Request For Feedback: EA Venture Fund

post by atlasunshrugged · 2019-01-02T22:00:57.504Z · score: 7 (3 votes) · EA · GW · 3 comments

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Hi Everyone,

I recently took the Giving What We Can pledge and have been helping out a bit with my local EA chapter and I've been reflecting on some ideas for doing more good. One idea I was hoping to get feedback on is the idea of an EA Venture Fund that was structured as a nonprofit where we would invest into high impact companies and founders that could provide an eventual return and take those returns for high impact causes - our investors ideally would also commit a large portion of their profits to high impact charities.

I've linked a quick presentation I made about the idea and would love feedback on it


comment by Kit · 2019-01-03T20:26:14.399Z · score: 4 (3 votes) · EA · GW

Hi atlasunshrugged,

My first thought (as per a comment on another investment project [EA · GW]) is that investment firms typically need to be managed by experienced investors. It works a bit differently for VC than algorithmic trading but the basic point applies: you'd need to convince someone with relevant experience to run it (or maybe that's you).

That's my first hurdle, but there's a broader question: how valuable are various kinds of impact investing? Founders Pledge covered a lot of ground in their impact investing report. I can't remember if they mentioned the value of having influence over important startups, but based on a summary I heard, it seemed to basically hit all the points I was aware of from my experience in finance, and more. A key point, which you might be aware of, is that the counterfactuals tend to be quite bad in impact investing. That is, impactful companies typically don't require your capital in order to exist, because there are other investors. Happily, you are at least considering working with seed funding, which seems like a key place where impact investing might be worthwhile. (It's sadly a tiny share of the commercial 'socially responsible investing' market.)

Overall, I think it's pretty likely that any of 80,000 Hours' priority paths would beat founding a small impact investing firm, even a sensibly targeted one. However, the Founders Pledge report mentions a bunch of ways to do impact investing well, so that seems worth looking into if you are a professional investor or end up working with one.

Happy exploring!

P.S. there are some particular details which seem like they might need changing if this goes ahead someday, e.g. requiring all investees to commit a large percentage of their profits to charity seems likely to limit your scope.

comment by atlasunshrugged · 2019-01-03T22:44:25.379Z · score: 1 (1 votes) · EA · GW

Hey Kit,

Thanks for the thoughtful response! Yes, I wholeheartedly agree the success of a fund like this is dependent on having someone experienced (and with a lot of connections) running it. I've worked for a YC/Andreessen startup from seed to Series B, Rocket Internet, and at a VC firm so I have a base level of understanding and network but I'd definitely either want to have someone more experienced managing it or have a killer group of advisors/partners around supporting.

As for your second question, how valuable is it to actually do this, that's a fair point and I haven't been able to quantify it. My thought was that as it's focused on the seed stage it would be a long term play to engage new groups into becoming EA's or involved in it (namely top founders, LPs, foundations) that wouldn't normally be interacting with EA in this way. This way even if there isn't a great immediate return with a company we've invested in, we could get the founder involved in EA and take the Founders Pledge which they may carry to their next company even if we don't invest, we would get a seat at the table when they're making strategic decisions and try to navigate them to focus on high impact areas we see or if they have giving programs later, direct funds from that, etc.

When you say that counterfactuals are quite bad at impact investing do you mean something like the scenario where a company like Google/Facebook has money thrown at it by VCs and others because they see it's going to be wildly successful? I totally agree with that but think there are areas that get spurned, not because they'd have a bad return but because they're not sexy or obvious to VCs (The story about how difficult it was for Airbnb to raise money in the beginning comes to mind). The startups I was thinking of would be of those sort, or ones in fields like Nuclear that nobody has invested in recently except for Gates and a few others.

I'll reread the Founders Pledge report and incorporate any ideas from there, thanks for reminding me about that!

I also think that the priority paths probably would lead to a higher impact (in fact they've helped dictate a good portion of my career, I'm currently working for the Estonian govt on a digital project to get experience in the govt world so I can get into something high impact in policy or fund allocation hopefully soon) but I was thinking this would be something someone(s) could do in their spare time or that a professional VC could tack on alongside their current fund and responsibilities



comment by Kit · 2019-01-04T20:40:11.085Z · score: 1 (1 votes) · EA · GW

Wow, I'm no expert on VC, but it sounds like you could have the expertise to pull something like this off.

Counterfactuals: mostly I'm saying that most impact investing just replaces other investment. At the ludicrous end of the spectrum (which is unfortunately most of the spectrum), a lot of 'socially responsible investing' involves buying shares on a public market, simply transferring ownership without changing incentivises (since the impact on capital raising ability appears minimal and most investors don't do PR stunts, influence management or other potentially useful byproducts of owning shares). As one goes into private markets -- as you are --, I'm a bit more optimistic since there are situations like seed funding where an investor really can make the difference between existing or not, or growing or not, and can perhaps have useful early influence. e.g. I'd guess that investing in Wave now would just be displacing another investor, while maybe an impact investor helped them get off the ground and they wouldn't have been funded by regular investors. (I don't know if that's true.) The more you can identify opportunities which you could fund which wouldn't otherwise get funded, the less confident I would be in my pessimism :) Overall, I mostly defer to the Founders Pledge report. Reading every mention of 'counterfactual' will likely cover everything I would say and much more.

You mention a few potential outcomes from this kind of work (e.g. getting impactful things capital, a platform for EA advocacy, influencing companies' behaviour*). When I have done impact analysis recently, the first step was to consider what the most important outcomes could be. Sometimes a quick estimate suggests that one of the outcomes is much more important than the others, allowing you to focus on studying that factor.

Re comparing to 80k's priority paths, I'd be surprised if doing something part-time would be optimal, just on generic advice. If that generalises to VC, I'd start by comparing running a VC full-time vs deploying the same staff in other roles. Interesting idea for this as a sub-fund of a larger group. Whatever you decide, great to hear about what you're doing.

*See commentary from the Good Technology Project on their related experiences here [EA · GW]. The 'Advise entrepreneurs directly' section seems particularly relevant, but it all might be of interest.