Lead! Setting the right example.

While this is the smallest lever, it is nonetheless crucial to set the right example – for your investment targets, your portfolio companies, and of course, also your employees. So, what are the key topics you need to consider day-to-day?

This chapter covers the basics across environmental, social, and governance issues that are directly linked to your everyday work.

Social sustainability is about understanding and managing the business impacts on people and society – i.e., the impacts of processes, products, and activities on employees, customers, local communities and also workers in the value chain. 

Usually, these include topics such as human rights, working conditions, employee health & safety, social equity and diversity, product responsibility, and many more. Although some of these issues are not easily quantifiable, the material issues to each company are relatively easy to identify. 

For almost all VCs, the material social issue (in regards to your daily operations) will be social equity and diversity, above all. Across the globe, the venture capital industry is staggeringly homogeneous. As it is a very topical issue at the moment, we devote a little more attention to it.

Why care about diversity?

Various studies show diverse teams produce better results. As an HBR article writes, in the venture capital context, diverse teams are better equipped to help young companies succeed as thriving in a highly competitive and uncertain environment requires creative thinking.

The hidden hurdle to greater diversity – unconscious bias

Changing the course towards greater diversity will take time. As most VC teams are small and fluctuation rates are low, each hiring decision has a great and long-lasting impact, and, unfortunately, reinforces the homogeneity if there is no clear course of action.

While hiring is the most evident, and clear step to take, eliminating bias, especially unconscious bias, is a much bigger hurdle.

Everyone of us is inherently biased. We are biased towards similarity (in terms of education or work experience), locality, gender, and tend to “anchor” (focusing too heavily on one aspect if that one aspect has failed us in the past).

But similarity to yourself has nothing to do with another person’s entrepreneurial prowess.

What now? 

Most likely you have already taken some steps to increase (gender) diversity.
Realizing you are biased, even unconsciously, however, is the most important one. Only then you will take the right actions to install more objective decision-making.

Here are the key steps towards greater diversity – in your team and for your investment decisions: 

• Clear and communicated commitment from the top that diversity is a priority
• Set goals to increase diversity (at least in terms of gender) internally and among your portfolio company leadership teams
• Manage the talent pipeline: Adjust your recruiting practices to reduce bias in recruitment processes and hiring decisions (e.g. through AI-based recruiting tools or gender targets for each application pool)
• Create a welcoming and inclusive culture for a diverse workforce
  • Increase awareness on unconscious bias through trainings and workshops
  • Develop flexible work policies, i.e. around work hours, home office, child care benefits, etc. to make the workplace attractive for parents
• Allow for a more unbiased investment screening process: Think about ditching the pitch, introducing female founders quota for each investment meeting or allocating pools of money explicitly by gender.

Implementing sustainability across a business, tracking performance and progress, and ensuring regular and transparent reporting needs stringent governance. A VC is only a small business, so with only a few and simple measures you can install sound governance: