Creativity is leaving the VC industry

And no one seems to care about it.

The past years have seen waves of VC professionals exiting the venture capital industry. The prevailing narrative is that they’ve all gone to become operators. But another wave has been progressing silently, unnoticed. The creativity exodus.

The Creative Exodus

From Peter Thiel’s famous quip: "We wanted flying cars, instead we got 140 characters" to the dense literature about the “herd mentality” of finance, there’s a sentiment that VCs are going astray from their core mission: funding groundbreaking innovations. The issues of herd mentality and FOMO in venture capital are indicative of a deeper shift. 

I am too young to have noticed that evolution over the past thirty years myself, but I am curious enough to have asked more experienced people (and ask them a second time when their first answer was “Did you just call me a dinosaur?”). Sources from as far back as nearly two decades ago were already bemoaning this change, and it is not stopping. 

It is also worth noticing the shift away from the traditional VC model, which was characterized by high-risk investments into pioneering companies that catalyzed significant technological and social shifts, towards a more conservative approach focusing on later-stage companies with proven concepts and momentum. Since when? 

Some may attempt to argue that the current rush towards deeptech and hardware is a sign of a turnaround. Creativity is saved! It is my belief that is rather a sign of them being scared about the lack of defensibility in many software business models. 

Incentive design is to blame. 

One can blame an industry and be fatalist, and a lot of people tell me how naive I am if I think that finance can be something else than a herd mentality. But I like to be pragmatic: let’s break down things into incentive design. 

My colleagues know how much I nerd out about incentive design and how I believe incentivizing people well is our best bet to move the world forward — be that from intrinsic motivation to extrinsic rewards (crypto is super interesting in this respect). 

Incentive design explains the VC industry’s loss of creativity and innovation well. Look at GPs who need to raise the next fund promptly in order to keep up with an overinflated industry— no wonder they optimize for technologies that will give them back cash sooner rather than later, to polish the presented DPI. The cycles between fundraising have noticeably shortened, which means investors shoot themselves in the foot, adding more pressure to prove themselves faster. 

Juniors in VC funds are usually not incentivized with any carry in the fund (i.e. how well the fund performs does not have any impact on their financial earnings). Even if they come with the greatest creative mindset, eager to listen to unconventional ideas that may change the world, and driven by the mission to have a positive impact, the implicit rules in the industry kill this creative spark. As a junior, you are not incentivised to look at the long term - all that matters for you to be recognised in the industry is to build a “track record”. That makes it easy to understand why juniors optimize for closing as many deals as possible, in order to gain experience and start building this golden “track record”. The more deals they participate in, the more chances they have at succeeding, even if by accident. They quickly turn into people (and partner) pleasers who embrace the FOMO and herd mentality. It is easier to get partners convinced about the “crazy hot deal” (FOMO kicking in), the super shiny CVs (people who will replicate the model from their school - think of all these tech mafia) or the already proven traction, even more so in light of the aforementioned fundraising priorities. So of course juniors will dedicate their time to these less risky deals. They are smart, not people to blame. Everyone knows in the industry that it is super unrewarding to be contrarian as a young VC. A few years ago, I backed a company that is composting human bodies (yes, “death tech”) and I still need to fight for people to even look at the topic while AI is everywhere. 

The loss of the creative middle layer. 

Incentives for creativity are broken at the top and at the bottom. But what’s even more worrying, is that it seems to stifle innovation in the whole company — and make the creative middle layer quit. 

A non-negligible number of VCs, overwhelmingly women, have fled an industry that they felt did not leave room for their creativity nor their personal intuition. The loss of this talent has far-reaching consequences. 

When I  took some time off, or more precisely was working only part time for my fund,I connected with a lot of ex-VCs. It was very striking to me how many of them (especially women) evoked this lack of creativity and a feeling that the freedom to be contrarian had been threatened in their roles — from what they invested in, to the way they operated. 

Their stories left me with joy and sadness; joy as it is wonderful news that people with immense impact potential are valuing creativity more than ever before, but sadness in realizing that they feel compelled to leave their jobs in order to do so. Is not VC supposed to be the world where we find ways to bend reality? Where daring investors have the opportunity to support visionary entrepreneurs to shape a soon to be invented future? It takes two creative minds to dream together. Both sides, the investor and the inventor, need to see the potential.

We need creativity in VC. When will the industry wake up? 

