Will venture capital get cancelled by Gen Z?

The two billion teenagers and young adults born after 1995 that we call Generation Z have been described as many things. They’re seen as uncompromising, not swayed by political or marketing tricks, but also supporters of “cancel culture” — the public and vocal shutting down of speech perceived as problematic. They’re at once entrepreneurial, educated, perceptive and sensitive — sometimes bordering on fragile — and they value authenticity, transparency and radical inclusivity.

As a young millennial investor, I often wonder how this new generation is going to shake up venture capital and the startup ecosystem. Gen Zers have cancelled mainstream consumer brands before; could large institutional investors be the next victims?

An activist generation that prides itself on its multiple identities

Having grown up with constant talk of climatic doom, Gen Z is at the forefront of climate issues. 76% of them consider themselves to be activists, exemplified by Greta Thunberg, who is 18. The harsh criticism levied at her by Laurent Alexandre, founder of Doctissimo, who attacked her allegedly excessive pessimism, crystallises a generational malaise between “mindless Boomers” on the one hand and “alarmist Gen Zers” on the other.

“With their unprecedented knack for verifying information, Gen Zers are not easily convinced by marketing tricks”

In our ecosystem, cleantech startups in the energy and environmental sectors have attracted less capital than B2B SaaS companies. It stands to reason that the latter, praised by today’s investors for their ability to generate predictable income and astronomical margins, will appeal less to a new generation. Climate change can’t be solved by profitable software, and this could be reason enough for Gen Z to “cancel” investors who continue to back enterprise software. 

Gen Zers are also more attuned with speech and activism aimed at improving the lives of minorities, making them more demanding of the educational and professional system regarding diversity and inclusion policies. This could be a problem for venture capital and tech, industries with a dismal track record on diversity. 

Uncompromising with brands, Gen Zers have the ability to “cancel” them

Even if VC talks a big game about ESG, Generation Z won’t be fooled. The cohort consumes brands that promote values aligned with their own, such as ecological alternatives to mass-consumption goods and veganism. With their unprecedented knack for verifying information, Gen Zers are not easily convinced by marketing tricks and are particularly alert to practices such as greenwashing, or even pinkwashing. Brands that won’t comply should beware. Just remember the case of JK Rowling, an absolute idol for millennials.

VC’s status as a reputation-centric industry, built around brands that have spent years trying to make it, means that some of these brands could suffer from similar attacks if they don’t keep their promises. Paying lip service to impact investing on your website probably won’t make the cut for much longer.

A generation less preoccupied with social labels and institutional reputation

And then the other risk is that Gen Z decides it simply doesn’t need VC institutions as they stand now.

Expensive, elite universities fear becoming less relevant in this generation’s eyes, who have seen previous generations take on debt to fund higher education disconnected from a rapidly mutating job market.

Shorter and more professional education models such as the Lambda School, Holberton School, Le Wagon or Ecole 42 for developers or Iconoclass for sales functions are becoming more popular both in the US and in Europe. This generation, which is used to unlimited access to educational content in every discipline, often considers YouTube to the best university in the world and places less value on the French Grandes Écoles, American Ivy Leagues or prestigious MBAs.

“Why should these future startup creators, who are used to disintermediation and to platforms, opt for our current financing schemes?”

I believe that we should consider seriously the possibility that what is currently happening with these academic institutions could happen to investment funds too. Although entrepreneurs mainly turn to VCs for financing purposes, one can’t deny the social dimension of fundraising with one of the big names in the industry. Being able to raise money from large players such as Sequoia, Accel, a16z (or XAnge!) is a sign of social success as valuable as having studied at a Polytechnique or Yale.

Investment funds hence play an intellectual labelling role — they reward the most brilliant entrepreneurs, or at least those who fit their mould. In the end, this dynamic is not so different from that which animates the academic world, something that becomes more salient as capital flows to startups increase.

Furthermore, this is a generation of entrepreneurs. According to a Nielsen study, over half of Gen Zers are thinking of becoming entrepreneurs. Why should these future startup creators, who are used to disintermediation and to platforms, opt for our current financing schemes? Will they not see us as an unnecessary intermediary between them and our own investors, the LPs, when they have seen any number of intermediaries disappear before their eyes?

Entrepreneurs are already choosing their investors for more reasons than only the cash they provide. They are choosing them for the repercussions on their own brand’s reputation and for a shared set of values. VCs would do well to anticipate the demands of this new generation.

Majdoline Wahbi is an associate at Paris-based VC firm XAnge.