{"id":10309,"date":"2022-01-07T07:23:50","date_gmt":"2022-01-07T06:23:50","guid":{"rendered":"https:\/\/thesmartcityjournal.cibeles.net\/sin-categoria\/esg-is-coming-to-venture-capital-here-s-how-startup-founders-can-stay-ahead-of-the-curve\/"},"modified":"2022-01-06T13:59:41","modified_gmt":"2022-01-06T12:59:41","slug":"esg-is-coming-to-venture-capital-here-s-how-startup-founders-can-stay-ahead-of-the-curve","status":"publish","type":"post","link":"https:\/\/www.thesmartcityjournal.com\/en\/business\/esg-is-coming-to-venture-capital-here-s-how-startup-founders-can-stay-ahead-of-the-curve","title":{"rendered":"ESG is coming to venture capital. Here\u2019s how startup founders can stay ahead of the curve"},"content":{"rendered":"<p class=\"lead\"><em>Venture capital has been a laggard in considering environmental, social and governance aspects when making investments. The tide is now turning.<\/em><\/p>\n<p>If you\u2019re a startup founder who has raised venture capital (VC) funding or is looking to do so, you know that global VC funding hit&nbsp;<a href=\"https:\/\/news.crunchbase.com\/news\/q3-2021-global-venture-capital-report-record-funding-monthly-recap\/\" target=\"_blank\" rel=\"nofollow noopener\">USD 454 billion<\/a>&nbsp;in the first three quarters of 2021, up from USD 332 billion in 2020 over the same period.<\/p>\n<p>What\u2019s interesting is that early-stage funding grew at 104% year-over-year in 2021 to peak at USD 49 billion. VC firms are therefore a critical force in shaping the future of people, planet, and society as they continue to invest in the leading companies and disruptive technologies of the future.<\/p>\n<p>Despite this influence,&nbsp;<a href=\"https:\/\/www.reuters.com\/article\/us-deliveroo-ipo-breakingviews-idUSKBN2BH2D6\" target=\"_blank\" rel=\"nofollow noopener\">Deliveroo&#8217;s disastrous IPO this year<\/a>&nbsp;and a&nbsp;<a href=\"https:\/\/www.amnesty.org.uk\/press-releases\/worlds-top-ten-venture-capital-firms-all-failing-over-human-rights-due-diligence-new\" target=\"_blank\" rel=\"nofollow noopener\">report by Amnesty International<\/a>&nbsp;highlighting the failure of VC firms over human rights due diligence demonstrate that venture capital has been a laggard when it comes to incorporating Environmental, Social and Governance (ESG) considerations in investment processes.<\/p>\n<p>An incessant pursuit of generating outsized returns by focusing on investing, building and, scaling startups that generate rapid growth at all costs, the lack of pressure on VC firms to focus on ESG, and a&nbsp;<a href=\"https:\/\/www.forbes.com\/sites\/elizabethedwards\/2021\/02\/24\/check-your-stats-the-lack-of-diversity-in-venture-capital-is-worse-than-it-looks\/?sh=7999c2da185d\" target=\"_blank\" rel=\"nofollow noopener\">lack of diversity<\/a>&nbsp;are likely reasons for the slow ESG uptake.<\/p>\n<h2 class=\"article-title\">Venture capital can play a key role in shaping the future<\/h2>\n<p>However, several developments over the past 12 months show that the tide is turning:<\/p>\n<ul>\n<li>The launch of&nbsp;<a href=\"https:\/\/www.ventureesg.com\/\" target=\"_blank\" rel=\"nofollow noopener\">VentureESG<\/a>, an initiative to push the VC industry on ESG supported by 250+ VC funds and Limited Partners (LPs),<\/li>\n<li><a href=\"https:\/\/www.unpri.org\/pri-blog\/pri-launches-venture-capital-collaboration-to-strengthen-esg-take-up\/8592.article\" target=\"_blank\" rel=\"nofollow noopener\">PRI\u2019s launch<\/a>&nbsp;of a VC collaboration to improve industry-wide practices,<\/li>\n<li>The&nbsp;<a href=\"https:\/\/www.bloomberg.com\/news\/articles\/2021-05-31\/ex-goldman-s-kathy-matsui-starts-esg-venture-capital-fund\" target=\"_blank\" rel=\"nofollow noopener\">launch of MPower Partners<\/a>, Japan\u2019s first ESG-focused VC fund led by Kathy Mitsui, former vice-chair of Goldman Sachs,<\/li>\n<li>The new heads of sustainability hires at&nbsp;<a href=\"https:\/\/fintechnews.sg\/56712\/funding\/venture-capital-firm-gobi-partners-appoints-paul-ark-as-partner-and-head-of-esg\/\" target=\"_blank\" rel=\"nofollow noopener\">Gobi Partners<\/a>,&nbsp;<a href=\"https:\/\/www.livemint.com\/companies\/news\/early-stage-vc-firm-3one4-capital-appoints-siddarth-pai-as-its-esg-officer-11633444539216.html\" target=\"_blank\" rel=\"nofollow noopener\">3one4capital<\/a>&nbsp;and&nbsp;<a href=\"https:\/\/www.prosus.com\/news\/prosus-and-naspers-appoint-new-global-head-of-sustainability\/\" target=\"_blank\" rel=\"nofollow noopener\">Prosus\/Naspers<\/a>&nbsp;demonstrate the growing importance of ESG in VC.