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The Evolution of Sustainable Investments and Finance pp 211–249Cite as

Palgrave Macmillan

Venture Capital and Responsible Investing: Progress, Problems and Perspectives

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Abstract

This chapter aims to investigate the link between venture financing and socially responsible investing. Over the past few decades, it has been widely recognised that venture capital (VC) firms are able to create value for their investors (e.g. Gompers et al. 2008; Megginson et al. 2019). However, these skills seem to be no longer sufficient to drive further expansion of the industry, and VC firms are going to be facing some new and important challenges in the coming years. Accordingly, numerous limited partners (LPs) of VC funds around the world are now looking at ESG goals as a priority. Of course, behind this radical change in VC firms’ investment philosophy lies more than just philanthropy: there is also a belief that ESG criteria might help them “do good while doing well”. Against this backdrop, we focus on the key characteristics of VC investments and the degree of implementation of ESG criteria within the VC industry. Second, it discusses how ESG compliance might help VC firms to raise funds, select and build successful firms and facilitate their divestments. Finally, the chapter enquires into the characteristics and perspectives of the social VC and the gender gap in entrepreneurship and the VC industry.

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Notes

  1. 1.

    Don Valentine, founder of Sequoia Capital, one of the most successful US VC firms, provided an in-depth explanation, during an inspiring speech given at Stanford University, of the main criteria used to target firms. Among the points made was this: “I hammered out this more intuitive investment selection process based on huge markets and solutions that made a significant short-term commercial sense. Six hundred investments, thirty-odd years later, we’re still using basically the same selection criteria in choosing companies that have huge, huge markets. It turns out it’s much easier to build a new startup company in an environment where the markets are large than it is to try to develop a market based on some technology for which there’s not an obvious solution. And that’s been sort of the approach we’ve continued with which I stared somewhere about 1967 or so.” The full speech can be found on YouTube: https://www.youtube.com/watch?v=nKN-abRJMEw.

  2. 2.

    “Obvious Ventures aims to surpass impact investing model”. Wall Street Journal, March 18, 2019.

  3. 3.

    We investigate this issue more thoroughly in Sect. 5.6.

  4. 4.

    One famous example is the “Tay” chatbot launched by Microsoft to connect with millennials, but which started tweeting racist and anti-feminist comments.

  5. 5.

    The EIF VC Survey 2019 is “a survey among VC general partner (GP)/management companies headquartered in the EU27, the UK and other European countries”.

  6. 6.

    This set of rules is part of a legislative package proposed by the European Commission to encourage sustainable investment within the EU financial system.

  7. 7.

    PRI (2015), “The Limited Partners’ Responsible Investment Due Diligence Questionnaire”.

  8. 8.

    The term “social VC” is often used as a synonym for “impact VC”, while many academics and practitioners consider green VC to be a subset of social VC. For example, Randjelovic et al. (2003) define green VC as “financial capital provision invested in high-risk environment-oriented ventures, which offers the possibility of ecologically sound business practices, as well as significant gains to compensate for the risks involved in such investments” (p. 251).

  9. 9.

    For further information, see Maas and Liket (2011).

  10. 10.

    For this reason, the National Venture Capital Association (NVCA) (2014), the largest VC industry organisation in the US, formed a task force to promote greater inclusion of women in both VC firms and investee companies.

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  1. Department of Economics, University of Campania Luigi Vanvitelli, Capua, Italy

    Antonio Meles

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Meles, A. (2021). Venture Capital and Responsible Investing: Progress, Problems and Perspectives. In: The Evolution of Sustainable Investments and Finance. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-70350-9_5

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