How Venture Capital Can Aid Young People in Making a Difference in
There are numerous ways that venture capitalists can support social entrepreneurs and young people to make a difference, from investing in ESG to doing so.
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More than any other generation before them, Gen Z and millennials are impact-oriented. They were exposed to the problems facing our planet in real time as they grew up and are very aware of the need to change things.
They are constantly reminded by headlines of the pressing need to address social injustice, climate change, and income inequality. They have firsthand experience with how technology may be applied to solve these urgent issues. And they don’t want to wait for someone else to take care of the problem. They desire to have a significant impact.
They are also in a good position to influence change. According to Deloitte, 71% of millennials and 70% of Gen Z say they feel “financially comfortable,” and it’s not hard to see why: At the same age, millennials have higher salaries that have been adjusted for inflation, bigger net worths, and more savings than prior generations did.
The younger generation is also better educated than ever before, with 69% of millennials having completed some form of post-secondary education, compared to just 54% of boomers. Young people are naturally motivated to make a difference since they have so much knowledge and opportunity at their disposal.
Venture money as a vehicle for transformation
Naturally, venture capitalists have always wanted to make money, but there is increasing awareness that VC can also be a force for good. VCs are increasingly searching for opportunities to invest in businesses that are addressing social and environmental issues as more young people enter the workforce with the desire to make a difference.
Investing in sustainable firms, or companies with a commercial purpose as well as a social or environmental objective, is one method VCs are doing this. According to a recent Bain poll, 85% of limited partners (LPs) have a fully or partially implemented ESG strategy in private equity, and 70% of LPs use an Environmental, Social, and Governance (ESG) approach to investing.
VCs are also funding businesses that are utilizing technology to address issues in industries such as healthcare, education, and energy. Young people are getting more and more interested in working for these companies since they have the potential to make a significant difference in people’s lives.
As more young people enter the workforce with a desire to make a difference, the trend toward impact-focused investing will only grow. VCs should start looking for opportunities to invest in businesses that are having an effect if they want to stay ahead of the curve. It’s advantageous for company as well as the environment.
Objects in the path
However, venture capital funding is not renowned for being inclusive. High entry barriers for newcomers to the market include network-based dealmaking, high financial requirements, and a lack of transparency.
Many young people are turning to the public markets in place of possibilities to invest in private businesses in order to make an impact. However, while investing in publicly traded firms can be a method to change the world, it’s not the same as starting a business from scratch.
Additionally, public markets fall short of offering the returns that young people require to have a significant impact. According to Cambridge Associates, the average internal rate of return (IRR) for the S&P 500 is only 11%, but the IRR for a typical venture capital fund is 19%.
Economists predict “dismal returns” for the upcoming generation of investors due to inflation eating away at returns and persistently low bond yields. In light of this, young people should consider how they may join the venture capital sector if they want to use their money to actually change the world.
There are indications that this is changing even though VC has traditionally been the realm of the well-off and connected. By letting anyone invest in a curated list of expertly managed alternative investment funds, platforms like Gridline, an alternative investing platform, are expanding access to the sector.
Additionally, the SEC has broadened its definition of an accredited investor, creating new chances for a larger group of people to participate in venture capital. There has never been a better time to be a young person in venture capital, with more people than ever seeking entry into the field.