Ozi Amanat is an international investor, venture capitalist and founder at K2 Global.
Venture capitalists have played a pivotal role in the development of some of the most revolutionary technologies in human history. These innovations have had a profound impact on the world, driving economic growth and social progress. Some may argue venture has empowered a humanitarian mission to progress society, but to what ends?
The answer is complicated. On one hand, VCs can be seen as instrumental in driving innovation and job creation, providing financial support and transform the way we live our lives. In a way, they help fulfill our wants, needs and desires as people. But now it seems like we’re starting to endanger this. Weak practices in due diligence and investment can create a vicious cycle of funding the development of technologies that may cause harm to society if in the wrong hands or put to nefarious use, such as artificial intelligence and advanced robotics.
As founder of a venture capitalist firm, it’s clear to me that we back and create the most incredible companies but at night I fear our collective success can lead to our demise if we are not careful.
The Problem: Decreased Due Diligence And Lack Of Humility
Echo Chambers: VCs rely on a network of connections, conferences, hubs, podcasts and newsletters. This ecosystem can create an echo chamber that reinforces certain perspectives, lowers due diligence and creates hype cycles, flooding sectors with funding and betting on early players who may not be ready to take on VC funding. This herd mentality led to the SVB bank run, where fear echoed across social media platforms, leading to trigger thumb responses that rippled across the internet.
Investor And Operator Arrogance: Leaving behind a growth-at-all-costs mindset, we need to think about the people we are investing in. The nature of venture requires you to create genuine relationships over ten years. When you’re sitting across from founders and ask tough questions about their business model, long-term vision and growth plan, this isn’t just about the numbers. This is about creating a stable base for someone you will likely be taking to fore the next decade.
Weak Fundamentals: It seems that we’ve forgotten all about stable unit economics, rather than speculative projects. VCs must evaluate the sources of revenue, as some companies that have raised a lot of venture capital money don’t have much to show for it. I believe thoughtful investment and trust are critical for creating a healthier investment environment that benefits both founders and investors.
The Solution: Moving Forward With Balancing Benefits And Risks
Invest with ethical founders. Focus on companies that are committed to developing technologies that are safe and ethical. This includes supporting startups that prioritize transparency and accountability in their development processes. Venture capitalists should prioritize honesty and humility.
Work with regulators and diverse stakeholder groups. Develop policies and guidelines for the responsible growth and use of these technologies. This includes engaging with policymakers to develop frameworks that balance innovation and safety and providing input on issues related to data privacy and security.
Own your responsibility as financial allocators. Recognize that venture capitalists have a responsibility to ensure investments are contributing to the greater good of society. This requires a careful balancing of risks and benefits and a commitment to investing in technologies that have the potential to improve people’s lives while minimizing potential harm. Roll up your sleeves and dive into the fundamentals.
While venture capitalists have been instrumental in driving innovation and economic growth, they also bear a responsibility to ensure that the technologies we fund are developed and used in a responsible manner. As we move forward into an increasingly complex and interconnected world, it is essential that we work together to create a future.
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