The Promise and Peril of Being a Mission Driven VC
Venture capitalists are in the business of making educated bets and hoping their portfolio companies achieve billion dollar exits. It’s in their name, after all: they’re capitalists. But a new breed of investors also wants to be “mission driven.”
It’s easy to announce in marketing material you’re mission driven, but what does it mean? For most investors, having a mission is a matter of having a “positive impact.” But this is vague. What sorts of impact? How seriously should investors take those impacts in comparison with, say, the size of the potential market? And just as importantly, how do investors operationalize these decisions?
Clear answers to these questions serve as guides for decision-makers. If you know what kind of VC firm you want to be, you can develop strategies for realizing that goal. Further, because VC firms are sprouting up like weeds the competition to invest in promising startups is rapidly increasing and many mission-driven startups are looking for similarly mission-driven partners. A VC that can clearly articulate their mission is at a competitive advantage with those that cannot.
Not having an answer to these questions means falling into a mode of operation the investors themselves don’t stand behind. This leads to internal conflict, stalled decision-making, and missed opportunities.
Investors figure out how to articulate and operationalize a mission by starting with understanding what’s on the menu. Investors can be:
1. Mission driven
2. Mission oriented
3. Mission conscious
4. Mission neutral
Each of these categories speaks to the relation between the investor’s decision-making criteria, on the one hand, and the kind of companies in which they invest, on the other. Less technically, each of these categories is about the extent to which investors take the mission of their potential portfolio companies seriously when deliberating about whether to invest.
For a mission-driven investor, a necessary condition for investing in Startup X is that X itself has a mission that it not simply ‘making money.’ X might have a broad mission of having a positive impact, or they may have the specific mission of, say, empowering women to pursue careers in artificial intelligence. To be a mission driven investor is to be the kind of investor that vetoes any potential portfolio company on the grounds that it is mission-less. Operationalizing this is a two-step process.
First, the mission driven investor must specify what sorts of missions are in good-standing in the eyes of the investors. Does the mission have to be about something specific (e.g. only companies that have the mission of improving the health of U.S. citizens)? Are there any missions that are the wrong missions (e.g. the mission to promote the exercise of the right to bear arms by giving away guns to a person in gun-need)?
Second, the investor needs to develop and execute processes by which the missions of potential portfolio companies are vetted. That includes a) assessing whether they have a mission and b) verifying that the mission is not just words on paper but is actually part of how the company operates.
A mission oriented investor does not require that all of its potential portfolio companies are mission driven. Instead, it requires that at least some of them be. This is a much lower bar than being mission driven. In order for this not to be functionally vacuous, a mission oriented investor will need to set goals around what percent of companies in their portfolio need to be mission driven. Importantly, this percentage has to be higher than the percentage of mission driven companies in the general market.
For instance, if 10% of startups are mission driven, and 10% of an investor’s portfolio company are mission driven, this does not count as mission oriented; that’s just being market oriented because, all else equal, that’s the percentage we would expect to see by a company that pays no attention at all to the missions (or lack thereof) of its potential portfolio companies.
Operationalizing being mission orientated is at once straightforward and complicated. It is straightforward in that mission oriented investors need to set a goal around the percent of the companies that need to be mission driven once its fund is fully invested. It also needs to do what mission driven investors need to do: articulate the sorts of missions they’re on the lookout for and develop/deploy a strategy for assessing potential portfolio companies.
It’s complicated in that mission-oriented investors also need to develop and execute on a process that will get them to the goal. It’s easy to hope the ideal percentage is reached, but hope is not a strategy. It’s also easy to go through potential investments one-by-one and choose the non-mission driven company each time, with the promise that “okay, next time we’ll definitely choose a mission-driven company.”
In short, while being mission oriented instead of being mission driven is less demanding, in one sense, it is operationally more demanding precisely because it is harder to develop decision criteria that will get a mission oriented investor to her goal.
The mission conscious investor has no goal of investing in mission driven companies. It would be nice, perhaps, but not something one needs to explicitly build strategies around. Instead, the mission conscious investor takes it as a value-add of any potential portfolio company. It’s a nice bonus, and a reason to invest in them, even if it’s not a particularly strong reason.
Operationalizing being mission conscious is relatively easy because there is not much on the line. Investors will still need to determine what sorts of missions are in good-standing, perhaps ones they are particularly interested in. That said, the mission conscious investor can’t fail in an important respect: she cannot fail to have enough portfolio companies that are mission driven once her fund is fully invested, since there are no goals to be met on this front. Further, investors will also have to develop and execute processes that vet the missions of potential portfolio companies, though the degree of rigor here will vary on just how conscious they are of being mission driven.
The mission neutral investor is indifferent to whether their potential portfolio companies have missions. They care about bottom line ROI, do not believe that being mission-driven is connected to bottom line ROI (which is a contentious empirical claim), and so pay no attention to a company’s mission even if they have one.
Operationalizing this couldn’t be easier. However, there is the risk of being at a competitive disadvantage when it comes to courting highly promising potential portfolio companies that are themselves mission driven.
The more extreme investors go with regards to the missions of their potential portfolio companies the easier it is to operationalize. The mission driven investor has clear call to actions, even if developing and executing on those processes takes additional effort. The mission neutral investors have no need for any processes around mission. On the other hand, the mission conscious and especially the mission oriented investor face more subtle problems to fix. These are surmountable hurdles, but if an investor does not think through and execute on being mission orientated or mission conscious carefully, they threaten to accidentally collapse into being mission neutral.