Measuring the Impact of Mission-Driven VCs
May 15, 2014
Betable’s Stefano Bernardi published an excellent post last month on the rise of the thematic VC: firms that focus their investments on a specific vertical, such as education or finance. We discussed whether thematic VCs were the same as mission-driven or “point of view” VCs, and decided they were not. So this post is about mission-driven VCs.
Mission-driven VCs raise money by leading with an internal thesis about the world and how they are going to support that thesis through investments made from their fund.
Some of these missions are about the rise of new industries, such as the streamlining day-to-day life (Science) or the bottom-up economy (Homebrew); others are about good governance (Catamount Ventures) or social impact (Kapor Capital).
The difference between these and other types of VCs is that in addition to generating financial returns to their LPs, these VCs deploy capital to support an internal point of view.
I’m drawn to mission-driven VCs because I think they represent well the true potential of venture capital: an asset class for making unproven, risky bets on the future. Over time venture capital has become more associated with risky bets that have the potential to generate unusually high financial returns, but mission-driven VCs expand that definition to include socially risky bets as well.
A benefit of being a mission-driven VC is that having a strong thesis can make it easier to market the fund to LPs and founders. Collaborative Fund, for example, a fund focused on the shared future, has LPs from Jessica Jackley (Kiva) to Shepard Fairey (OBEY). Although a narrower focus may mean saying no to a lot of deals, assuming there is enough demand for the focus area, it can also increase the VC’s chance of getting into a good deal when the fit is right.
On the other hand, it’s very difficult to measure the non-financial impact of these funds. The VC may have had good returns with the companies it invested in, but is that a sign that the collaborative economy really is the future, or did they just do a good job at picking winners from a smaller pool? Does the existence of a VC specializing in powering the collaborative economy help enable that vision to be realized, or would those portfolio companies have simply gotten money from other, traditional sources?
One area where mission-driven VCs can indisputably make an impact is redefining the relationship between founders and investors. Maybe it doesn’t matter where bottom-up economy companies get their money, but a company that never wants to exit will have a hard time finding investors who share that vision. Or companies that are trying to become more like profitable small businesses instead of having to pretend that their $100M company is going to be a $1B company. Or companies with young founders, female founders, or international founders, who don’t fit the stereotype of success for most potential investors.
In some ways, focusing on these types of social impact best leverages a VC’s position and expertise. They are in a unique position to change the game for founders, to steer the tastes of investors one way or another. I’d love to see more VCs articulating theses about founders themselves and creating funds around them.