Venture capital investors are increasingly looking to back startups that can combine profits with altruism.

In the 1960s, the dominant philosophy of investing echoed the edicts of economist Milton Friedman. He asserted that company leaders and managers must prioritize short-term profits above all else. Give the shareholders as much cash as you can, he opined, and don’t worry about being a good member of the community that supports you.

Fortunately, times have changed. Today’s savvy investor looks at the big picture and values companies that embrace sustainable business practices – meaning quite simply that the business can carry on indefinitely within its ecosystem. The opposite? Unsustainable business practices: business models that can’t continue indefinitely. Take the coal industry, which has, historically, been very profitable for a small number of people – but is by definition unsustainable. It cannot last forever: eventually, all the coal will be gone. What’s more, burning coal causes damage to communities in the form of pollution, the cost of which is borne by taxpayers who don’t even use the product.

Recognition of that fundamental distinction is one of the reasons why the rise of socially conscious organizations is one of the most encouraging trends in venture capital (VC) investing today.

Uplifting communities and people

VC investors are increasingly backing companies that are both sustainable and profitable – and actively involved in uplifting people who’ve been shut out. These companies seek to sell products or services that don’t hurt people – and, moreover, that act as a positive force within their communities.

The potential unleashed by this approach is illustrated by a multitude of forward-looking VC-backed companies that are now pursuing a sustainable, socially-conscious model.

Zirtue, for example, provides a lending application that enables users to easily make loans between friends and family. Founded in Dallas, Texas, in 2018, this startup gives working people an alternative to the predatory high-interest lenders that plague low-income neighborhoods and perpetuate wealth inequality.

Personal finance is also the focus for OfColor, which offers a financial wellness platform that improves the financial health of employees of color. Based in Maplewood, New Jersey, one of the goals of this Black-owned startup is to close the $154,000 racial wealth gap between Black and white families in the US.

Another socially-conscious startup is AllHere, which operates a chatbot software solution designed to reduce chronic absenteeism among students and keep parents informed. Headquartered in Boston, the company’s messaging platform facilitates two-way communication between families and school districts.

Another Boston-founded company, EatWell, creates nutritious, ready-to-cook meal kits that can be prescribed to patients to alleviate food insecurity, prevent diabetes, and reduce healthcare costs. Incubated in the Harvard Innovation Labs, EatWell reached a milestone of serving more than 50,000 meals in April 2023.

Then there’s Health in Her Hue, which operates an online platform that helps Black women access healthcare providers, telehealth services, and health content, enabling members to comfortably connect and communicate with community doctors. Based in New York, the company strives to close the persistent gaps in healthcare access, utilization, and quality of care faced by Black women and women of color.

There are many more such companies, all with the common goal of attracting VC funding and providing a competitive return on investment while making life better for their customers and stakeholders. For investors, the question now becomes: how do I pivot to be socially responsible?

Four questions for socially conscious investors

I believe there are four key questions for socially responsible investors to ask – while remembering that every investment carries risk as well as the possibility of reward.

1. Is the organization a benefit corporation or B Corp?

In the US, a benefit corporation is a state classification: essentially a state-authorized corporate form that can be adopted by any for-profit entity whose board of directors wants to consider society and the environment in addition to profit in its decision-making process. Similar models exist in a few other countries.

In contrast, a Certified B Corporation (or B Corp) is an organization certified by B Lab, a nonprofit dedicated to transforming our economic system to benefit all people, communities, and the planet. The B Corp certification goes much deeper and reflects the company’s day-to-day operations – but both are positive signs the company can deliver both profits and community good.

2. What’s the company’s mission?

You can assess a company’s mission and goals via its website and press coverage. Does this mission align with your own values, priorities or expertise? Are you interested in tackling the same social problems? Could you leverage your skills and knowledge to help coach or advise the team?

Understanding a company’s mission can be very informative with startups, but be careful when evaluating the mission of big corporations, whose goal may be to ‘greenwash’ their public image, appearing socially responsible when they’re not. Cut through company spin by getting to know the founders and understanding what motivates them. Nearly every successful impact-driven company grows from an idea rooted in a founder’s lived or observed experience. This type of conviction isn’t easily faked.

3. What’s in the company’s prospectus?

Companies seeking to raise money from VC investors will generally have a prospectus available. This document is given to investors for consideration and details the offering itself, the price of the securities (whether equity or debt, i.e. stocks or bonds), the management team, and any regulatory disclosures.

4. What’s the company’s financial outlook?

Evaluating a company that offers a social good is, in many ways, no different from assessing any venture opportunity. For a well-established company with customers and revenue traction, look for signs of scalability and promising economics. A key ratio, for example, is the lifetime value of the customer (LTV) to the cost of acquisition (CAC). An investor should also be conscious of customer churn and gross margin indicators. For pre-revenue or early-revenue businesses, focus on the market size, potential for industry disruption, competitive moats (like intellectual property), and the team’s track record.

The opportunity for founders and leaders

For today’s business leaders and startup founders, matching with socially conscious investors – who are eager to solve the problems you’re focused on – is a boon. Invest heavily in investor networking and don’t take rejections personally: your company’s mission may not align with an investor’s mandate, but that same investor likely knows others who will find the opportunity attractive.

Investors have never before had such a wealth of socially responsible opportunities. Due diligence and a keen eye for value can produce results that exceed expectations – not only in the shape of financial returns, but in benefit to our communities and planet.