How do you align your values with your portfolio companies?

I address the alignment question by only investing in, or starting, companies that will reflect my values and principles. The board composition then becomes a critical matter for achieving the longer-term alignment.

Whenever I start working with a company I lay out the following to the employees: 1. Good news can wait but bad news cannot wait, so don’t sit on bad news; 2. Telling the truth is of paramount importance and there are no exceptions. If you are confused, then please review #1. 3. There is no such thing as a bad idea, so please share your ideas with management, as there will be no judgement or recriminations.

It is extremely important for managers to take a look inward and establish a set of values that place an emphasis not just on a respectful work environment within the confines of their own organisations but also on their broader socio-economic impact. Doing so establishes a culture of empathy and togetherness that can help drive decision-making and business discourse in a way that prioritises the needs of the wider community, thereby maximising socio-economic impact. In line with these ideals, the Tsangs Group focuses on impact investing with investments in groundbreaking innovation to exude maximum positive impact; for it is only when we have a shared mission to work towards can we drive towards optimum productivity and social impact.

Don't assume that your values are automatically aligned with your portfolio companies, or that they will stay that way forever. Instead, identify, communicate and discuss your values with your founders, while monitoring their progress and performance. This will help you identify any gaps or misalignments, and address them promptly and constructively.

It's not about aligning your values with the values of your portfolio companies, it's about defining your values first and then investing in companies who's founders, products/services, corporate culture etc... align with your firms values. The most important thing to remember is that investing in companies (especially early-stage) is a long term investment; making sure there is synergistic alignment not only ensures that you as an investor will be happy with the investment long-term, but that you will also be relatively certain that any accretive value you add won't be squandered by the founder(s). For that to happen, you must first define your own values and never deviate from them no matter how good an investment looks.

Due diligence is an essential part of the process, but it is possible to get around through the standard procedure when identifying the value. The primary way one can figure this out is by spending extended time with founders outside of work discussions. It may sound not scalable, but if you know your value, you articulate it well. If you onboarded all your team members and partners along the same lines, and you are openly talking about it, you start to attract people who align with you, and those who are not aligned get pushed away. It's a matter of tribes. The team's aligned value plays an important role here. Of course, few can try to sneak in, but you will sense them by spending a decent amount of time with them.

In addition, VC must also focus on the following: ? Feedback Loop: Establishing a continuous feedback mechanism can assess value alignment as an ongoing process rather than a one-time event. ? Dynamic Alignment: The VC and the startup will evolve, and periodic re-evaluations are crucial. ? Third-party Audits: It is crucial for intangible aspects like culture or social impact. ? Reputation Management: Misalignment can thus have broader implications, potentially affecting future deal flows. ? Conflict Resolution Mechanisms: It's important to have established procedures to address misalignments or conflicts that may arise, including re-negotiation or exit strategies.

We have seen plenty of examples where rushed or non existent due diligence can lead to problems - see FTX or Theranos. But I would argue, much as I did earlier, that the purpose of diligence is less about finding value alignment, and more about finding value. If a VC is doing their job properly they will optimise for the return to their LPs irrespective of whether a portfolio company or founder holds the sames values in common. Obviously if there is a strong misalignment on things like thesis or, operating within the rule of law, then this should give investors pause for thought if not cause them to walk away. But diligence is there to confirm the narrative and financial opportunity, not to match values.

As a venture capitalist, one of the most important aspects of your work is to align your values with your portfolio companies. This is not only a matter of ethics but also of performance. The most successful investments are not simple trades on market position but rather partnerships based on shared values and vision of the world.

When we last assessed the portfolio (end of Q2 2023 - fund investments and startups) it appeared that our values align well with the portfolio and investment strategy. The growth and engagement of our syndicate highlighted the strength of the community focus. The portfolio review demonstrated our focus on diversity. In parallel, the impressive capital efficiency we managed to ensure reinforced the commitment to responsible investing. What we found by doing the assessment ourselves was that it was a great tool to review our values and how our action stacked up against them. We ended up incorporating new values and rethinking how we assessed others.

