If you’re attuned to the venture capital industry, you’ll notice that investments are markedly increasing across the world. According to data from Refinitiv, around $251 billion was invested in new ventures globally in 2020. In 2021, that figure rocketed up to a record high of nearly $270 billion.
With this increase comes an emerging global focus. Unicorn deals have grown more frequent, with companies outside the US often garnering the most attention. What’s more, it’s never been easier to find startups abroad with databases such as Crunchbase and AngelList responding to real-time company updates and presenting exhaustive sets of information that teams can use.
Regardless, to keep up with that global profile and form the very best investment strategies, VC needs to have an ethical code that can extend to global partners.
Ethical investing will help us set a fair standard when working with global partners. First, it will give VC funds a tangible sense of responsibility for how they act in the marketplace. After all, best practices help us decide what is and isn’t acceptable conduct.
Without them, the definition of professionalism is vague, and players can find ways to act unethically and weaken the integrity of capital markets and the rules that govern them. We also need a set of values that enables ethical investment funds to succeed. If applied globally, this set of values can lift everyone – rather than a select few – and help investors’ interests.
Overcoming the ethical issues in venture capital is paramount for VC funds and the early-stage companies that benefit from them. If companies can’t raise money in the early stages because angel investors are jaded by unethical practices, start-ups can’t hope to get very far during later stages. Likewise, all investors (and not just early managers) must do their due diligence in making trustworthy, ethical decisions. When trust is low and checks and balances get pushed to the wayside, we see problems like the Theranos debacle.
We’re at a bit of a crossroads in the VC industry. More people must move beyond the typical VC investment strategy and adopt principled working modes for ethical venture capital to work. Do nothing, and we risk social backlash and the devaluation of the venture capital market due to a lack of integrity.
So how do we start? Here are some ways we can begin to practice types of ethical investment:
Promote ethical investing
Speaking openly about ethical venture capital is one way we can change the nature of VC abroad. In fact, every one of us can play a role in promoting integrity and professionalism in the industry. This kind of voluntary commitment to ethics can create waves in the industry. By talking about the best practices that could comprise an ethics code, we begin to provide a framework for what constitutes ethical investing while promoting professional behavior amongst our peers.
Hold fund managers accountable
Suppose you’re on a team that invests in global venture capital fund managers. In that case, you can hold them accountable by having chartered financial analysts review the funds against ethical standards for professional conduct. Choose venture capital managers who employ CFAs and encourage their investment team to pursue the CFA charterholder status.
Use CFA ethics as guidelines
In the same vein, the CFA Institute publishes a set of ethics, and as a globally recognized certification in the investment industry, it certainly holds sway. VC leaders can look to this as a guide. The organization knows what makes an ethical standard universal and applicable for a global market. CFAs also have a mission to be of ultimate benefit to society, so every tenet they encourage and uphold should be designed for the greater good.
Venture capital has reached an inflection point. With global investments increasing at an exciting rate, we must temper the thrill with integrity. As US investors expand their thinking abroad, now’s the time to define ethical investing and determine how to make it viable.