Venture Capital firms are struggling to keep up with the times. What are they missing out on?

The global shift toward remote work is not just a temporary response to a crisis but a fundamental change in how companies operate. VC firms slow to recognize this trend may miss out on investing in promising startups that are pioneering new technologies and services to support remote work. These include innovations in cybersecurity for remote teams, productivity tools, and platforms that facilitate remote hiring and HR management. For example, companies like Zoom and Slack have shown how integral such tools are to the modern workplace, experiencing explosive growth as businesses worldwide adopt remote work.

Quantify the impact: Mention statistics on the growth of remote work and the global talent pool accessible to startups. Highlight the need for broader deal sourcing: Emphasize the importance of utilizing online platforms and data analysis tools to identify promising startups beyond geographical limitations. Propose solutions: Suggest strategies for remote due diligence processes, leveraging virtual meeting technologies, and building relationships with international partners.

Investors who make the most off technology should see the advantages in the full cycle of the deal process: from sourcing (for example: joining online showcase/pitch events to demonstrating their unique value proposition to founders in an attempt to win deals (for example: by virtually extending bridges between them & potential customers/later stage investors). I do not see remote work as a crutch in the investor journey - if anything, it has opened up a wider, more diverse universe of opportunities. Competition is always welcomed by the best - in any industry.

Embracing remote work is one of competitive advantage that any firm including VC can leverage. It also reduces commute/travel time and is one of efficient way of collaborating. VCs need to be top of tools for communications, meeting share notes and also implement procedures for maintaining transparency to further leverage power of remote work. It takes more organization skill to manage remote team but the effort is worth it in the long-run.

Virtual collaboration has become the backbone of how teams communicate, brainstorm, and execute projects across distances. This shift has spurred the growth of platforms that support real-time collaboration, virtual whiteboards, and project management tools that simulate a physical office environment online. Startups like Miro and Asana are at the forefront, offering innovative solutions that enable seamless collaboration for distributed teams. Venture capital firms not paying attention to this shift might miss the opportunity to invest in platforms that are redefining teamwork and productivity.

Focus on the evolving skillset: Discuss the importance of developing strong communication skills, active listening, and fostering trust in a virtual environment. Highlight the role of technology: Mention specific tools and platforms that can facilitate effective communication, project management, and knowledge sharing within the firm and with portfolio companies. Emphasize the need for cultural adaptation: Discuss how VC firms can create a culture of transparency, open communication, and regular feedback exchange despite physical distance.

In the era of digital-first interactions, VC firms must pivot towards becoming platforms for innovation, beyond mere financiers. This transformation involves creating ecosystems where startups gain access to a network of mentors, peers, and resources online. By establishing virtual accelerators and incubators, VCs can offer continuous, on-demand support, enhancing their portfolio's growth potential.

Much like you would spend an hour at a customer site (if you're a founder) or in an in-person meeting with a founder (if you're an investor), you know the brunt of the work happens in between meetings, anyway. The shift to virtual collaboration is no different. Most of valuable support is happening in between Zoom calls. To be an effective & highly collaborative investor partner to your founders, you need to show up prepared so the virtual call is never a waste of precious time. The hard work can be digital or analog - that is beside the point.

Emerging managers have higher returns than legacy VC firms. Why? Their deals are on the line; if they don't perform, they will not have a job in VC. To take this a step further, the latest trend among emerging managers is a tighter thesis. These managers are subject matter experts on companies, and they are looking for companies to solve real problems. These new emerging managers are passionate about the companies and the market. As a result, the people who are making decisions look different because they can relate to the problems of the world.

VCs have no incentives to update to DEI since Limited Partners (LPs) still fund 100% male VCs investing in 100% male founding teams nearby. Let most LPs require DEI from VC fund managers, and then VCs will adapt to DEI as they optimize for whatever else increases their chance to fundraise.

Diversity and inclusion are more than just buzzwords; they are crucial for driving innovation, creativity, and company performance. However, the venture capital industry has historically lagged in these areas, both in its internal composition and in its investment choices. This oversight means missing out on a wealth of perspectives and opportunities that diverse founders and teams bring to the table. Startups like Blendoor and Kanarys are making strides in promoting D&I through technology, offering VC firms a chance to support businesses that not only promise good returns but also contribute to social progress.

Highlight the financial implications: Mention studies that correlate diverse VC teams with better investment returns. Propose solutions: Suggest initiatives like unconscious bias training, implementing diversity targets, and actively seeking out underrepresented talent in the entrepreneurial ecosystem. Focus on the broader societal impact: Emphasize the importance of investing in a wider range of founders and startups that address the needs of diverse communities.

As a female Latina investor, I can tell you that the best way to diversify your pipeline of both talent in your firm & portfolio founders is by fishing in ponds far away from your own zip code. In this sense, I have much appreciation for the virtual transition - I am able to hop on a video call to source deals from companies in London or in Buenos Aires. I personally love to see it!

There's a growing trend of startups focusing on social impact, addressing issues like climate change, education, and healthcare. These companies are not only profitable but also contribute to the greater good, aligning with the values of a new generation of consumers and workers who prioritize purpose over profit. Ventures such as Beyond Meat and Coursera exemplify how businesses can achieve significant impact alongside financial success. VC firms ignoring this trend may miss out on opportunities in this burgeoning space, where financial returns and social impact intersect.

