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Gen Z and millennials are more impact-minded than any previous generation. Growing up as digital natives, they’ve been exposed to the challenges facing our world in real time and are highly aware of the need to make a difference.
Constant headlines remind them of the mounting urgency to take action on climate change, social injustice and income inequality. They see firsthand how tech can be used to create solutions to these pressing problems. And they’re not content to wait for someone else to fix things. They want to be the ones making an impact.
They’re also well-positioned to drive change. As Deloitte reports, 71% of millennials and 70% of Gen Z report feeling “financially secure,” and this isn’t without reason: Millennials have higher inflation-adjusted incomes, higher net worths and more savings than previous generations at the same age.
Young people are also more educated than ever before, with 69% of millennials having some education beyond high school, compared to just 54% of boomers. With all of this knowledge and opportunity at their disposal, it’s no wonder that young people are focused on making a difference.
Venture capital as the outlet for change
Venture capitalists have always been interested in making money, of course, but there’s a growing recognition that VC can also be a force for good. As more young people enter the workforce with the desire to make an impact, VCs are increasingly looking for ways to invest in companies that are solving social and environmental problems.
One way VCs are doing this is by investing in sustainable enterprises, or businesses that combine a profit motive with a social or environmental mission. A recent Bain survey highlights that 70% of limited partners (LPs) include an Environmental, Social and Governance (ESG) approach to investing, and 85% of those LPs have an ESG policy fully or partially implemented in private equity.
VCs are also investing in companies that are using technology to solve problems in areas like healthcare, education and energy. These are the kinds of companies that can have a real impact on people’s lives, and young people are increasingly interested in working for them.
The trend towards impact-focused investing is only going to continue as more young people enter the workforce with a desire to make a difference. VCs who want to stay ahead of the curve should start looking for ways to invest in companies that are making an impact. It’s not just good for the world; it’s good for business.
Barriers in the way
Venture capital investing, however, is not well-known for its inclusivity. High capital requirements, network-based dealmaking and lack of transparency can all act as barriers to entry for young people who want to get involved in the industry.
In lieu of opportunities to invest in private companies, many young people are turning to the public markets to make their impact. But while investing in publicly-traded companies can be a way to make a difference, it’s not the same as investing in a company from the ground up.
Not just that, but public markets are failing to provide the kinds of returns that young people need to make a real impact. For example, the S&P 500 has only returned an average 11% internal rate of return (IRR), according to Cambridge Associates, while the average VC fund generates a 19% IRR.
With inflation eating into returns and consistently low bond yields, economists are forecasting “dismal returns” for the next generation of investors. In light of this, young people need to be thinking about how they can get involved in the venture capital industry if they want to make a real difference with their money.
While VC has long been the domain of the wealthy and well-connected, there are signs that this is changing. Platforms like Gridline, an alternative investment platform, are opening up access to the industry by enabling individuals to invest in a curated selection of professionally managed alternative investment funds.
Also, the SEC has recently relaxed the definition of an accredited investor, which opens up opportunities for a wider pool of people to get involved in VC. With more people than ever before looking to get into the industry, there has never been a better time to be a young person in venture capital.
Go to Publisher: Entrepreneur: Latest Venture Capital Articles
Author: Frederik Bussler