The Ethics of VC — Towards an ethical due diligence (#3)

Dr Johannes Lenhard
4 min readSep 24, 2019


The main takeaway from my last, very theoretical post was the following: an ethical investor is one who reflects on which techniques of the self (or the VC fund) can be used to strive for a better life (we will get into the complexity around a ‘better life’ in a later post). While this definition is far from being hyper-complex, some investors might still find it either inapplicable to or irrelevant for their day-to-day work. That is the problem I want to address now by turning the ideas of what ethics is about into a first immediate (and easily useful) application for every VC investors: a simple proto-typical ethical due diligence.

We learnt from Williams (and Foucault) that ethics is about reflection. The minimum requirement, the first starting point for striving for a good (or better) life is to think about it, to reflect on one’s position in the world. This is the cue for my most simple draft of an ethical DD (think of it as an MVP, a minimum viable product, if you wish): simply raisethe issue of ethics, make it a talking point — for yourself, your diligence team, the investment committee, ideally also the entrepreneur.

I propose this kind be done with two questions to begin with:

1. What impact do you believe the product / service will have in the world?

2. Are you building an internally sustainable company?

While the first question aims at what I would call the external ethical due diligence, the second is about the internal ethical workings of the company. How do you think your product is going to change people’s lives? Is this change always good? Are there potential undesired effects by bringing the product to market? What can you do to mitigate them? How could you protect your customers (or the general public)? Secondly, how do you think about your employees? What kind of company culture do you want to foster? What do you do in order to enable this culture? How do you create an inclusive (and diverse) team?

These two simple questions (and their variations) might be a step towards having the right conversations early on in the life of a venture — already in the investment process of a Seed round, for instance. In their generality, they are obviously not all-encompassing and might need to be made more specific depending on the case; but at the same time, they are also not judgmental but exploratory. The goal is to enable a conversation, a reflection.


A recent post by the new Y-Combinator CEO, Michael Seibel, was an interesting nudge in exactly this direction. When hosting the AirBnB founders, Brian Chesky and Joe Gebbia, at an event at the startup accelerator in May 2019 (a programme that within three months helps teams to develop a first product), the two founders talked a lot about the possible influence that new companies have on the world at large (see Tweets below). As Seibel reports, the focus in the conversation shifted towards questions around how to have purpose on earth, solve problems that matter and the importance of having an inclusive view of stakeholders (society andshareholders). Seibel describes this conversation as a special moment in the process of a more general development towards a new culture towards a startup community that cares(and thinks) more about impact internally but even more so externally

Seibel’s first tweets
Seibel’s second tweets

And it seems indeed to be a general shift in the world of new enterprises to think about impact (investing) more (Forbes sees it doublingyear by year recently; JPMorgan calls it an emergent asset class; even BlackRock CEO Larry Fink recently announced recently that they — and with them the whole investment world — should follow more of a social purpose). As I will argue in one of the future posts, I also believe that this has been driving by a large number of wrongdoings or scandals (think Uber’s sexual harassmentin 2017, Theranos’ fraud, Facebook ongoing struggle with privacy issues). At the same time, we are seeing external regulation starting to come down on the companies (e.g. GDPR in Europeis currently beingcopied in California). Why, however, is there seemingly no drive in the venture investment community to further this kind of ethical thinking? Why has there been barely a single VC standing up for such issues? Even real impact VCs are still the absolute exception (e.g. DBLor Social Impact Capital). What has to chance in order for VCs to be more ethical? The answer might be simple: the financial incentive system. This is what I will get at in the next post.



Dr Johannes Lenhard

Writing and working on venture capital ethics, ESG, DEI @Cambridge_Uni and @VentureESG; former: PhD on homelessness at Cambridge, MSc at LSE, BA at ZU