<\/li>\n<\/ul>\n<p>Increasing expectations on ESG integration are now extending to startups and SME businesses. However, there is a gap in the supporting ecosystem of ESG benchmarks relevant to the size of these companies. At Prosus, we set sustainability performance standards at the group level and then work with the companies to identify areas relevant to their business model and operating context.<\/p>\n<p>\u2014<em>Prajna Khanna, Global Head of Sustainability &amp; VP, Prosus Group and Naspers Limited<\/em><\/p>\n<h2 class=\"article-title\">How venture capital can embrace ESG<\/h2>\n<p>So, what can you do as an early-stage startup founder to stay ahead of the curve?<\/p>\n<p>The short answer is \u2013 start small and build your company\u2019s ESG capacity as it grows.<\/p>\n<ol>\n<li><strong> Analyze:&nbsp;<\/strong>In the early stage, as you focus on getting the&nbsp;<a href=\"https:\/\/en.wikipedia.org\/wiki\/Product\/market_fit\" target=\"_blank\" rel=\"nofollow noopener\">product-market <\/a>fit right, you will likely go through multiple iterations both for your product as well as the business model. While speed is key during this process, take product-market fit a step forward\u2014 analyze the second and third-order impacts of your product and any changes in your strategy that may open a whole new world of ESG risks and opportunities. At this stage, it is also important to analyze if the product or service your startup is providing will have a net positive impact on the world. For instance, the value that many tech startups add comes at a great cost to workers\u2019 rights.<\/li>\n<li><strong> Identify:&nbsp;<\/strong>While at the outset your company may not seem very risky from an ESG perspective, any unidentified ESG issue will likely scale as quickly as your startup. Therefore, it is imperative to identify&nbsp;<a href=\"https:\/\/materiality.sasb.org\/materiality.html\" target=\"_blank\" rel=\"nofollow noopener\">material ESG <\/a>issues that&nbsp;can affect your business not only today but also during the scale-up phase.<\/li>\n<\/ol>\n<p>Studying the ESG risks impacting the sector your startup falls in is a good first step. When raising funds, identifying VC firms that can help grow your business while building your ESG capacity is another important step that can have a great payoff in the long term.<\/p>\n<p>\u201cIdentifying sectoral ESG issues early on is crucial to strategize with them in mind. At Wright, a key reason we are building electric aircrafts with 100+ seats is because large aircrafts account for 95% of aviation&#8217;s GHG emissions. Our mission is to lower emissions by building a cleaner solution that customers are demanding.&#8221;<\/p>\n<p>\u2014<em>Jeff Engler, CEO, Wright Electric<\/em><\/p>\n<ol start=\"3\">\n<li><strong> Prioritize:&nbsp;<\/strong>As the founder, your goal must be to lay a strong foundation for building robust ESG processes. Just as you ruthlessly prioritize all potential features and solutions during product development, you must prioritize high value, low complexity ESG issues in your sector as well. (<a href=\"https:\/\/www.prosus.com\/sustainability\/stakeholder-engagement\" target=\"_blank\" rel=\"nofollow noopener\">Here <\/a>are some&nbsp;ideas for priority issues for consumer internet companies).<\/li>\n<\/ol>\n<p>No VC firm will penalize your company for not having figured out everything when it comes to ESG. However, the market, i.e., your customers may penalize you as the startup matures and the reputational risk increases. For instance,&nbsp;<a href=\"https:\/\/www.prnewswire.com\/news-releases\/55-would-spend-more-on-eco-friendly-products-while-willing-to-boycott-less-green-companies-301273018.html\" target=\"_blank\" rel=\"nofollow noopener\">over 50% of Gen Z and millennial consumers<\/a>&nbsp;would boycott a company for not being ecoconscious.<\/p>\n<p>\u201cThe quest for a startup to integrate ESG into its DNA is a marathon, not a sprint. At SkyHive our journey to becoming a leader in impact has taken four years; starting with adopting the standards of a B Corporation and now leading the global dialogue on Ethical AI.