How 500 Global evaluates and funds mission-driven tech startups

Tracy Barba, Global Head of ESG & Stakeholder Engagement, 500 Global

With over $2.7 billion AUM on six continents, 500 Global is the VC firm aiming to uplift people and economies worldwide through entrepreneurship by investing in early-stage, fast-growing tech companies. 

We sat down with Tracy Barba, the Global Head of ESG and Stakeholder Engagement at 500, to learn how startups can effectively build around ESG, DEI, and more. We dive deep on:

  1. How to find your next mission-aligned investors
  2. When startups should seriously consider ESG
  3. Three steps to diversify your next hiring pool

“As a founding team, you build for both the next three months and long-term viability. ESG is one tactic that mitigates risk and creates value for the long haul.” 

How to Find Investors that Align with Your Values

For any early-stage company in the midst of fundraising, both the founders and the venture capital firm are likely asking the same questions. First and foremost: 

  1. Will this partnership lead to a high-growth, profitable company? 
  2. Can this firm introduce this startup to all the right partners and customers? 

However, for VCs like 500 Global and startups trying to fundraise in alignment with their mission and values, it all comes down to the quality of the connection. 

After all, an interpersonal connection is where you can effectively gauge an investor’s true values, and high-quality connections tend to signal shared values. 

At the end of the day, says Tracy, you’ll likely have your pick of firms that can improve your bottom line, but it’s far rarer to find a partner who can totally see and grasp your vision. 

As such, she advises optimizing your cap table for investors who can (ideally) both: 

  • Directly contribute to your bottom line and growth function
  • Augment your mission values, whether they’re social, environmental, etc. 
“The personal connection between brand and VC is where you really get to determine values. It’s an important but often overlooked part of fundraising.” 

When Startups Should Implement ESG & DEI Initiatives

As for when startups should begin seriously considering ESG or DEI, Tracy emphasizes starting ASAP — ideally somewhere between pre-seed and Series A stages. 

Unfortunately, that is not always the case. For example, if asked about environmental impact, it’s not unusual for companies early in their life cycle to respond along the lines of: “We’re five people working on laptops. How much of a carbon footprint could we produce?” 

Here, the challenge is convincing an early-stage team, who is typically focused on just surviving the next 3–6 months, to enable big-picture policies for downstream savings that cost nothing to implement now and should provide value over the long term. 

Preventing Negative Downstream Impact

The 500 team advises investments to start small early on to inculcate a culture around ESG and DEI before it becomes harder and costlier to redirect. 

For instance, research shows company cultures are set by the first ten people. So, with DEI: 

  • If your first three employees are men, your next three hires are likelier to also be men
  • In the interim, this flies under the radar as teams prioritize growth and fundraising
  • Before you know it, your team has grown to 100, 90 of whom are all white men

On that front, Tracy sees many larger companies attempt to course-correct before gunning for a Series D raise, an IPO, or some other liquidity event — when it's far more expensive to do so. 

Laying the Foundation

Early ESG efforts are less about strict KPIs and more so about setting intentional processes for the long haul — as startups already do for many other aspects of their business. 

To begin building infrastructure or setting a cultural shift in motion at your company, you can start as small as assigning one person to consider your carbon footprint. 

That team member can work in lowkey but incrementally larger ways, including: 

  • Calculating the environmental impact of each business trip
  • Putting metrics about your carbon footprint at the bottom of expense reports
  • Discussing what basic environmental practices you expect your suppliers to follow

To get started, startups can look for a simplified GHG Protocol that's easy to implement and accurately tracks environmental impact, such as the table illustrated in this Startup Climate Guide from the Aspen Tech Policy Hub or the EPA's simplified GHG Emissions Calculator.

“Ultimately, mindful practices around ESG are best integrated as early as possible, rather than treated as an additional, throwaway policy down the line.” 

500 Global: Evaluating Investments for ESG

Within 500’s due diligence process, Tracy reviews investment memos and questionnaires to evaluate companies purely through an ESG lens. 

She also highlights that the industry’s understanding of what constitutes impressive ESG is still nascent, especially when compared to an adjacent space like impact investing

Red Flags

The 500 team automatically rules out potential investments that show clear red flags, such as: 

  • Using child labor and other exploitative supply chain practices
  • Producing weapons or goods of a similarly violent nature

Otherwise, Tracy leverages the aforementioned questionnaire to gauge, at minimum, where the company is in their ESG journey and the potential progress they could make. 

For instance, on the DEI front, she asks about non-discrimination policies and diversity numbers. A company with 100 people and zero women in senior management raises a red flag. 

A lack of diversity won’t necessarily disqualify a potential investment, Tracy clarifies, but it signals that she’ll have to work closely with the team at hand to: 

  1. Understand their startup history
  2. Help them build out relevant DEI efforts
  3. Point out untapped areas for development
“In my role, I gauge where potential investments are in their ESG journey: what they find important, the work they’ve already done, and where they could go next.” 

500 Tactics: How to Introduce and Improve ESG Efforts

Below, Tracy walks us through three ways she’s developed ESG policies and practices for 500’s portfolio companies, as well as what startups can learn from these scenarios. 

1. Implementing DEI Across the Globe

As a global firm, the 500 team must approach the work of building DEI in company cultures with respect to broader international cultures and contexts. 

A senior management team without any women could be written off as a red flag, but a closer look might reveal that women are less represented overall within their local workforce. 

For one team, the norm for women in their country is to leave work to raise their families and return years later. Potential solutions like part-time work or consulting gigs are far less common. 

In response, Tracy worked with them to: 

  1. Map out and navigate those circumstances
  2. Integrate the mentioned alternative work models
  3. Recruit gender-diverse hires under those new models
  4. Culturally integrate diverse hires with the goal of retention

2. Addressing Sensitive Topics with an Inclusive Lens

In another case of DEI, Tracy has worked with companies with all-male teams — where one member then transitions from male to female. 

This new dynamic presents tricky but valuable questions for Tracy to guide everyone through: 

  • How can teams foster a sense of transparency so it's easier to talk through sensitive topics and tough questions? 
  • How can teams create a space for open conversation, without fear of discrimination or fear of asking the wrong question? 
  • How can teams begin to build a culture where gender diversity feels safe — like an innate part of how the company operates? 

3. Building Ethical Tech

As of late, many questions from 500’s founders fall under the umbrella of so-called ethical tech. For instance, when it comes to bias in data science, AI, machine learning, and more: 

  • When and how should a startup consider the unintended consequences of their tech? 
  • What checklist should a team follow to ensure they’re thinking through, constructing, and implementing solutions at every stage of growth? 
  • How can teams integrate that info into setting realistic KPIs for the product dev cycle? 

To work through these prominent topics, the 500 team brings in leading experts in these fields of study to workshop ethical frameworks and solutions for industry players. 

"With DEI, I often work through what it means to build a team culture. But the idea of culture itself varies since we invest around the globe." 

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