Our Holistic Approach to Investing: Introducing M13’s ESG Policy
Learn more about why having an ESG mindset is part of our founding story.
By Sarah Tomolonius
Last Updated: March 20, 2021
Published: October 26, 2020
At M13, we take a holistic approach to investing. Our Propulsion Platform model is designed to shift the J curve to mitigate time and capital risk and to increase the magnitude and likelihood of success for early-stage consumer technology companies. In doing so, we expect to generate outsized risk-adjusted returns for our investors. As part of our focus on risk management and value creation, we’ve officially established M13’s Environmental, Social, and Governance (“ESG”) Policy.
We developed our ESG Policy in order to:
Explicitly align ESG factors with our strategic focus on execution
Systematically evaluate and integrate ESG considerations at the firm and investing levels
Emphasize our responsibility and accountability as investment managers
Further generate operational excellence and drive outperformance; and
Continue to build good, transparent relationships with our stakeholders
We’re still early in our journey, but it’s the right time to implement our ESG approach into an actionable policy. Since M13 was founded, we have been propelled by a commitment to be good stewards of capital and to deliver value to our stakeholders, including our limited partners and advisors, our employees, our founding teams, and other VC sponsors. Over the past few years since our founding, we have been very busy building out our team and institutionalizing and scaling our Propulsion Platform. We’re proud of the breadth, depth, and seniority of our team and of the culture and processes we’ve built.
Now that our team and Propulsion Platform model have come together—and while we’re still early enough in our journey—we saw it was imperative to codify our core mission-driven culture and investment management philosophy in a comprehensive ESG Policy.
As M13 continues to scale as a durable, long-term-oriented platform, our ESG Policy furthers our focus of working hand in hand to help founders anticipate and remove blind spots, see around corners, avoid making bad decisions, and help create unfair advantages that start the flywheel of successful growth. Understanding material ESG risks and opportunities will help as we provide critical operational support and partnership early on in the investment lifecycle to help founding teams make better decisions.
The scope of our ESG Policy is at the firm level. Our commitment to understanding and integrating ESG starts with our firm. Our dogged focus on execution always comes down to our focus on people. The M13 team is guided by a belief in community, good citizenship, and engagement. We strongly support and integrate diversity, equity, and inclusion. Our team is diverse across gender and ethnicity as well as our personal and career experiences. Studies bear out that diversity in businesses leads to greater profitability and a reduction in risk. We agree with these studies. We believe smart, thoughtful people bringing all of their experience to the table and sharing that collaboratively with their colleagues from both similar and diverse backgrounds makes our discussions better, enhances our creativity, tempers unnecessary risk, and drives our firm and our portfolio companies forward.
The scope of our ESG Policy is at the investment level. M13 has always conducted deep due diligence on sectors, business models, and founders, among other factors, but we believe it’s not enough to look at a business model and financials in isolation. We view ESG as a set of criteria that we can use as a lens to help us more comprehensively identify investment risks and opportunities. Our policy reflects our awareness of, attention to, and curiosity about those dimensions and establishes a framework of ESG evaluation as we examine a company’s financial health, competitive advantages, company and founder reputation, and other important factors in a way that aligns directly with our investment criteria.
Our stewardship is long-dated, and our ESG integration will continue to evolve with our firm.
What is sustainability? What is ESG?
The UN Brundtland Commission defined sustainability as “meeting the needs of the present without compromising the ability of future generations to meet their own needs.” Sustainability is the umbrella of factors affecting all company stakeholders, including employees, customers, investors, and others who have an interest in or are affected by the company’s activities.
ESG factors are specific factors under the sustainability umbrella and may often be categorized as “non-financial” or harder to quantify information. At M13, ESG integration means incorporating ESG into decision-making to increase operational efficiency and to benefit strategic decision-making to help enhance long-term outperformance.