VC firms must actively integrate impact investing into their core strategies, seeking out startups not just with high growth potential but with missions that tackle pressing global challenges. This involves recalibrating investment criteria to include ESG metrics and fostering a portfolio that reflects a commitment to societal and environmental stewardship.

Showcase the growing market: Mention the increasing demand for solutions that address social and environmental challenges. Highlight the evolving investor preferences: Discuss the growing interest in Environmental, Social, and Governance (ESG) factors alongside financial returns. Propose solutions: Suggest incorporating social impact assessment frameworks into the investment decision-making process and building a network of experts in the social impact space.

As a climate tech investor, I zero in on impact by targeting opportunistic deals in climate and FOR climate. The best way to target risk-adjusted returns is by integrating a values approach into all aspects of the deal-making process: deal sourcing, deal selecting, and deal winning. The great news, at least in the climate tech sector, is that climate technologies are already at maturity (and, therefore, commercially viable) or will be within this decade (except for nuclear fusion). As these technologies mature, their unit economics improve & as they become cheaper than BAU alternatives, it just becomes good business to switch. It's not just a moral imperative, anymore. All investors should be managing climate risks in their portfolio.

Social impact as a measure for fund's success is gaining momentum among LP and VC community. VCs should make sure to align investors expectations with funds goal, financial, social, environmental. In addition, a tiered fund setup, catering to needs of startups who are taking on social impact , is needed either by collaborating with other funds or creating such mechanism within a fund. This diversifies risk for investors and provides way to funnel philanthropic, high-growth capital to match market/startup resonance.

Diversity. Leave the anti-DEI backlash aside and just consider what's happening on the ground in most communities. Most new businesses are being launched and led by women and people of color. They are addressing the needs of audiences and populations they know extremely well. The founder-market fit is stronger than it's ever been. VCs that feel they are falling behind need to look to these new spaces for opportunity. This isn't about elevating one group over another, it's about entirely new value creation. We should all be running after it.

Think bigger, diversify, get back to non-linear, risk core of VC: Backing the founders, companies and tech that address the biggest problems to advance us. Deep-tech capital is projected to reach $200 billion by 2025, which is minuscule compared with capital that flows into asset-light startups. Too many founders can't make it through the dry spell, and capital markets are failing to support science-backed breakthroughs at the scale that is needed. Take a lifecycle approach, consider if companies will be in the portfolio a long while. Investors will likely see bigger returns in the long run.

I believe there is enough room for all different alternative funding sources to co-exist. Most businesses are not VC-backable, anyway, and that's OK. I know plenty of entrepreneurs who never took $1 from VCs & they are wildly successful. VCs compete more with each other than with any other financing model. Investors can differentiate themselves from others & stand out from the pack based on the type of access & benefits they provide LPs & the type of portfolio value-add they provide to their founders. Listen attentively to both, quickly pivot to their needs/demands (remember: it's your business to do so) & you are instantly part of the top 10%.

VCs should pivot towards operational innovation, integrating blockchain for transparency, exploring equity-crowdfunding for diversified funding, and adopting smart contracts for efficiency. These will keep them competitive. The key is blending traditional expertise with cutting-edge technologies to lead the venture space evolution.

Acknowledge the disruption: Discuss how alternative financing options and platforms are challenging the traditional VC model. Highlight the need for adaptation: Suggest exploring co-investment opportunities with these new players and utilizing their expertise and tools. Focus on value proposition: Emphasize the unique value proposition VC firms can offer beyond just capital, such as industry expertise, mentorship, and access to networks.

The days of forcing founders to eat ramen and struggling to keep institutional investors happy are gone. Founders flourish because of an abundance mindset by both founders and funders. They are proactively conscious with their capital, drive innovation for increased value to their customer and distill their offerings and products towards more efficient product-market fit. They seek increased revenue, paid partnerships and collaborations towards exits with business models that keep up with the economic times of doing more with less. Investors who walk alongside these founders, wrapping their 3C’s of Capital (Financial Capital, Relational Capital and Expertise Capital) around the founding team, are true co-creators of a startup’s success.

Focus on data-driven decision making: Emphasize the importance of utilizing data analytics to identify promising investment opportunities, assess market trends, and measure the impact of portfolio companies. Invest in talent development: Highlight the need for continuous learning and upskilling within the VC firm to stay relevant in the dynamic startup ecosystem. Embrace innovation: Discuss the importance of exploring new investment models, such as revenue-based financing or co-creation ventures, to cater to the evolving needs of startups.

As I covered in a recent blog post, VC is bound to get outdated unless constantly reinvented. The GPs of today made their mark working on cloud and dotcom tech of 15-25 years ago, and are by default dinosaurs in an AI and web3 era. The biggest disruption to VC in my view comes not from societal and ESG factors which one can adapt to with some help. Instead it comes from integrating technology in how you do things, and maintaining an IP of latest technical understanding as tech evolves. In that context, VCs that source entirely manually, screen via analysts doing 80-hr grunt work per week, rely on second hand education, maintain their knowledge and relationships concentrated between 2-3 rockstar GPs are likeliest to be left behind.