On 11 March 2019, our Founding Partner, Anya Navidski, published an Open Letter to Fellow VCs entitled "Why we need to go back to basics — ordinary shares and a more balanced risk-reward approach". She felt that the industry was no longer in balance and required change in order to move away from stifling instruments such as ratchets, prefs and liquidation prefs. That it needed to move towards a fairer way of doing business in order to better serve our portfolio companies AND our investors.
Within minutes, this post stirred up a lot of debate and insight. Soon after, we decided to launch our Fair Venture Principles. A bit like Fair Trade but for venture capital. Inspired by the approach of the founding father of institutional venture capital – Georges Doriot – and by Anya’s extensive experience with female founders and as an entrepreneur herself, these principles take the very best of what the industry was founded to do.
Alignment of incentives between founders and investors is key to a harmonious, constructive relationship and to effective growth of the business over the longer term. It facilitates a more appropriate balance of risk and reward between founders and investors. It also eliminates the likelihood of later conflict, especially at times of difficulties. Alignment of incentives facilitates transparency and sharing of information at all times and avoids an 'us and them' situation between founders and investors, facilitating a true partnership, to the benefit of investors and founders. It also means alignment within the investor group.
We see the most effective way to do this is by:
Taking ordinary shares on deals where we lead the round (and doing what we can to maintain that in subsequent rounds)
Avoiding complex funding instruments such as prefs, ratchets and other such instruments
Using sound governance mechanisms, rather than share structure to put in place appropriate checks and balances
Ensuring that angels and early stage investors are not disadvantaged by later VCs
2. Long term value
Georges Doriot used to say 'if you build great businesses, returns will come'. We completely agree with this. And building great businesses takes a bit of time. So we focus on long term value in our portfolio companies.
For us, this means:
Doing proper due diligence on all of our transactions and using this process to not only 'tick the box' but to really get to know our companies and to ensure alignment of vision for the business
Putting in place appropriate checks and balances in each of our portfolio companies
Putting in place appropriate instruments to ensure that exits are not forced by our own fund structures or LP priorities and are made at the time and manner best suited to each business
Never losing sight of ESG objectives (for us and within our portfolio companies)
Treating staff and other stakeholders with care, empathy and respect, making everyone feel included (more on that below)
Facilitating a flexible, effective working environment which ensures founders do not burn out and can balance their work and life obligations in a way that works for them and their teams
Ensuring portfolio companies pay all applicable taxes and comply with all applicable laws
Creating a workplace that makes everyone feel included and realises true value from diversity, while factoring in peoples specific needs is vitally important for us and for our companies. It also means sourcing our portfolio companies from as wide a pool of opportunities as possible.
Act professionally towards all of our companies and other stakeholders at all times, including letting applicants know where they stand with regards to a possible investment from us and supporting all of our portfolio companies to the best of our abilities
Allow entrepreneurs to apply openly, review each application and do not require them to come through introductions and closed networks only
Ensure companies also act accessibly and inclusively
Clearly explain our investment theme, and who we will and will not consider for investment