Impact capitalism: An exploitative partnership

“It's just a very competitive and inhumane environment that we create for each other.”

This quote is from an anonymous source in a recent Sifted article on the toxic nature and culture of venture capitalism in Europe. It is not surprising that the source chose to remain anonymous and even less surprising that the source is a woman. In an already male-dominated industry, if you permit toxic behaviours, it is not to be wondered at that those experiencing the worst of those behaviours are minority groups. 

This is not really news.

Having been in and around incubators, venture builders, startups, and Silicon Valley people since 2001 I’ve seen my fair share of asshole behaviour. And to a large extent, witnessing those attitudes always made me wary of getting too close. I don’t have “what it takes” to be exploitative in the cutthroat way most of the industry works. 

However my outlook on this changed a few years ago when we began to see the rise of impact and climate venture capitalism. 

This crop of financiers had a mission beyond just making money. There was purpose involved. Impact. Real on-the-ground impact that would change the trajectory of the climate and biodiversity crises we are facing. So when the opportunity arose to work for a venture builder focused exclusively on building climate startups I genuinely could not have been happier. 

Carbon13 is a climate tech VC firm that runs a venture building programme and a startup accelerator. I participated in their second cohort and then worked there for almost two years. 

One of my jobs was selecting the entrepreneurs who would form the cohorts. A cohort of eighty typically meant interviewing upwards of 200 candidates. Having done this for eight cohorts I estimate that over the course of roughly two years I personally interviewed around 800 founders for the venture builder and a hundred teams for the accelerator. That’s somewhere in the region of one thousand aspiring climate entrepreneurs.

Almost without exception all the founders came with a palpable passion to create real impact. It was rare to interview a candidate who didn’t exhibit a real drive to meaningfully address the climate crisis. 

There was a rich and inspiring tapestry of motivations and background stories. Many were new parents, driven to leave a better world (or at least a livable one) for their children. Others had older children who they could already see worrying about climate breakdown. Some had farming, fishing, forestry, or sailing backgrounds and were already seeing real effects of climate breakdown. Those from corporate backgrounds had experienced first hand the lack of care and destruction multinationals and fast moving consumer goods companies are responsible for. A fair amount were fresh graduates who couldn’t stomach working for extractive companies. Software engineers and marketers were tired of working on pointless, and often harmful products. 

Many of these individuals would go on to form part of the venture building programme and found some very ambitious organisations. 

Behind the scenes though was a different story.

Over the course of two years around half the staff at Carbon13 would leave the company as a result of a variety of extremely toxic behaviours including bad management, sexism, racism, and outright bullying. The kind of bullying that results in physical illness, panic attacks, and severe mental health problems. In the meantime, internal discussions about diversity programmes and ending financial partnerships with bad actors like BP and Barclays were summarily shut down. 

Leadership justified this because the climate change mission was existential. The “greater good” was more important and a few wounded soldiers was an acceptable trade off. 

Like the apocryphal frog in boiling water it took me shamefully long to realise what pot I was swimming in. But I did eventually leave the pot.

After publishing an article on my climate tech startup experience and one on my VC experience I received a deluge of emails, calls, and direct messages from people in various “impact” organisations who had similar, and occasionally worse, experiences. 

While this support was encouraging on a personal and emotional level, it was extremely worrying from the perspective of making progress on the system change needed to address climate breakdown. Not only is “impact venture capitalism” seemingly no different to “normal” VC… it exploits the very urgency of the problems it claims to address to justify its own brand of exploitation. 

Now if you can’t exhibit care and respect to the colleague sitting across from you, how likely is it that you are going to exhibit care for people half a world away mining cobalt in slave conditions? How likely is it that you will demonstrate care for starving non-humans displaced by solar farms? Very little, as one direct quote from a prominent impact VC made clear to me: “If I could solve climate change by killing half the animals on the planet, I’d do it in a heartbeat.”

These experiences made something that had been hiding in plain sight painfully obvious for me.

Simply bolting on a cute adjective like “conscious”, “regenerative”, “impact”, or “climate” in front of capitalism is meaningless, irrespective of how many books and blogs posts on the topic you publish. (The only thing that serves to emphasize is the notion that by default, without the modifiers, venture capitalism is neither conscious, regenerative, impactful, or climate positive.) 

These adjectives all imply that the investment fund values are derived from an ethos of care and that this ethos outranks the need to be exploitative. But just swapping a label on a can doesn’t change what’s inside.

Of course originators and promoters of these ideas claim to do more than just that.

VC Lab for example promotes the Mensarius Oath, a set of principles it suggests its cohorts of aspiring venture capitalists adhere to. Founders Institute promotes the idea of “For Progress Companies”, encouraging founders to create KPIs aligned with UN SDGs. Conscious Capitalism provides some guiding principles for its adherents and you’ll find myriad other examples.

But ultimately these all are unregulated, non-binding, uncodified, and unenforceable promises. 

Non-exploitation therefore remains an elective choice, one that easily bends under the “stress [that] is the result of intense pressure from a fund's investors — limited partners — to produce good returns.” (#)

Nowhere is this more obvious than in climate tech’s recent pivot into so-called “dual use technologies”. A euphemism used to blur the reality of climate tech and impact investors investing heavily into military tech. 

While one can make a case for defence and national security being important considerations for nations and communities, it is hard to make an ethical case for privately profiting from weapons manufacture and militarisation. More so when profiteering from destructive technologies is in direct contradiction to fostering the conditions for all life to thrive.

And so we come back to those one thousand aspiring entrepreneurs I mentioned earlier. Climate venture capitalism promises them a route that leads to saving the planet and reaping profits in the process.

I’ve explained previously how the planet-saving side of that coin is broadly untrue. (Due to its extractive nature, VC avoids investing in the most effective climate solutions and, in the ones that it does invest in, it is barrelling towards a planetary scale rebound effect.)

But the profit-reaping side of the coin is just as bad! Even if you put aside the many examples of investors pushing out founders, the success rate of venture-backed startups is famously very low. Depending on how you measure, the failure rate can be anywhere between 75% and 90%, and failure typically means crashing, burning, and burning out. Therefore of those 1,000 founders, only 10% are likely to survive the first few years and of those, only a handful are likely to come anywhere close to achieving the positive impact that so motivated them.

‘Impact’ or ‘regular’, the real tragedy of venture capitalism lies in its exploitation of the entrepreneurs it takes under its wing and then discards as roadkill along the way to outsized profits. 

This needs to stop.

This article is the third in a series on the topic of Reclaiming Entrepreneurship and the last one focused on pointing out flaws in the climate and impact venture capital systems. 

From the next instalment we begin looking at leverage points in the systems and at solutions and alternatives with significantly better outcomes.

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