Venture capital (VC) funding is booming, and it has been since 2012. Yet it is not without its problems – it has often received criticism for its excessive investment in companies that failed to solve real issues.
These critiques of venture capitalists are valid but paint an incomplete picture of VCs. Since the beginning, VCs have quietly spent millions on serious businesses trying to save the world from environmental and social collapse. Many companies now seek to meet the “triple bottom line,” referring to measuring not only a company’s profits, but also its social and environment impact.
The entry of such term into the corporate vocabulary is the result of environmentalists and social justice advocates calling for companies to measure their social and environmental impact; companies are beginning to take this call to heart.
Entrepreneurs have done incredible work to take ideas about how corporations can be a force for good and turn them into action to change the world. They are showing that it is, in fact, possible to “do well by doing good.” And they’re revolutionizing the world of venture capital.
VCs Fuel the World for Positive Change
When everyone wanted to invest in companies delivering food or providing on-demand car rides, some passionate VCs were silently investing in startups and organizations promoting positive social or environmental change. Increasingly, realizing financial returns plus social good is an equation that adds up. Harnessing this power of investment, startups on a social mission could finally succeed.
Investing in sustainability-focused startups served well for LA-based CrossCut Ventures. After the returns in their first Fund, CrossCut saw three times investment for the second fund. Why? Because the market now demands and reward sustainability-focused companies.
Village Capital, too, has had enormous success with this type of investment model. In 2013, Village Capital won the McKinsey/Havard Business Review’s M-Prize for innovation because of its unique model, showing how other VCs can empower entrepreneurs, too. To date, 40% of the companies Village Capital has funded have been led by women, compared to an industry average of 5%; 20% has gone to people of color, compared to a measly 1% average of all such investment. These shifts alone start to have an incredible effect on entrepreneurship.
Not content to rest on their laurels, in 2014 Village Capital established VilCap Investments. VilCap Investments is an affiliated but independent, for-profit investment fund that invests in people and industries looking at problems in energy, water, health, education, and other areas to improve society.
Money talks, and it is saying good things about these types of investment funds. When VilCap Investments set a goal of raising $15 million, investors were so excited that it ended up raising $2.7 million more than that goal.
Social energy is another glowing testament to the power of VCs investing in companies that are changing the world. Investing in solar energy has proven not only to be a good move for the planet, but also a good move for the pocketbook. In many American cities, solar energy is a better investment than the stock market. By 2025, the solar energy industry is expected to be worth $3.7 trillion.
SolarCity is a strong statement on the power of investing for good. In 2007, when the co-founders of SolarCity and business magnate Elon Musk were raising money for their solar energy startup, they received money from a fund managed by JPMorganChase. Today, SolarCity is building the largest solar plant in the U.S., expected to be the largest in the western hemisphere. They now offer solar bonds, allowing anyone to invest in the growth of solar energy. SolarCity would not have been able to accomplish this without VCs putting money into Cleantech; a risky bet in 2007.
So, if not now, when?
Sure, it is easy to see the financial returns from investing in a service delivering cookies to your office or an app pointing you in the direction of the best bar in town, but the world is opening its eyes and demanding more. Demanding companies begin to invest in solving the complex societal issues facing our world.
Image Credit: CC by Alan Levine
