For a while I’ve been thinking of how to answer this question: Is venture capital too selfish?
My initial reaction is a qualified yes. The world is not short of profit-minded investors who wring out the maximum (financial) value from their investments. But self-interest of this kind isn’t necessarily the same as selfishness, and whatever negative baggage is attached to the latter.
To help answer the question, two stories I heard recently shed light on how some insiders are supporting socially responsible ventures in ways that traditional VC does not.
One is the story of Guayaki Yerba Mate, and the role played by patient capital in achieving their remarkable impact. In particular, ‘mission-aligned growth capital’ from RSF Social Finance allowed Guayaki ‘to grow without requiring a liquidity event such as a company sale or an initial public offering.’
Second, a new initiative called Presumed Abundance confronts the often adversarial nature of investor exits. At the time of the scheduled exit, this program encourages angel investors to plow their investments back into their growing ventures, and use that equity (once it has appreciated in value) to fund the next group of promising new ideas.
This is a unique breed of investor indeed. Though I imagine this is not far off from what angel investors plan to do with their payouts anyway, though working together in this way will build everyone’s experience in building a networked community of interdependent ventures.
I don’t mean to blame investors who don’t come close to these supportive investment models, and who are, in fact, selfish. Some amount of aggressive profit-seeking behavior pushes things forward.
In fact, profit-seeking that actually impedes innovation should not be condemned out of hand. Some selfishness is rooted simply in industry norms. Many traditional investors look for a set of signals – including a physical office and, yes, large financial upside – in order to separate good investments from bad.
But these norms must change over time, and what we need are some well-timed nudges like the ones mentioned here.
