Adopting ESG & Impact Principles into Internal Operations

So far, we have taken you through step by step how we think about ESG and Impact from a VC positioning perspective, made the case for why it matters in addition to the initiatives we have implemented to integrate ESG into our investment process and portfolio management. However, all of this would not be as effective or meaningful if we didn't walk the walk ourselves.

In this post (#5), we share why and how we champion the ESG & Impact agenda in our internal operations. We discuss the steps we've taken to create a strong, inclusive workplace, how we define and track key metrics like employee well-being and diversity, and our commitment to minimizing our carbon footprint. 

This will be structured into four sections:

1. Building a workplace that reflects the principles we promote - We have built our internal setup based on the principles we promote and try to improve constantly. It is not just an “empty preach” but our fundamental conviction.
2. Articulating an employee value proposition: Attracting top talent goes beyond salary and perks and is a function of your value proposition towards startups complemented by your cultural pillars (aka. ways of working).
3. Four key areas to move the needle internally and be a role model for the companies we work with: As VCs, we can role-model the behavior we like to see in our portfolio companies by focusing on shared goals. 
4. Operationalizing it by defining and measuring the right metrics: We measure and track ESG in our internal operations using the same framework as our portfolio companies, focusing on clear metrics, regular data collection, and analysis to ensure responsiveness to challenges.
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(1) Building a workplace that reflects the principles we promote

Authenticity is created by “walking the talk”. We cannot champion the ESG & Impact agenda for founders and attract the right employees if we fail to align our internal operations with the principles we promote. Although most of our convictions come from seeing why it matters firsthand! 

One of our beliefs is “the way you do anything; you do everything”. So, challenging business practices starts with challenging our internal setup. This is also where we have the highest degree of influence. 

As a VC, we are also employers. That means we need to win the trust, loyalty, and commitment of our employees. This starts with building a healthy work environment. One where employees can grow and find purpose in their work. However, we also want our team to buy into our impact-aware agenda and challenge us on where to refine, improve, or even draw the line.

Many of the things we have been doing are not too new, and a lot of it happens organically. The hard part of it is becoming better at articulating and turning them into best practices. It’s key for us to lead by example and find the right people who can help us shape the agenda. 

(2) Articulating an employee value proposition

Finding and keeping the best talent are table stakes for all businesses. With the job market becoming increasingly competitive, we need to offer strong reasons for people to join, engage, and stay with us. In other words, we need an Employee Value Proposition (EVP) that resonates with top talent. This is especially true for a “Challenger fund” that has to compete with larger, well-known VCs that have a strong track record.

A strong EVP goes beyond material aspects, such as salary and perks - they can level the playing field but won’t set you apart. Instead, it is mainly a function of:

1. The value proposition towards startups, and 
2. The company culture (aka. ways of working)
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Pillar 1: The value proposition toward startups. The core lies in the value proposition towards startups - who you work with, who you support, and the bigger agenda you stand for. As a VC, we need to find and demonstrate our own “Product market fit” with the fund focus and portfolio model. If you’re curious about how we approached this at byFounders, you can find more information in our previous three articles, where we’ve unpacked our positioning, investment process, and portfolio management model.

Pillar 2: The company culture (aka. ways of working). The second pillar focuses on company culture - how we communicate, collaborate, support, and treat one another. A great culture will enable employees to succeed at their work. If the culture isn’t supportive of goals, employees will feel unmotivated (and likely quit) because they won’t get any psychological rewards (e.g., sense of achievement, recognition, etc.) or material rewards (e.g., bonuses, extra perks, etc.) from their work. Equally important is cultural fit because employees are generally happier and more effective when they feel like they belong.

While company culture will vary, it should be based on clear and practical principles that can guide everyday decisions and interactions. For example, at byFounders, we have built it on the following three pillars:

• Trust: Autonomy > Hierachy
• Inclusiveness: Team > Individuals
• Courage: Contrarian > Conformist

To make this more practical, we put together a “Culture Handbook” that outlines some of our key principles and values, including how we communicate via Slack, behave in board meetings, and so forth. Alongside this handbook, we have implemented a few culture-bearing initiatives that reinforce our values in a very tangible way. Of course, there's more to it than that. However, taking the time to define these pillars (incl. guiding principles) can be extremely impactful. Primarily because it allows us to set the right impulse and intentionally “design” our culture. This can make a big difference in how you work together.

