April 23, 2021

VCs need to adopt some of that 'radical transparency' startups love

Founders will soon start to wonder what investors who don’t share data on their firm and portfolio have to hide.

The BGV team

The idea of ‘radical transparency’ is taking off in many startups. It’s an approach where companies share details of their operations clearly and openly, both internally and externally. The companies that do embrace transparency claim that it fosters a greater sense of trust, helps keep them accountable and even has a direct positive impact on revenues. For healthtech startup Alan, that means publishing its letters to shareholders online; for social media engagement platform Buffer, it means publicly sharing details of every team member’s salary. 

But VCs haven’t jumped on the bandwagon — yet.

While there are plenty of reports on the state of VC investing, the number of firms actively sharing data directly and publicly is in much shorter supply. Even when it came to contributing to a recent diversity and inclusion (D&I) joint report by the British Private Equity & Venture Capital Association and Level 20, only 39% of firms chose to contribute data on the ethnicity of their teams. 

At Bethnal Green Ventures, we are one of the few VCs that publishes extensive information on a multitude of D&I and ESG aspects regarding our portfolio, team and operations. Not only because we're a B Corp, but because we believe that transparency both helps us to be better investors and contributes to a fairer industry. 


As the pressure builds for VCs to become more accessible, those that don’t start sharing more meaningful insights into their firm and portfolio will start to beg the question — what are you hiding? The likes of Landscape — ‘Glassdoor for VC’ — mean there are less places to hide, and rightly so.

While putting such extensive information into the public realm can seem daunting, it can be an advantage too. Here’s why. 

Accountability in action

It's said you can't manage what you can't measure. We also think you can't change what you don't commit to. In other words, accountability is important. 

Look at gender diversity in the VC industry: while there are a number of organisations and initiatives that are helping to move the needle on this front, we also need more VCs to hold themselves individually accountable. Submitting data to be reported on in aggregate, to the likes of Investing in Women Code, can be helpful for building an industry-wide picture, but sharing that data openly would be even better.

Why? Because it removes the opportunity to default to the excuse of a ‘systemic’ problem. As a firm directly sharing your own progress with regards to gender equality, you invite others to help keep you on the path to improvement. 

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A work in progress, not a one-off PR play

An understandable barrier to radical transparency is a fear that revealing such extensive information won't tell a story in line with the ideals we espouse. But if we all wait until our data is picture perfect, we'll be waiting forever. 

If we all wait until our data is picture perfect, we'll be waiting forever.

Just as VCs might tell portfolio companies to launch a rough and ready version of their product or service, we must practise what we preach. By sharing practices and data with the caveat that they are a work in progress, critics are disarmed and feedback loops and iteration can be taken advantage of.

Radical transparency shouldn’t be thought of as a one-off PR play, instead it’s an opportunity for ongoing improvement. 

Transparency as an advantage

Increasingly we are seeing third parties begin to assess and rank VC firms based on metrics other than the traditional financial ones. The Equality Group Inclusive PE & VC Index 2021 was a recent example of this, rating 300 firms based on their D&I practices — and taking into account how accessible information on those firms was. 

Radical transparency signals an ability to walk the walk, not just talk the talk.

Another advantage is in attracting deal flow. As investors look for ways to attract the most talented founders, often aiming to differentiate themselves and prove their ‘value-add’, radical transparency signals an ability to walk the walk, not just talk the talk. 


This also extends to the case of attracting more diverse founders. Increasingly investors realise they're missing huge opportunities if they continue to only back the same profile of person that historically has attracted capital. As a recent Morgan Stanley survey shows, 43% of VCs say that finding opportunities with multicultural-founded companies is now a “top priority”.

However the investors that not only create initiatives to increase a more diverse pipeline — such as holding office hours for female founders — but also share the data on their engagement with under-represented founders, will be the ones more likely to attract them. Representation really does matter. 

Taking ownership of our responsibility as investors

We also have a responsibility as investors to be honest about our impact on the world around us. Investing into fast-growth companies comes with more than just financial risk. Most startups aren’t pitching their product or service to directly cause negative outcomes, but that doesn’t mean they won’t occur. As investors, we must acknowledge and talk about the potential risk of ‘unintended consequences’ of bringing new products and services into being, from the effect on users or customers of a portfolio company to the environment and society at large. 

As investors, we must acknowledge and talk about the potential risk of ‘unintended consequences’ of bringing new products and services into being.

Even businesses intentionally pursuing positive impact, such as tech for good, aren’t immune. A therapy app, for example, may present a ‘stakeholder participation risk’ such as triggering negative emotions for a user doing mental health exercises. It might also face ‘external risks’ such as a hacker attack leading to misuse of personal information. It’s our responsibility as investors to acknowledge the risks our portfolio poses, and to help them to put in place mitigations. 

As we launch our latest impact and learning report, BGV will become the first European VC to reveal such extensive D&I data on our portfolio, and the first VC globally to share an overview of our portfolio’s risks of unintended consequences. Neither of these datasets are flawless in their findings and we make a point of the areas for improvement. But with radical transparency comes the opportunity to differentiate, to optimise for success and ultimately to create a better investment ecosystem for all.