Venture Capital/Analysis/

What do Gen Z founders really want from VCs?

Gen Z are known for being digital natives, caring about climate change and advocating for fairness. But how does that affect what they want from VCs?

By Sophie Zhang

Roei Samuel, CEO and founder of Connectd

Members of Gen Z — those born after 1996, generally — are self-aware, persistent and innovative; they’re digital natives, care deeply about their own wellbeing and that of the planet; and they’re more culturally diverse and socioeconomically vulnerable than older generations.

But how does that affect Gen Z founders’ relationship with VCs?

Gen Z want more than VC’s troves of cash

While cash remains a central part of the relationship between entrepreneurs and investors, Gen Z founders are more likely than older generations to see value in investors beyond the money: 80% of Gen Z founders also value an investor’s network and connections, compared to just 63% of founders over 25, according to a survey of 100 entrepreneurs by Connectd, a platform that connects entrepreneurs with investors and advisers.

“Gen Z founders are getting into entrepreneurialism at a much younger age, and as a result, they don’t necessarily have existing networks of high-net-worth individuals,” Connectd’s founder and CEO Roei Samuel tells Sifted.

They’re also increasingly looking for investors online. The survey found that 82% of Gen Z founders use online platforms to source investments, compared to 65% of those over 25; it also found that 72% are looking on social media, compared to 60% of older founders.

Gen Z founders want VCs to align with their values

Gen Z is known for oversharing and being online 24/7. But there’s an upside to that. “Previously the VC process was a bit of a dark art,” Samuel says. “If you weren’t from VC, you didn’t know how it worked. But now with the proliferation of information, Gen Z founders feel the playing field has levelled a bit more in terms of their understanding of the VC process, what are good deal terms, what are the sorts of terms they should be taking.”

While founders aged 25 and over accepted that VCs had a tendency to focus their time and support on the best-performing portfolio companies, Gen Z founders want equal treatment, Samuel tells Sifted.

As a result, looking for fair terms and fair treatment are a key part of the VC process for Gen Z founders, and many are willing to walk away from a deal if that’s not the case.

But that’s not the only reason. A whopping 96% of Gen Z entrepreneurs say they would reject an investment if the investor wasn’t morally and ethically aligned with their principles, according to the survey.

“The biggest difference that we’ve seen is how much more of a focus there is on purpose,” Samuel says. Pointing to the heatwave that recently gripped the UK and parts of Europe, Samuel believes there’s a feeling of urgency among Gen Z, who “feel they are the generation with the last chance” to solve issues like climate change before it’s too late. According to a 2022 survey by Deloitte, 75% of Gen Z believe the world’s at a tipping point when it comes to climate change.

“They feel helpless because of the actions of previous generations, and therefore they want to take action and really make things happen themselves,” Samuel says. 

When doing due diligence on investors to find out if they align with their values, he points to five questions Gen Z founders should ask:

  • How do you divide your time across portfolio companies?
  • At what point do you expect a company to value profit over purpose?
  • What are your ESG credentials?
  • Have you invested in similar companies before, and how have you treated them?
  • How much hands-on support do you provide?

Gen Z are all in for moonshot ideas

“Gen Z is the most ambitious, most entrepreneurial generation we’ve ever seen,” Samuel says. 

Traditionally, founders from older generations are more “risk averse”, looking to solve particular problems in niche markets. But this isn’t the case for Gen Z. 

“Gen Z founders have global ambitions from the get go: we’re thinking bigger, thinking globally,” Samuel tells Sifted. 

That matches the goals of VCs, he adds, who are interested in companies with the potential to scale — he also thinks this is where Gen Z can push the climate tech agenda. 

That’s also something that’s increasingly on the mind of VCs. Europe has recently seen several new climate-focused funds emerge — like AENU and Climentum — with a focus on moonshot sustainability startups and the ability to back companies from seed to IPO. 

He notes that Gen Z founders can be too mission-driven, however, and that they can neglect the commercial aspects of building a startup. 

“Gen Z founders are trying to solve these issues first and thinking about the commercialisation later, often not understanding how to bridge the gap between narrative and business building in a way that’s meaningful to VCs.” 

Sophie Zhang is an editorial assistant at Sifted.

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