(3) Four key areas to move the needle internally and be an inspiration for the startups we work with

When it comes to our internal operations, we follow the same overarching framework that we apply to our portfolio companies. Hence, as part of our fund management, we take responsibility for a number of ESG factors both in our core team and in the Collective.

Carbon Footprint

While our team may be small, we understand that our day-to-day operations still leave a mark. Meeting founders and supporting our portfolio often requires us to travel—whether it’s for events, conferences, board meetings, or onboarding sessions. Travel also makes up the biggest chunk of our footprint. While we cannot eliminate it completely (some connections are best made in person), we’ve taken steps to minimize and hold ourselves accountable for our carbon footprint:

• Prioritizing Virtual Meetings: Whenever possible, we use video conferencing tools like Zoom for board meetings, founder meetings, and team calls.
• Eco-Friendly Travel: For necessary in-person meetings, we prioritize eco-friendly alternatives like trains for travels below 5 hours.
• Carbon Offsetting: What we can’t reduce, we offset on a yearly basis. We use Normative’s free Business Carbon Calculator to calculate our emissions and have most recently used ClimateTrade for offsetting.
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People’s Wellbeing 

We believe that happy employees will make our fund better, so we focus on creating a supportive and fair work environment where everyone has equal opportunities and feels empowered. Here are some of the initiatives we have in place to ensure our team feels valued and supported:

• Personalized employee benefits: Each employee who has been with us for at least one year gets a budget, which they can use for their professional development (e.g., to hire a coach). 
• Career Development Plans: There are clear career growth paths for every role and team member.
• Bi-annual performance review: Review performance and give an estimate of what is required to move to the next level (incl. expected timeline).
• Weekly check-ins: Every employee has weekly check-ins with their direct manager
• Health Insurance: All employees are on a health insurance plan from Tryg. 
• 5F (aka ‘Forced Focus & Flexible Freedom Fridays’): Every week, team members can decide how they want to spend their Friday. Everyone chooses what works best, and we trust that this flexibility will benefit both the individual and the fund long-term. 
• Hybrid-remote work culture: Employees have the freedom to choose between working from home or in the office, depending on what suits them best.

Diversity, Equity & Inclusion

There is a critical lack of diversity across the entire tech ecosystem. As investors, we need to build a team that reflects the ecosystem we want to invest in. When we include different perspectives, we open ourselves up to new ideas and insights, which ultimately leads to smarter investment choices. That’s why it’s important to create a space where everyone feels welcome, valued, and heard—both on our team and in our collective. 

Recruiting 

• Employees
  • Targeted outreach: To widen our applicant pool, we prioritize attending events that target people from underrepresented backgrounds (e.g., the Nordic Fe:male Invest Summit in Malmö). 
  • Proactive recruitment: We actively head-hunt for diverse candidates. When a position opens, we start by defining the required background, experience, and skills. We then gather potential candidates by consulting our network and going through LinkedIn with targeted filters. Finally, we narrow the list and personally contact those who best fit our criteria.
  • Standardized interview processes: We have a clear and identical interview process for all applicants. 
  • Inclusive hiring timelines: We avoid setting application deadlines below four weeks to allow for a more inclusive process (we see a tendency amongst women to reflect and work on their applications for longer).
  • Inclusive job description language: We check job descriptions for the use of inclusive language and make it clear that all applications are welcome - regardless of who they are and where they come from.
• Collective
  • Proactive recruitment: We actively look for diverse members to join our collective. To find the right people, we use a tracking sheet that maps their skills, potential contributions to our founders, and how their backgrounds would improve the group's overall diversity.
  • Ambassador program: This program offers a different way for people from all backgrounds to join the byFounders Collective, as long as they have the right experience. Instead of having to invest in the fund, founders and operators can now sign our Pledge and become part of the collective, which wasn’t always an option!

Retaining & Developing Employees

• Pay equity across the same titles: We ensure equal pay across all levels of the company.
• Fair ‘equity’ compensation: All investors (above analyst) receive carry, and carry keeps vesting during parental leave.
• Equal parental leave policy: We go beyond statutory requirements and offer universal and generous equalized parental leave benefits for both genders.
• Same “investor” title externally: Everyone on the investment team below the partner and principal level gets the same title - Investor.
• Diversity, equity & inclusion policy: Formalized our commitment by publishing a clear diversity and inclusion policy.

