Blog Post

Reimagining Venture Capital means Rethinking Capitalism.

  • Liz Sisson 
| May 25, 2021

Self Regulation/Governance vs. Government Regulation/Governance 
What does one do if a thriving business model goes against public purpose and is fundamentally harmful to society?” A question I asked a famously Big Tech billionaire investor. Their response to the question? “The regulators will figure it out.”  

One of the original concepts we discussed in the TAPP program was the regulation spectrum. Most startups or emerging technology will interact with regulation on a spectrum-- from self-regulation to government regulation. This spectrum could look like an impact investor asking a startup to change a problematic algorithm, a firm deciding not to take on defense contracts, or for others, a city demanding a startup cease operations, a corporation choosing to go carbon neutral, or the government mandating tighter privacy settings. As fellows, we placed our projects and research on the spectrum: are you trying to make changes on a structural level (via government regulation) or an ad hoc, individualized basis (via industry self-regulation)? My TAPP research and project on venture capital and public purpose has landed on the industry self-regulation side with our educational playbook and diligence tool that helps opted-in investors consider public purpose in their investments. [For more information on my project, please visit our website here or publications here.] Spending a year to figure out how to make VCs more “ethical” (cautiously using the word ethical) via standards, governance, or government regulation did not make sense given everything I know about the industry. We found a middle ground between what I think is needed and what is practical. 

Getting Creative with “Social Good” Solutions 

In the VC + Public Purpose Playbook and Tool, we encourage venture capital investors to examine a few additional areas of diligence: the environment, labor, inequality, privacy and security, diversity and inclusion, governance, anti-corruption, and stakeholders. We encourage investors and startup founders to consider public purpose-related questions such as:  

  • What kind of resources or materials are you currently dependent on throughout your supply chain? What kind of materials could you become dependent on in the next 5 years? 

  • Does your company pay all workers, including part-time and contractors, a fair and livable wage ($16.54/hour) in the U.S.? 

  • What is the possible impact that your company will have on existing job markets (domestic and international, skilled and unskilled, blue collar and white collar) over the next 10 years? What kind of work could be displaced by the company? 

  • Is any part of your company’s technology observing behaviors from any stakeholder? If yes, does the surveillance limit work autonomy, diminish well-being and/or limit workers’ and the public’s privacy? How are the stakeholders made aware of this observation? 

  • If collecting any data, does your company sell the data that you are collecting? If not, are there any plans to monetize data down the road? If yes, who are you selling the data to? 

  • Does your company engage in any internal or external initiatives to reduce discrimination, including initiatives for hiring and recruitment that consider age, race, gender, sexuality, ability, nationality, etc.? Does your company currently sponsor visas? 

We want investors and founders to discuss the heavy implications the responses or behaviors to these questions might have on the business and to society. These areas are a start from a self-regulatory standpoint. And on the way to get there, we went through gymnastics to avoid using words like “ethics” or “social good.” We made a business argument for public purpose, accountability, and governance wherever possible. We took the opportunity to assuage any concerns around infiltrating social sciences, liberal arts, regulation, or systemic issues to ensure our solution, or at least the language we use, is as accessible (to VCs) as possible.  

In my research and working in the industry for half a decade, I have openly discussed governance, accountability, ethics, and public purpose with countless investors and startup founders both around tech and broadly capitalism. Many tech workers and investors will talk head-on about the negative consequences or externalities from technology around labor, privacy, security, trust, safety, democracy, etc. Some say technology helps deliver security and democracy, implying a mistrust in the government and a need for private sector, free-market intervention, and others say technology causes aforementioned problems. The degree to which these investors and entrepreneurs deeply understand these factors widely varies. Ethics and trust and long-term value creation are important to some as individuals but what that looks like in practice in their daily lives or for industry is more opaque. People say they will do one thing, but when it comes down to it, they often do something else when money is involved. In the same vein, the topic of regulation immediately turns people off; it’s too little, too late, or too much in the wrong direction. Addressing systems change and individual behavior is difficult to talk about and even harder to imagine.  

“I’m going to talk about governance,” Marietje Schaake began as a keynote speaker at a Stanford conference in 2020, before beginning a forceful critique of Big Tech’s extreme aversion to regulation, its unchecked collection of personal data, and its steady erosion of democracy. She brought up the ethics statements that committees and conferences like the one she was addressing tend to generate. “It’s a very popular topic,” she said, referring to A.I. ethics. “It’s also hard to be against ethics. . . . How do we make sure it’s meaningful and enforceable, and not just window dressing? 

Big Problems Deserve Big (and system-wide) Solutions 

I interrogated VC and public purpose, offering a low-touch and low-commitment solution for VCs to use in their existing diligence practices. I am not alone in trying to make VC, tech, and business more purposeful and sustainable. There have been surges in values-based, impact and ESG investing, pouring in of philanthropy dollars, ever-increasing stakeholder engagement and CSR (Corporate Social Responsibility) efforts, amongst countless other methodologies to make “social good” a thing and industry-set standards easier. This looks like slow, incremental and subjective social change where profits are not impacted. Inconsistency prevails: it is still touted in Silicon Valley and Wall Street and Corporate America that we need to minimize public-sector involvement to free private markets from regulation, the same regulation that is supposed to, amongst many other things, reduce harm to society. And despite the mask of “social good” in Silicon Valley and on Wall Street, there is still the push for more profits, more money, more returns for shareholders with little to no concern for workers or overall economic stability. There needs to be change in tech and capitalism where we do not ask decision-makers to volunteer for social good; people rarely make deep structural changes voluntarily. The issues I have observed around VC and the type of “innovation” that is embraced are part of a broader broken system. (One could also argue that the innovation is more about financing schemes than actual innovation.) Critiques of venture capital should also be critiques of capitalism and innovation. Calls for reform of VC means reforming capitalism.  