\u201d<\/p>\n<p>\u2014<em>Sean Hinton, Founder &amp; CEO, SkyHive Technologies Inc.<\/em><\/p>\n<ol start=\"4\">\n<li><strong> Measure:&nbsp;<\/strong>As Pieter Kemps, Principal at Sequoia Capital says in the video below, what you measure depends on the business stage you\u2019re in. It could be retention rate when you are trying to find product-market fit or monthly active users, as you scale up.Applying the same line of thinking to ESG data, it is important to determine the one to three metrics that matter for the business stage your startup is in. For instance, tech startups could begin by focusing on data privacy and diversity metrics. It is important to note that the chosen me<\/li>\n<li><strong> Communicate<\/strong>: Bring your customers into your sustainability conversation and be transparent about ESG being a work in progress as you grow. Your transparency and relationship with your customers will be your first line of defence if there\u2019s an unintended sustainability issue.<\/li>\n<\/ol>\n<p>Don\u2019t forget about your investors though! Add your ESG value creation story in your investor-focused&nbsp;<a href=\"https:\/\/cdn.shopify.com\/s\/files\/1\/0035\/1309\/0115\/files\/PANGAIA_Impact_Report_2020_Final_1.pdf?v=1617099318\" target=\"_blank\" rel=\"nofollow noopener\">documents<\/a>. If you can share some specific data-linked stories, even better.<\/p>\n<p><strong>Remember<\/strong>: retrofitting a company\u2019s culture to solve for ESG issues is much harder compared to embedding it in the company\u2019s DNA from the beginning. Further, given the VC industry\u2019s increasing focus on ESG, startup founders looking to raise funds must be able to anticipate ESG issues now and as the company scales up in the future!<\/p>\n<p><em>From <\/em><a href=\"weforum.org\" target=\"_blank\" rel=\"nofollow\"><em>weforum<\/em>.org<\/a><em>&nbsp;(<\/em><a href=\"https:\/\/www.weforum.org\/agenda\/authors\/shrinal-sheth\" target=\"_blank\" rel=\"nofollow noopener\"><em><strong>Shrinal Sheth<\/strong><\/em><\/a>,&nbsp;<em>Knowledge Specialist, Investors Industries, World Economic Forum Geneva)<\/em><\/p>\n<p><em>Image: <a href=\"https:\/\/news.crunchbase.com\/news\/q3-2021-global-venture-capital-report-record-funding-monthly-recap\/\" target=\"_blank\" rel=\"nofollow noopener\">https:\/\/news.crunchbase.com\/news\/q3-2021-global-venture-capital-report-record-funding-monthly-recap\/<\/a><\/em><\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Venture capital has been a laggard in considering environmental, social and governance aspects when making investments. The tide is now turning. If you\u2019re a startup founder who has raised venture capital (VC) funding or is looking to do so, you know that global VC funding hit&nbsp;USD 454 billion&nbsp;in the first three quarters of 2021, up\u2026<\/p>\n","protected":false},"author":2,"featured_media":10308,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_scj_primary_category_id":128,"_scj_featured":true,"_scj_featured_from":"","_scj_featured_until":"","_scj_featured_order":843,"_scj_visibility_class":"current","_scj_layout_family":"standard","_scj_article_style":"","_scj_display_overrides":[],"_scj_intro_image_id":10308,"_scj_intro_alt":"ESG is coming to venture capital. Here\u2019s how startup founders can stay ahead of the curve","_scj_intro_caption":"","_scj_intro_class":"","_scj_intro_float":"","_scj_full_image_id":10308,"_scj_full_alt":"ESG is coming to venture capital. Here\u2019s how startup founders can stay ahead of the curve","_scj_full_caption":"","_scj_full_class":"","_scj_full_float":"","_scj_media_type":"","_scj_media_provider":"","_scj_media_external_id":"","_scj_media_url":"","_scj_media_poster_id":0,"_scj_media_width":0,"_scj_media_height":0,"_scj_media_aspect_ratio":"","_scj_media_description":"","_scj_gallery_items":[],"_scj_related_post_ids":[],"_scj_additional_authors":[],"scj_layout_family":"standard","scj_media_provider":"","scj_media_url":"","scj_full_caption":"","footnotes":""},"categories":[128],"tags":[],"class_list":["post-10309","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v28.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>ESG is coming to venture capital. 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