The ethics of venture capital

I’m attending the Techstars Summit this week in Torino, Italy. It’s the annual meetup of this international network of startup accelerators (I’m a mentor in the Montreal AI program). I was recently named “All-Star Mentor” in the global Techstars network and the organizers invited me to network and speak on a mentorship panel.

There were many interesting discussions over the three days of the Summit, but one presentation stood out for me. Dr. Johannes Lenhard, an anthropologist of ethics, gave a presentation on “the ethics of venture capital”. Having spent a lot of time thinking about the ethics of technology over the last two years, I was curious to learn more about how this can apply to venture capitalists (VCs) as well. I’ll share below my personal notes from Lenhard’s presentation, but you can also read his three blog posts.

The ethics of venture capital:

Johannes Lenhard has been interviewing VCs to better understand what they do and how they see the world. He explained to us the importance of researching the VC industry:

  • Venture capital is much more than money (they’re not bankers).
  • VCs are the first filters of the future economy
  • 7 of the 10 most-valued companies were VC-backed
  • Because VCs are kingmakers, we need to understand their motivations, incentives and value systems
  • And historically, there’s been tension between “doing good” and “doing well”. VCs are in the business of breaking things.

So, that leads to the following questions:

  • Is there room for ethics in this?
  • What kind of ethics would make this model better?
  • Where do incentives come from?

Recently, the zeitgeist has been about reinventing capitalism. The Financial Times called for a reset of capitalism, saying “Business must make a profit but should serve a purpose to. Harvard Business Review recently suggested the era of “move fast and break things” is over and proposed the idea of a “minimum virtuous product”.

Lenhard said that changes in tech industry could be driven by various stakeholders:

  • Consumers (and the growth of ethical consumption). They put pressure on companies via impact on revenue.
  • Governments. They put pressure via fines and regulations.
  • Employees (ex: the recent Google walkouts). They put pressure via retention.
  • VCs and Limited Partners (LPs). They put pressure via reputation.

He also wondered if a new model of financial incentives was in the making and gave the following examples:

  • Beyond Meat is doing good and well
  • Uber has turned from startup poster child to loss-maker, partly based on ethical issues
  • Zenefits. Started out as a perfect company and had to be fully restructured after 2016 because of cheating.

Lenhard suggested that, in the startup world, you can be a temporary pirate, but you need to eventually become “navy”. You should never be a psychopath (doing illegal or unethical things), committing fraud, lying, creating bad company culture as these types of behavior now lead to economic consequences. You have to be better now to do well financially. Diversity matters too.

So, what roles can venture capitalists play to help with this?

  1. Ethical due diligence
  2. Strategic advisor (culture building, sounding board, etc.)
  3. Board member (oversight, checks/balances, etc.)
  4. Patient capital (avoid pressure, be in it for the long term)

He did call out VCs’ blind spot in all diversity dimensions: gender, race educational background and suggested that to fix those blind spots, VC funds should be i) start early, ii) be intentional and iii) don’t rely on personal networks too much.

Lehman’s key takeaways were:

  • Ethics matters, behaving badly can have immediate economic consequences, like lost valuation, no exits, reputational damage, disruption in leadership structure.
  • So far, investors and many startups have been not proactive. They’ve been fined, sued, moving forward until stopped.
  • But things are changing. More stakeholders, consumers, employees, LPs, are starting to care; the financial incentive model might turn even further.

Fall 2012: Travel & Local Commerce Conferences (including rebate codes!)

I have a busy travel & conference schedule this fall but that’s what happens when there are many “can’t miss” events happening over a short period of time. Can’t complain as we’re probably in the golden age of interactive local commerce. 🙂

First, I’ll be attending and speaking/participating in the next Projet Columbus conference happening in Montreal on October 3. The topic is News 2.0 and you can find more information here. Anyone interested in discussing the future of news organizations and local content should attend.

