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Accepted Contribution:
Measuring impact well – how venture capital investors are discovering ESG metrics and ‘becoming professional’
Johannes Lenhard
(University of Cambridge)
Contribution short abstract:
Venture capital is a young and mostly unprofessionalized industry; the recent advent of ESG lead these startup investors to being audited for the first time. Unlike in other industries, the arrival of metrics seems to be leading to an overturning of long self-reproducing power structures, however.
Contribution long abstract:
Venture capital investors – equity investors in technology startup companies – are part of a young and still mostly unprofessionalised industry. Small partnership and gut-driven investment decision making are still the norm – and audit culture and responsibility pushed to the sidelines. Until very recently, that is, when the techlash movement caught the most well-known companies built on VC investment from Facebook, Twitter and Google to Uber and AirBnB; with the critique of big tech started also more scrutiny of the investors from the side of the entrepreneurs but also the VCs’ investors (the limited partners).
Enter the wave of ESG (environment, social, governance) principles and stakeholder capitalism in 2019. Slowly, more and more VC funds are jumping on the bandwagon of ‘doing investment better’ with ESG frameworks, impact measurement and specialised metrics for early stage companies. Based on ongoing fieldwork in London with a group of venture capital investors, I want to observe how a culture of (specific) metrics arrives for the first time in the VC industry and what the effects this new system has.
Counter to other contexts, many of the newly implemented ESG metrics – e.g. around increasing diversity and inclusion, fair treatment of employees or environmental impact – are turning power structures for VCs upside down. Making investors report data for the first time seems to be leading to more pressure to ‘be good’ across various vectors. How much of it is window dressing will have to be seen.