners such as “Time’s Up Tech”, it suggested a larger social and industrial trend, rather than exasperation at one enterprise. That makes every company to a greater or lesser extent responsible for fixing the problems, and the next one looks set to be villainous venture capital. Like it or not, tech is as strong as its least considerate link. While entrepreneurs are a time-poor, innovative bunch, the handy shortcut of asking forgiveness rather than permission looks like it will no longer quite cut it.
Whether it’s understanding where certain nations’ sovereign wealth funds are spending their cash, or making a judgement on taking money from interests in munitions, petrochemicals or anything else that would be left out of an Impact Investing ETF, it can’t hurt to have oversight, to avoid oversights. Just as “smart money” is valued over any old dosh, Conscious Capital should be considered over investment you wouldn’t want to tell your Mum about. After all, all funds are equal, but some funds are more equal than others.