Image

Then, I will be in San Francisco the week of October 15 for TwilioCon 2012. If you haven’t been keeping up with new communication technology players, Twilio is a game changer in cloud telephony and it has built an extremely relevant piece of infrastructure for the local commerce world.

Image

I will also be attending StreetFight Summit 2012in New York on October 30 and 31.  I was at StreetFight Summit West in San Francisco last June and was pleasantly surprised by the quality of topics and speakers. Topic of the conference is “The Next Generation in Hyperlocal”.

Image

Then, I will be in Europe the week of November 12 to speak at the next Local Social Summit in London. I will probably be traveling to France for meetings in that same trip. If you want to save 25%, you can use my rebate code sebprovencher_lss12 or visit http://lss2012.eventbrite.com/?discount=sebprovencher_lss12

Image

Finally, I will be at the next BIA/Kelsey conference in Los Angeles the week of December 3. The Interactive Local Media West 2012 conference is one event you absolutely can’t miss if you’re in the local search, local commerce or local media space. Use my personal code to get $200 off the registration fees: ILMWSEB

Image

Hope to see you at one (or more) of these events. Don’t hesitate to ping me on Twitter or via e-mail (sprovencher AT gmail DOT com) if you’d like to connect in person.

In San Francisco Next Week for the BIA/Kelsey Conference

Next week, I will be attending the BIA/Kelsey ILM West conference in San Francisco. As always, they’ve put together a great line-up of speakers. Here are the presentations/keynotes I’m most looking forward to:

Day 1: Monday, Dec. 12

  • The opening keynote with Bob Pittman, CEO, Clear Channel Media Holdings. Always interested in hearing from radio station executives, curious about their Internet strategy.
  • The interview with Kara Swisher, Co-Executive Editor at the Wall Street Journal’s All Things Digital.  I want to know what she thinks of “local” and “local/social”. I am also curious about her point of views on local traditional media’s Internet strategy and execution.
  • The unveiling of the “Wave XV” of the Local Commerce Monitor. Always a lot of exciting data points.
  • The “New Wave of Local Lead Generation” panel
  • The “Facebook Next: Leveraging the Platform for Local” panel

Day 2: Tuesday, Dec. 13

  • The special comScore Research presentation on “The Data on Local Usage”
  • The presentation from Court Cunningham (CEO at Yodle), on “The Top-Level View on Local Sales”
  • The afternoon keynote with Matt Idema, Director of Monetization Product Marketing at Facebook

Day 3: Wednesday, Dec. 14

  • The fireside chats on Local Media Transformation with Mok Oh, Chief Scientist, PayPal and Bo Fishback, CEO and Cofounder, Zaarly
  • The last panel on The Future of SoLoMo

You can get a special $200 rebate if you signup with the discount code SEB

If you want to connect at the event (or in San Francisco), ping me at seb AT needium.com

PSFK Conference: area/code

It’s social, it’s local and it’s called area/code. Michael Surtees of DesignNotes attended the recent PSFK Conference in New York and reported on the presentation done by software services company area/code; “Of all the presenters at the PSFK Conference, the one that shifted my thinking the most in a different light was Kevin Slavin of area/code. They’ve taken the idea of game to the outside of streets. Between the technology, using maps of cities and the social aspect of play mashed together, it was something that really made me reconsider my environment and the role of play. I ran into Kevin briefly after the conference where he gave me his business card. I’m hoping in the next couple weeks to do a blog interview with him – stay tuned…”. Also on DesignNotes, a post on semacodes (that’s the Kaywa reader above), “On Tuesday at the PSFK Conference I saw semacode in action with area/code. A day or two before that I noticed a post from do.palicio.us about semacode too. If you consider that almost every single person has a cell phone and I’m guessing that more than half have a camera with the ability to surf the web. If you combine that technology, semacodes become quite fascinating. More so because it acts as an identifying mark or key that allows a person to collect information with a single click.”.

What it means: There’s still a lot of room to explore the convergence of local + social, we’re just at the beginning.