In my experience, VCs also look at the following: ? Setting KPIs: KPIs can be mutually agreed upon to track progress objectively. ? Regular Reviews: Quarterly or semi-annual reviews can be built into the relationship to revisit and possibly reset expectations and goals. ? Transparency on Exit Plans: It is crucial to discuss mutual exit strategies (successful or otherwise). ? Dynamic Capital Needs: As startups grow, their funding needs change. Open communication about capital requirements for future rounds can avoid misunderstandings. ? Crisis Management: Establish a protocol for communication during challenging times to ensure that bad news is communicated and managed as effectively as good news.

VCs should help with governance and setting some of the longer term milestones. They should not be trying to influence the day to day operations and management. The best VCs help: ?? Define what metrics matter ?? Build the capital stack ?? Find strategic partners ?? Introduce investors ?? Plan exit strategy ?? Screen key hires Beyond that they should have their fingers on the pulse whilst being hands off.

In my experience, there are three aspects to discuss values, 1. Be real. Don't pretend to share values that you don't really believe in, or try to impose your values on others. Instead, be honest and transparent about what matters to you and why. This will help you attract and retain founders who resonate with your philosophy and mission. 2. Be simple and clear. Don't use vague or jargon-filled language to describe your values. Instead, use simple and concrete words that anyone can understand. 3. Be public and consistent.Don't keep your values hidden or change them depending on the situation. Instead, make them public and visible to everyone, and stick to them in every decision and action. This will help you build trust and credibility.

It is essential to offer investors and prospective investors a newsletter that provides semi-monthly updates on what's happening at the company. Press releases are of course used for 'significant' events, but so much more can be shared in a newsletter. The letters should also be archived to give prospective investors a quick way to catch up.

Our partnership focus is a defining aspect of our investment strategy. What truly sets us apart is our unique approach of investing in VC funds, adding significant value to them, and then co-investing alongside them into startups. We communicate this commitment to potential investment targets right from the start. We emphasize that our involvement goes beyond providing capital. We’re dedicated to forging collaborative partnerships that extend to expertise, networks, and resources. Our strategy ensures that startups understand the depth of our involvement and the valuable role we play in their growth journey, making EUVC a trusted and distinct partner in the venture ecosystem.

As an advisor to VC, this is how we monitored the progress of the portfolio company. ? Tech Tools for Monitoring: Nowadays, many VC firms and startups use software like SaaS metrics dashboards to track KPIs in real time. ? Emotional Support: VC firms can also serve as a sounding board or emotional support for founders. ? Milestone Bonuses: Some VCs incentivize milestones with bonuses or other financial rewards, which could be an additional way to celebrate successes. ? Role of Advisory Boards: These can serve as a formal method for monitoring progress and giving feedback. Advisory boards often consist of both members of the VC firm and external experts who can offer varied perspectives.

Here's how we think about aligning values and investment portfolio: 1. Define Values: Clearly outline your core beliefs and principles. 2. Prioritize Impact: Identify key social and environmental impacts you support. 3. Effective Communication: Share your values with stakeholders. 4. Investment Filter: Use values as a guide to select aligned opportunities. 5. Seek Alignment: Choose partners and investments that share your values. 6. Ongoing Evaluation: Continuously assess investments' impact on your values. 7. Adapt and Engage: Be flexible and join like-minded communities. 8. Reflect and Adjust: Periodically realign your investments with evolving values. Aligning values with investments is a dynamic process for purpose-driven decisions.

One key thing to remember is that you don't rigidly adhere to your values regardless of the context or circumstances and the changing world. Covid-19, the Russian invasion and the cost of living crisis are all examples where deeply held core values where challenged and updated. Instead, be willing to adapt and adjust them when necessary based on new information or feedback. This will help you stay relevant and responsive to the changing needs and expectations of your portfolio companies, the market and society.