6 Investors share where they draw the line when it comes to potential ethics issues

The venture capital industry doesn’t have the best track record when you’re talking about ethics.
Like most professions involving power and wealth, venture capital also sometimes attracts people for whom doing the right thing isn’t a concern. And limited regulatory oversight and a lack of transparency mean that investors can often get off scot free for not factoring ethics into their investment philosophy.
We’ve all seen startups happily taking money from investors who back companies that have a negative impact on the climate, or broadcast misogynistic rhetoric. Sometimes, we also get venture firms raising capital from foreign governments that don’t have the best track records surrounding issues like human rights.
But not every investor is a bad person, of course, and it seems as though the industry is taking steps to clean up its act — albeit slowly. Startups and investors are increasingly paying attention to what kind of people they want to work with and where they want their money to come from. Investors also looking for startups that won’t just make them money, but have the potential to leave society and the planet in a better place.
To find out just how ethical venture capital is at the moment and how far it can still go, ZebethMedia surveyed six investors about how they approach ethics in their day-to-day. And we’re happy to report that all of them said the industry doesn’t do enough to police itself on issues surrounding ethics. They also wanted more to be done to make the industry fairer and better.

We’re widening our lens, looking for more investors to participate in ZebethMedia surveys, where we poll top professionals about challenges in their industry.
If you’re an investor and would like to participate in future surveys, fill out this form.

Several investors said that having more transparency in the industry would help alleviate some of the ethical problems that continue to flourish, like bad actors being given seemingly endless chances and firms covering up questionable practices.
“Venture capital’s opacity presents significant barriers to effect self-policing,” Geri Kirilova, a partner at Laconia Capital, said. “Greater transparency in decision-making processes and capital flows, whether it’s voluntary or mandated by regulation, would help.”
Logan Allin, founder and managing partner at Fin Capital, agreed. He said that it would be nice to see some consequences and accountability from industry organizations like National Venture Capital Association (NVCA) or government entities like the SEC to help stop such issues from being repeated often.
But without regulation, many firms are taking matters into their own hands. While they can’t be responsible for fixing the industry on their own, they are personally keeping ethics top of mind as they invest and raise capital.
To get a feel for how some players approach different ethical issues, we surveyed:

Geri Kirilova, managing partner, Lacovia
Vital Laptenok, founder & GP, Flyer One Ventures
Logan Allin, managing partner, Fin Capital
Check Warner, co-founder and partner, Ada Ventures
Laura González-Estéfani, founder and CEO, TheVentureCity
Soraya Darabi, co-founder and general partner, TMV

Geri Kirilova, managing partner, Lacovia
How much does a company’s potential to create positive social or societal impact influence your investment decisions? What if the impact of a startup could be negative?
Negative externalities, particularly detrimental social and environmental effects, are often deal-breakers for us. We are particularly averse to companies that exacerbate human exploitation, social and economic inequality (ironic coming from a VC, I know), and environmental harm.

Capital is never enough to make a business or relationship successful. Laura González-Estéfani, founder and CEO, TheVentureCity

How much should VC incorporate ESG metrics in their investment decisions?
The application of ESG frameworks to VC is hazy. VCs typically have a fiduciary duty to maximize returns for their LPs. If they believe ESG, however it is defined and applied to their investment process, positively impacts returns, they should incorporate it.
If ESG matters to a LPs’ mission, it seems logical that the VC’s investments, at minimum, should not be counterproductive to these efforts. But this question is better suited to the LPs themselves.
Do the ethics or reputation of another VC firm have an impact on your willingness to follow on their investment or co-invest?
Yes, they are a factor in our decision-making process, particularly regarding our risk analysis of the business.
How do you think about ethics when raising and accepting LP money?
Beyond following standard KYC/AML procedures, we have a high bar for alignment of ethics and values with our LPs. Our LPs are also included in our anti-harassment, non-discrimination, and diversity policy.
Does the venture capital industry do enough to self-police? What could be done to remove or deplatform bad actors?
Venture capital’s opacity presents significant barriers to effect self-policing. Greater transparency in decision-making processes and capital flows, whether it’s voluntary or mandated by regulation, would help.
How often do founder-related red flags scuttle an investment in a startup that otherwise appears to be an attractive investment?
If we are not confident in a founder’s trustworthiness and judgment, we will not invest.
Do you believe that founders can learn from past mistakes? Would you invest in a company led by someone with a troubled past?
We do believe founders are capable of learning from their mistakes.
Beyond the financials, what about a company compels you to invest?
Given our pre-seed and seed investment focus, the financials are never the most exciting element for us. We are drawn to mission-critical solutions, with some form of market demand validation, led by founders who have a deep understanding of the customers they’re serving and the ability to effectively build a big company.
How do you prefer to receive pitches? What’s the most important thing a founder should know before they get on a call with you?
We review all inbound submissions. The easiest way to submit is through this form. Founders can learn more about our investment process and strategy here.
Vital Laptenok, founder and general partner, Flyer One Ventures
How much does a company’s potential to create positive social or societal impact influence your investment decisions?
We believe that technology should be intended to change the world we live in for the better, not the other way around. Unfortunately, this is not always the case — for instance, facial recognition technology can be used both for beneficial purposes and for negative ones.
For us, it is crucial that the company we consider as an investment use the technology for good and [do so] responsibly. That is why we have a large number of edtech startups in our portfolio — we believe this industry will be transformed by startups all over the world.
What if the social or societal impact of a startup has the potential to be negative?
Technology is first and foremost a tool that can do both good and harm. That’s why we investigate the moral guidelines of the founders’ team very carefully — it ultimately determines the startup’s direction.
If we figure out that the founders are willing to compromise on some issues, we will definitely turn down the deal.
How much should VC incorporate ESG metrics in their investment decisions?
The VC industry has a huge impact on what our world will be like 10-15 years from now, so we think the industry should have higher ESG standards than it does today.
After all, startups that are supported by VCs today will be big corporations in seven to ten years, and their products will be used by hundreds of millions of people.
Do the ethics or reputation of another VC firm have an impact on your willingness to follow on their investment or co-invest?

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