Capitalism is not broken because it's lacking in innovation or prosperity. But it’s broken because of the other side of the coin with the realities the majority of Americans face. We have relied on a bootstrap philosophy and an American dream ideology, particularly in tech, where people are expected to use personal and individual control to achieve greatness, ignoring so many structural issues. These structural issues include a reduction of economic mobility, a middle class disappearing over the last 50 years, a widening income gap between upper-income households and middle and lower-income households, the ratio of CEO pay to worker pay going from 25:1 in 1960 to 320:1 in 2020, and positive wage growth occurring in only 10 of the last 40 years. Just 1 percent of venture-backed startup founders are Black, only 2.3% of people receiving venture funding are women, and Black-owned businesses received less than 2% of COVID-19 emergency SBA loans according to a Public Integrity analysis, all statistics that make you question who really has access to capital and this aforementioned dream. Standard business practices have revolved around short-termism and rent-seeking, where value is what we can extract and not what we can create. When techies become successful or inheritance is inherited, we have accepted philanthropy and charity money as a replacement for equitable taxation resulting in wealthy individuals deciding how money is distributed and control on when societal problems are solved. We have a concentration of power where companies acquire their competitors and our solution is to threaten to break them up. We have ongoing labor and worker power disputes, extreme inequality and a burning planet. I am sure none of this can be solved with incremental, voluntary, opt-in change. Self-regulation and individual action distract from supporting systems level change that is needed for long-term transformation. 

The [Imperfect] Government  

Innovation produces long-term economic growth. Who should create that innovation and what that innovation looks like is what is always up for debate. It is claimed that the government does not build things and that the private sector is the hotbed for innovation (and have the privatization and government outsourcing numbers to demonstrate that belief). More accurately, the government is bureaucratic, not always agile, and when it comes to technology and innovation, has struggled to attract and retain the best talent. It is true that the government is not perfect and it certainly has its share of issues, but it has been an environment for innovation and is rarely positioned that way. All levels of government in the US are responsible for so much of the innovation and growth that the private sector takes credit for. The private sector has not created all its success and prosperity on its own; firms rely on government-funded schools to educate their talent, public courts to enforce IP, and roads to move their products around. The government has also famously co-produced with universities, corporations and Silicon Valley -- iPhones, supercomputers, MRIs, and GPS all stemmed from federal co-creation. Often, the same critics of the government are the same people who seek grants for research or science. “I would be fine with higher taxation if I trusted the government to do the right thing with that money,” they say as they embrace non-dilutive funding, DOE loans, public roads and education.  

The public sector needs to evolve as well by taking risks, investing, and embracing innovation internally-- not just for tech’s sake but also for the future of capitalism. Government should not just be there to play catch up, regulate or fix market failures, but instead, can shape them. We can create government policies that price negative externalities in business. For instance, a system that assesses how many full-time workers at a trillion-dollar company are on government assistance and creates conditions or penalties for that, as Lynn Forester de Rothschild suggests. The government should reimagine regulation, our legal system, tax policies, incentives and fines for certain business models. We should bring governance back from the private sector and create public purpose conditions for companies that take advantage of public dollars (such as STTR, DARPA, SBIR to DOE guaranteed loans). As Mariana Mazzucato argues, we need to co-create more between sectors and develop rewards for those who solve problems and not just follow a “tech-first” philosophy, or even worse, those who create new things to simply extract wealth. We should be using our collective intelligence to solve deep, societal problems, instead of hoarding IP, so maybe one day we can stop going from crisis to crisis (financial, climate, public health) and actually build and innovate to prevent those problems. 

Often there is misplaced trust in the private sector instead of the government. We trust companies will not sell our data, will keep our information safe, or ask our consent if need be. The average person does not understand the revenue streams of many corporations, particularly in Big Tech, and there is so little transparency as to what happens behind the scenes with products and lobbying. As Shoshana Zuboff says, “We thought that we search Google, but now we understand that Google searches us.” Innovation is not linear and neither is trust. We should be holding both the government and private sector accountable for doing what is right for the public. 


Recently, there is so much energy going into criticizing Big Tech but less around the capitalistic structures that enable Big Tech and Silicon Valley. Industries of innovation, capitalism and markets have undoubtedly “delivered” but we should not be afraid to critique and push it forward away from its harms, particularly at pivotal points during economic crises, COVID-19 and climate change. As a collective society, we have privatized and individualized science with extreme financialization of technology and extracting business models. Technology companies and their investors obsess on the tech itself and not the problems they should be trying to solve. Our BandAid solutions look like major corporations “calling for” greater inclusiveness, resilience, and fairness in their business dealings. Corporates and the wealthy are increasing stakeholder engagement and philanthropic duties. Venture capital is increasingly embracing ESG but ignoring negative impact. Tools, like our VC + Public Purpose, educate decision-makers. But opt-in or volunteering to do social good does not work, just like philanthropy does not work to replace unjust tax laws.  

Capitalism needs firms and industries to take risks and also needs incentives that reward long-term value creation. We need patient capital.  We need to reimagine investments and innovation that always benefit the public. We need private institutions to invest in research and development, pay their workers well, and to collaborate between the private and public sectors. We need the public sector to play an active role for purpose and innovation and to evolve with the times. Instead of thinking about what the individual actors should be doing, we should be thinking bigger about accountability and governance. Self-regulation, like talk, is cheap. We need better policy and rules.  

For more information on this publication: Belfer Communications Office
For Academic Citation: Sisson , Liz .Reimagining Venture Capital means Rethinking Capitalism. .” Perspectives on Public Purpose, May 25, 2021,

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