Why VC needs creative minds

The role of creativity in shaping great businesses is not a new topic to me; I wrote a thesis on it years ago. It is one that transcends sectors and industries, and truly fits all types of businesses, but above all businesses geared towards innovation. That’s why one of the most obvious cases is probably VC, whose very reason for being is investing in groundbreaking innovations. Or wait. Is that not? If both creative minds and minds valuing creativity quit from VC, I am seeing a big big red flag. Investors must be just as creative as the inventors. 

It is surreal to me how unnoticed that has been. Maybe it’s just been discredited, because it's hard to measure its ROI in a LP report? Still. Is there anything in History of innovations that proved wrong creativity?

We don’t lack examples where great inventors have been so thanks to their insane creativity, which they could then express thanks to investors who could dream the future with them. There are tons of interesting biographies to read (I am happy to share them with you) and it feels an overkill to list them here, so I will only mention the well known example of Leonardo da Vinci. He is unarguably one of our most prolific inventors, with a creative genius that led him to design numerous inventions, including flying machines, armored vehicles, and water-related devices. Nothing was too high to reach, if you read his notebooks. And if you read his exchanges with the Medici family you will see how creativity and innovation are sides of the same coin, a coin that is flipped from one side to the other based on the investments we are willing to put in it. Whether there are investors or patrons able to spot them and believe in them is what will determine their existence. 

Really, I don’t see any reason why creativity should not play a central role in VC, and why people who value creativity have to quit the industry. Creativity plays a role in:

• Identifying opportunities: Creative thinking empowers investors to discern emerging trends and identify promising investment opportunities in uncharted territories.

• Building Vision and Strategy: Creativity helps investors envision what the future could hold, enabling them to first, believe in an innovation and second, craft a strategic path forward.

• Making it possible: Creative strategies allow investors to manage risks effectively, diversify portfolios, and develop financing routes to increase the attractiveness of high-risk investments.

• Making it real: As board members, investors must help entrepreneurs tackle entirely new challenges and decide on inventive solutions that defy conventional norms. The best ones creatively contribute to the success of portfolio companies by offering guidance and pioneering solutions. Aren’t founders expecting their board to have the mental space to look at the big picture, and spot things they themselves might miss when too deep in the day-to-day operations?

• Accelerating it: Creativity can reveal shortcuts that make startups achieve the unachievable in a short period of time. Be it through innovative models or new data analysis techniques, these new accelerated paths are what turns good endeavors into greatness.

• Providing mentorship: Visionary entrepreneurs can pose unique challenges. Creativity then becomes a valuable tool for facilitating effective mentorship, allowing creative investors to unlock and catalyze the talents of innovators and entrepreneurs.

• Crafting an Exit Strategy: Uncovering the most lucrative exit opportunities and synergies demands a significant dose of creativity. Often, the highest willingness to pay does not originate from the apparent major players; in fact, it typically does not. The creative thinking of investors has a direct impact on maximizing returns for their LPs.

Nurturing creativity in VC

VC’s issue does not lie in a lack of creative people willing to do the job. They come and they quit. The issue lies in the failure to provide an environment that allows for that creativity to perform — and to be valued.In my view, “being creative” is less important than the process of nurturing creativity — we don’t all have to be Picasso if we can identify and nurture future Picassos. I even believe there’s no such thing as “being creative or not”; instead, creativity can be learned, cultivated and nurtured. It is an active process that involves training, fostering curiosity, preserving mental space, and creating an environment where individuals feel safe to experiment and potentially fail. That’s where the VC industry needs to keep up or risk losing the best talent. And the world has too many pressing challenges to solve not to have the best onboard. Building a culture that values and encourages creativity in VC requires a collective effort. And when I say collective effort, I mean of everyone, not just the select few who VC has dared to let enter its doors until now.

Why? Because the topic of creativity also goes hand in hand with that of diversity. An environment with functioning communication and fluid exchanges of ideas between people of many different backgrounds is fertile ground for finding and fostering groundbreaking innovations.

How to walk the talk? From a fund perspective, I am myself experimenting various strategies in my VC team, and I will soon publish about them. These includes monthly days saved for creativity, new communication channels for novel ideas, the creation of new roles in the firm, the design of an incentive scheme rewarding “thinking differently”, the opportunity for new job contracts, etc, so stay tuned! And from an individual perspective, i.e for all the creative proponents in that industry, I am starting a community where to find support and share experiences: Volitionally Creatives. VC.

Albert Einstein said, "Creativity is contagious. Pass it on."