The Dawn of a New Era in VC & Tech

Tech and VC are entering the Dawn of a New Era. Our industry goes through thematic cycles roughly every 10 years (in addition to the “15 year tech” cycle).  The 2020’s will be known for the rise of Stakeholder Capitalism. We will significantly change how we build companies and what their greater roles are. There will be an expanded focus of business to “positively impact society” versus simply cranking out record earnings. We will be reminded daily of this as inequality continues to grow, homelessness worsens, cities & countries burn, etc. I’m not hugging trees here…ignore this advice at your own peril.

Something feels off as we are 11 years into an unprecedented bull market and most people are unhappy & anxious. We have “hedonically adapted” to all of the dopamine hits & blue ribbons of the past decade. Whether it is young entrepreneurs or veteran investors, I keep having daily conversations with people commenting on “how there has to be more to existence than “this”. We are hearing an increasing drum beat from mainstream America as well as idealistic millennials around stakeholder capitalism…the notion that corporations service a larger societal role beyond simply greasing the palms of the moneyed shareholder class.

For the first time in 40 years, the Business Roundtable (comprised of the largest 200 CEO’s in the country) recently broadened the purpose of corporations to include serving all stakeholders (not just shareholders). Larry Fink, CEO of Blackrock & its $7 trillion in assets, has famously championed that his firm will start evaluating companies based on their ESG track records. TPG has raised over $3 billion in Impact related funds targeting 10 of the UN Development goals. Marc Benioff, CEO of SalesForce, announced the death of traditional capitalism and the rise of stakeholder capitalism at Davos. Goldman Sachs will not take any company public that does not have a least one female board member. Investors like the Gates Foundation & Emerson Collective will join mainstream venture investors. The list goes on and on. When the largest corporations and the largest investors pivot, you don’t want to be standing in the way…you want this wind at your back.

Everyone seems to be raising “Impact Funds” these days. Many of these will fail since most haven’t thought through the “Yes And”. They need to operationalize how embracing a new approach to investing and building companies leads to competitive advantage vs simply feeling good. Whole Foods upended the grocery world not just by creating a company culture & value set but also innovating around a unique supply chain that Safeway was unable to replicate. While Whole Foods increased its store count, Safeway shut down entire regions.

Why does this matter? Because you can’t put the genie back in the bottle. We have a demographic change of power in the US going on, with Millennials stepping into their key spending years and accounting for core parts of the workforce. The Gen Z’s are right behind them. They don’t want their father’s brand of capitalism. If you can’t clearly define what your firm’s values & mission are, how these translate into positive societal change and how you are focused on all stakeholders, the headwinds are going to grow significantly. Good luck recruiting top engineers. Many of my daughter’s top engineering friends in her class at Stanford won’t consider apply to Facebook & its brethren. They increasingly won’t buy your products. Your company will be less attractive to buyers (IPO or sale), especially when the Larry Fink’s of the world begin to demand to see greater ESG transparency. This will become table stakes.

I’ve simplified how this stakeholder impact shows up into three buckets:

  • your customers & product…what you do, what does your product stand for, what impact does it have when used or consumed
  • your culture…how you do show up to your employees, what behaviors & norms do you foster or repress, what trade-offs are you willing to make, what do you look for in your hiring & firing
  • your supply chain & your community…how do you engage & treat your suppliers, what do you demand of them, how do you give back to your community & cities

I will write in more detail about each of these. However, in the interim, appreciate that we are entering a new era in entrepreneurship which will create significant new opportunities as well as increasingly punishing those clinging to old dogma.