What is at stake?
Why is it important?
When founders opt for dilutive financing, they accept to bring investors into the capital of their startup. It is essential to ensure that the investors share the same vision as the founders. This alignment must also extend to the importance of ESG criteria, which are increasingly taken into account by investors.
3 actions to implement right now
1️⃣ Ensure alignment of investors with the startup
- Identify funds whose expertise aligns with the startup's needs.
- Consider the ethics and reputation of the fund (e.g., evergreen funds, feedback from startups in the portfolio, etc.).
- Analyze the consideration of ESG criteria in the funds and the dedicated support on these issues.
For us, the criterion of sensitivity to impact is important in choosing our investors. A partner who shares our convictions and our vision of impact gives us the assurance that our values and mission will be preserved in future decisions.
Marie Voyer, CPO & Co-founder of Qweeko, Alumni EDHEC Entrepreneurs & Future 40 (2022)
2️⃣ Be able to "address" the ESG criteria with investors
- Have reflected on and initiated an ESG strategy (see Formalizing your ESG strategy).
- Incorporate the consideration of ESG criteria in pitches to investors.
- Determine the main KPIs to communicate about these criteria.
3️⃣ Align before the fundraising closing
Be clear with the investors about:
- financial clauses (especially the preferential liquidation clause to avoid any resentment);
- their role and their desire for control over the company, i.e., their political power (see the document: Board and executive commitee constitution);
- the distribution or non-distribution of investors into different categories;
- the terms of sharing value with employees (see the document: Sharing value with employees)
Discussing these crucial topics in advance allows for a healthy relationship with the investors from the beginning and filters out investors who would not be aligned with your vision and needs. Be demanding in your relationships with your investors!
Serge Rosenzweig - Business lawyer, specialized in advising entrepreneurs and startups.
📚 Further Reading
📖 Impact Financiers Mapping (Mouvement Impact France)
Mapping proposed by the Tech for Good France community of Mouvement Impact France and FAIR.
Over 60 funds are featured on this map and can be identified according to the type of investment: dilutive, loan, crowdfunding, investment phase, and sought ticket size.
📝 Term sheet (The Galion Project)
🔍 Examples of ESG Term Sheet
Article rédigé par les équipes d’Obvious Ventures, fonds américain qui investit en early-stage (ressource en anglais 🇬🇧)
In our due diligence process, we focus on nine areas of inquiry to build our internal evaluation of ESG intention:
Environmental
- Greenhouse gas reduction : We evaluate how the company’s products or services will reduce, replace or remove greenhouse gas emissions including carbon dioxide, methane, nitrous oxide, and ozone; this spans a range of climate tech from renewable energy production to carbon capture.
- Resource use reduction : We evaluate how the company will reduce the resources required to make/distribute products or services (e.g., efficient or automated manufacturing processes, localized production, higher quality control, material reuse or upcycling, etc.)
- Pollution / toxicity reduction : We evaluate how the company will materially reduce or eliminate pollution and toxic outputs; this includes new manufacturing processes and new material science.
Social
- Improve human physical & mental health : We evaluate how the company will improve peoples’ physical and mental health in ways that drive better health outcomes at lower costs for patients. We also consider improved safety in the work and the home.
- Employee development & job creation : We evaluate how the company will develop employee skill sets, create new employment opportunities (beyond positions at the company), and/or provide meaningful assistance to small businesses.
- Improve financial security & safety nets : We evaluate how the company will improve access and affordability of essential financial services; this includes financial planning, savings, and lending, as well as safety nets such as insurance.
Governance
- Team & board diversity : We evaluate both the current level of diversity in the company’s leadership team, as well as their specific plans to increase team and board diversity in the near future.
- All stakeholder inclusion : We evaluate how the company delivers tangible value to all stakeholders including employees, supply chain partners, and the local communities where it operates.
- Investor Oversight : We evaluate the checks and balances provided by investors and board members. Where applicable, we utilize our board role to provide oversight and monitor progress on ESG goals.
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