Ethical Venture Capital

Venture capitalists often keep quiet about problems within their portfolio - including fraud and wrongdoing. Not necessarily because they’re dishonest people, but because their incentives act on them like an invisible straightjacket. Whistleblowing on fraud or misconduct often runs directly counter to a fund manager’s incentives; even if it ultimately benefits their investors (LPs). Their performance metrics (TVPI) stand to suffer immediate damage from write-downs, which hamstrings their ability to raise future funds. VCs ability to invest in good companies rides on their reputation as ‘founder-friendly’, which is tarnished if they're seen to be disloyal to portfolio companies. The cherry on the cake - venture capital's expected failure rate provides perfect cover to subsequently categorize malfeasance as garden variety failure. With most LPs accepting that many investments will fail, it's much easier to quietly shut down troubled companies as "execution challenges" than to trigger the legal, financial, and reputational fallout of calling out fraud or wrongdoing. That’s why I think venture capital firm EVP’s decision to alert the authorities immediately upon discovering likely fraud at StrongRoom AI was a rare and admirable instance of moral courage. Far from being an instance of “narrow and selfish thinking”, as alleged by fellow investor Tyson & Blake, I believe EVP gave their LPs the best possible chance of recovering the $10.4 million invested into StrongRoom weeks earlier, at the expense of their own interests as fund managers. As I write in my latest op-ed for the The Australian Financial Review: “Moral clarity can come with a price: reputational damage, strained relationships and public scrutiny. As far as fund managers go, EVP is no ingénue. It looked into the harsh glare of the fallout and chose to act with integrity. For that, it has my respect.” #venturecapital #startups #fraud #whistleblower

The venture capital industry needs a reset. After witnessing too many ethical failures that damage founders, investors, and entire ecosystems, I am proud to support the Mensarius Oath created by VC Lab. Here is why this matters more than ever: 🤝 Trust is Currency - When VCs break promises or manipulate terms, it destroys trust that takes years to rebuild. The oath creates accountability. ⚖️ Power Dynamics - The investor-founder relationship has inherent power imbalances. Committing to fairness and respect levels the playing field. 🌍 Impact Beyond Returns - Our investment decisions shape industries, communities, and the future. Integrity ensures we create positive change. 🔄 Long-term Thinking - Ethical behavior builds sustainable relationships that generate better returns over decades, not quarters. 📊 Market Health - When the entire ecosystem operates with transparency and honesty, everyone benefits from increased efficiency and reduced friction. The Oath reminds us that with great capital comes great responsibility. I challenge every investment professional to consider how these principles can strengthen their practice and our collective impact.

For thirty years, impact investors accepted that social good required financial sacrifice. My experience suggests this framework was built on false assumptions. When I started in venture capital, the operating assumption was explicit: accept lower returns for positive social outcomes. This framework troubled me because it suggested that doing good and doing well were fundamentally at odds. From the very beginning, our point was simple: there's no need for a concession. There's just too much opportunity. Three decades of data support this thesis. Our portfolio companies consistently outperform traditional venture benchmarks while creating substantial wealth for diverse founders and teams. This isn't correlation - it's causation. The factors that make founders effective agents of social change also make them effective generators of financial returns. Capital efficiency from founders who've navigated barriers develops resourcefulness that translates to operational efficiency. Market insight from entrepreneurs who understand underserved markets creates authentic product-market fit. But the most significant alpha source is temporal: we're investing in tomorrow's markets at today's prices. Isabel understood multicultural audiences before it became a corporate buzzword. Dexter built EV infrastructure before Tesla made electric mainstream. The pattern repeats: founders addressing systemic inequities often identify market opportunities before they become obvious to mainstream investors. This suggests fiduciary responsibility requires including impact considerations not despite financial obligations, but because of them. Superior returns increasingly align with positive social outcomes. Making a difference while making a profit isn't just possible - it's the most logical approach to sustainable value creation.

Not every growth story is worth telling. Not every return is worth chasing. Especially if it costs you your principles. “Growth at all costs” is a phrase you hear a lot. Especially in fast-moving sectors like venture capital, and in some cases, search funds, where the acquired company is in tech. The pressure to scale quickly, hit aggressive targets, and deliver outsized returns can be intense. But what does that pressure really cost? → Employee burnout and turnover → Strained relationships with customers and communities → Risks to long-term sustainability Growth isn’t just about hitting bigger numbers.  It’s about building a business that lasts. For ETA operators and investors, that balance is everything. You’re not just buying a business. You’re inheriting a community, a team, and a reputation. Here’s what I’ve learned working with search fund investors and operators: → Define your boundaries.  Know what you’re willing to sacrifice and what’s non-negotiable. → Invest in your people.  A motivated, healthy team drives sustainable growth. Burnout kills it. → Think beyond revenue.  Consider your impact on the community, environment, and all stakeholders. → Measure success holistically.  Financial returns matter, but so do culture, loyalty, and accountability—three of many components that help achieve sustainable financial returns. For investors, it means backing individuals who prioritize ethical growth, not just expansion. For entrepreneurs, it means choosing partners who align with your values, not just your vision. Because in the end, growth without integrity isn’t a growth worth chasing. Have you ever seen growth push a business too far?

In 2020, I created the Mensarius Oath. It's an ethical code for venture capitalists. Inspired by the Hippocratic Oath doctors take. Every fund manager in our programs must publicly commit to: → Integrity in all dealings → Fairness to founders and LPs → Equality of opportunity → Respect for all stakeholders → Transparency in decisions → Avoiding harm Some people laughed. "VCs don't need ethics training." "This is just PR." "Nobody will actually follow it." 900+ fund managers have now taken the oath. And here's what I've learned: The managers who take ethics seriously outperform. Because founders trust them. Because LPs trust them. Because their reputation compounds. Venture capital has been broken for too long. Predatory term sheets. Founders treated as disposable. Zero accountability for bad behavior. We're building something different. One fund at a time.