Why venture capital funds need to develop a social conscience

When will VCs catch up with brands and prioritise purpose? When consumers demand it, argues Kelli Lane Macdonald

For brands, having a clear purpose is finally a necessity. Brands are spending more time, money and effort defining and living out their purpose today than ever before. Unfortunately, this is all wasted if the venture capitalists funding these brands don’t share the same values.

Most VCs don’t think about purpose or values. Their attention is predominantly on investment strategy. The brands they are investing in, however, are living in a world with a clear mandate from consumers that what they stand for, and how they act, matters. More than 67pc of Gen Z have stopped purchasing or would consider doing so if the brand stood for something or behaved in a way that didn’t align to their values. With Gen Z expected to account for 40pc of all consumers by next year, this demographic has tremendous power.

New-to-the-world brands today found their white space by focusing on the consumers, driving community and participation, acting in service of both shareholders and stakeholders. The lifeblood of many of these upstarts is VC funding. Funding that allows consumers to “play for free” or “access anywhere”. We, as consumers, are all benefiting from subsidies of VC funding and yet rarely do we ask about the values of the funders. We only focus on the values of the brand.

Luxury-fitness company SoulCycle recently lived this paradox. Its owner, Stephen Ross, threw a $250,000-a-seat fundraising lunch for President Trump in August. This got an anguished response from his company, as they have spent 13 years “building a community based on diversity, inclusion, acceptance and love”. Not words one would associate with President Trump’s platform. Prior to this event, SoulCycle had one of the most loyal, dedicated, vocal consumer communities. These “Soul Riders” are part of a “cult of success”. But when this news broke, there was an uproar. Class attendance fell 12.8pc over the next 10 days, which at $36 per class, equates to a loss of $478,000 in revenue. This boycott campaign placed SoulCycle (and parent company Equinox) on the blacklist of brands compiled by GrabYourWallet, the anti-Trump movement encouraging consumers to influence companies with their buying power.

‘It’s high time that VCs prioritise a shared value system in the same way that brands do.’

When investors’ values do not align with a brand’s purpose it can be potentially devastating. It’s high time that VCs prioritise a shared value system in the same way that brands do. Venture capital social conscience is a coming issue. Investors and backers must be more transparent and adopt the same level of consumer awareness and reputational care as the brands they fund. The success of their investments depends on it.

>See also: UK venture capital produces similar returns to that of US

Until they do, consumers will need to do their homework, and not just in relation to where their spending their salary and sharing their data. Before consumers download the latest app, enjoy the convenience of that new service, or try out the hottest new product, they need to educate themselves about that company, how it is being funded and by whom. They should always be asking themselves, do the values of this brand – and the people behind it, the people profiting from it – align with mine?

My hope is this latest round of boycott scandals will prompt more brands to hold their investors accountable. That this cultural tension point will prompt more VCs to define, and act on, their own set of values. That consumers will channel the power they have generated with brands towards VCs as well. Venture capital must develop social conscience.

Brands have been having the purpose and values conversation for years. It’s time for VCs to catch up.

Kelli Lane Macdonald is managing director of New York-based brand transformation agency co: Collective

Further reading on venture capital

Europe raises record-breaking €10.6bn of venture capital in first half 2019


Kelli Lane Macdonald

Kelli Lane Macdonald is managing director of New York-based brand transformation agency co: Collective.

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