At its most basic, sustainability is about understanding the whole company, and an ESG program (i.e., a policy and procedures) is a tool that can help facilitate this evaluation. We determined an ESG Policy was decision-useful for M13 because we believe ESG assessments help promulgate our goals of making our firm, portfolio companies, and processes stronger.
What's the process of creating an ESG Policy?
While tremendous strides have been made in ESG understanding and integration over the past decade, there is not yet a universal template for an ESG Policy. Just like a firm’s investment decision-making process is unique to each firm’s mission and purpose, an ESG Policy needs to be tailored to the needs of a firm and its constituents.
The M13 platform investment model was built by taking the best parts of other great private equity and venture capital models and more thoughtfully arranging the pieces together to create innovative solutions for the future. We used that same methodology in creating an ESG Policy. Frankly, the opportunity to be an early leader in the shaping and changing of ESG integration paradigms into traditional venture capital investment management is exciting to us.
When we began this process, we wanted to get a good understanding of the current landscape of industry rules, regulations, and best practices. We spoke with a large number of our stakeholders during the initial research process—everyone from the M13 team to institutional investors, family offices, individual investors, peer firms, and our portfolio companies. We also researched and familiarized ourselves with the bodies, certifications, and councils that set ESG industry standards. We recognize the importance of the UN-backed Principles for Responsible Investment (“PRI”) in shaping ESG practices and defining ESG principles for financial services participants. The PRI’s principles helped inform our approach to ESG integration.
We’re thankful for the generosity of our colleagues in the investment industry who provided the incredibly valuable resources of their time and insight as well as ESG due diligence questionnaires, their own ESG policies, and reflections on their own considerations as they integrate and assess ESG as a fund manager or a limited partner.
In building the next-generation venture firm, an ESG mindset is in our DNA. Prior to founding M13, our co-founders Carter and Courtney Reum had previously founded VeeV, a spirits company with a platform approach to better ingredients and better for the world. They established VeeV as a B Corp and an active member of 1% for the Planet, a coalition—including Patagonia, Honest Tea, Klean Kanteen, OXO, BNP Paribas Bank of the West, and others—that's committed to donating 1% of gross sales to environmental causes. And at M13, just a few examples of our commitment to ESG thought leadership are the diversity, equity, and inclusion event we co-hosted with ThinkHuman in January 2020 and the ESG webinar on the future of capital we recently co-hosted with First Republic Bank.
Indeed, when I first met with the M13 team in early 2020, I immediately had a wholly different conversation about risk and reward than I’d anticipated having with a venture capital group. I was delightfully surprised by our conversations about climate, building an inclusive and equitable culture, health and mental wellness and impact, in addition to talking about portfolio management and returns. Having co-founded a sustainability organization (SILC) seven years ago that works with the investment community to spark innovation through aligning economic opportunities and ESG and other stewardship to companies’ shareholders and stakeholders, I was excited by what I recognized as M13’s inherent sustainability values in understanding the entire realm of effects a company has on its broad community.
Stay tuned: our ESG Policy will evolve. Our initial goal was to create our ESG framework by defining what we’re currently doing at the firm, portfolio and sourcing and investing levels. We’ve put a stake in the ground for where we are today. Over the next year, we’ll continue to evaluate the evolution of this policy and expect to continue to enhance and formalize our approach. Ultimately, we expect to be able to benchmark ESG growth and progress and demonstrate our focus on process and execution throughout the investment lifecycle.
As Einstein said, “We cannot solve our problems with the same level of thinking that created them.” In our fast-moving world, in which technology continues to catalyze change for the consumer and as innovative upstarts pierce the traditional architecture of all sectors, early-stage companies and venture capital firms alike need to be awake, nimble, and trusted. It’s both the culture and the smart processes and policies.
In the brave new world we're marching into, we remain laser-focused on the important contributions and impact that M13 has on all our stakeholders as we help propel our portfolio companies and our firm forward in a long-dated and valuable way.