Product & Data Ethics

As VCs, we collect and analyze a lot of information about startups, founders, and market trends - and we have to do so responsibly. However, upholding ethical standards is not just about compliance, it also allows us to build trust with key stakeholders and make better, more informed decisions. Here are some initiatives we’ve taken to ensure we handle product and data ethics properly:

• Privacy policy & GDPR: We enforce a robust privacy policy in compliance with GDPR, ensuring the responsible handling of data and protecting the privacy rights of startups, founders, and stakeholders.
• Whistleblower portal:  We care about the well-being of our employees, partners, and the founders we engage with, so we’ve established a whistleblower portal where anyone can report any unethical behavior or concerns confidentially.
• Security Slack channel: We have a dedicated Slack channel for security concerns, where all employees can share any issues, questions, or potential threats they encounter.
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(4) Operationalizing our commitment to ESG by defining and measuring actionable KPIs

To ensure accountability on a day-to-day basis and stay on top of new developments, we regularly track, measure, and report on a number of metrics related to our internal operations. We use the same overarching framework to measure ESG factors in our internal operations that we apply to our portfolio companies - with a few adjustments to make sure it fits our context. 

Here’s how we keep ourselves on track and ensure we’re moving in the right direction:

#1  Set proper targets for our fund that we can work towards. To move the needle internally, we set specific goals for all of our outcome KPIs. This gives us a benchmark to compare ourselves against and helps us prioritize our efforts. Here are a few examples:

• Carbon footprint‍
  • Co2e/ FTE (We are still looking for a good benchmark)

• People's well-being
  • Employee Churn (< 15%)
  • Employee NPS (> 60)
  • Portfolio NPS (> 60)
  • Collective NPS (> 60)
• Diversity, Equity & Inclusion
  • % female representation in the recruitment process (60/40 gender split at the second stage) 
  • % women in Partner Group (Maximum 75% gender homogeneity)
  • % women in Investment Team (50/50 gender split)
  • % women in Full Operations ( 50/50 gender split)
  • % women in Collective (Maximum of 70% gender homogeneity)
• Product & Data Ethics
  • Number of Privacy Breaches (0 incidents)
  • Number of Whistleblower Incidents (0 incidents)

‍#2 Collect data at regular intervals to keep a pulse on new developments. Most of the data is collected annually as part of our Impact-Awareness report. However, we have some additional, more frequent touchpoints. Specifically:

• Weekly Employee Surveys:  We send out weekly employee surveys with five rotating questions using Officevibe. At the end of each survey, everyone is encouraged to send out “Good Vibes”—fun recognition cards to celebrate their teammates' efforts. This keeps the good vibes flowing and makes sure everyone feels appreciated.
• Bi-annual Founder & Collective NPS Survey: We collect NPS scores from founders and our collective twice a year, usually at key events like our Summit. If you are curious, you can check out our Founder NPS Survey and Collective NPS Survey through these links.
• Annual Carbon Accounting: We review all of our expenses and receipts to calculate our carbon footprint with Normative. 

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#3 Analyze and report on data to make informed decisions and hold ourselves accountable to our targets. Most of the data we collect is analyzed and shared annually in our Impact Awareness Report. Where it makes sense, we look at the data more often to spot trends and make adjustments, so we can stay on track throughout the year. For example, employee well-being is one area that we want to stay on top of at all times. That’s why we review and discuss the results from Officevibe every month during our team call. This way, we can catch problems early and address them right away.

(5) Recap

Authenticity is created by walking the talk. We live by the principles we preach, and we do it based on our own convictions.

Some of the main takeaways include:

• Treat your Employee Value Proposition (EVP) like your positioning toward customers: Employees are your main asset as a fund. Therefore, we need a well-defined EVP to attract and retain top performers (which has to go beyond salary and perks). Ultimately, it comes down to a combination of a) the value proposition towards startups and b) the cultural pillars.
• Walk the talk and stay consistent: We hold ourselves to the same standards as our portfolio companies. Primarily because we are convinced that it will make our fund better. As our team and portfolio continue to grow, we see new challenges, and we know we can’t get stuck in the status quo. We’ve already taken several practical steps across our four ESG focus areas, but we know that we have to keep pushing for progress!
• Build a clear process around it: To keep a pulse on our progress, we’ve defined a core set of metrics across our four ESG focus areas - including a clear process for collecting and analyzing various data points. By keeping an eye on these numbers, we can quickly see what’s happening with our team, founders, and the collective. This helps us catch any early signs and step in when we need to. 

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In the next chapter, “Making Binding Commitments to ESG & Impact through the Fund Setup”, we’ll explain how we translated all of our strategic and operational choices into a legally binding framework.

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