Navigating the path of value alignment in fundraising

Introducing the value alignment interview, a key step in our LP selection process.

By: Heidi Lindvall

Pale blue dot GP Heidi Lindvall transitioned from human rights to technology to have a more active role in solving the world’s social and environmental problems. In the post below, Heidi shares how she developed a system to integrate value alignment into our LP selection, and the importance of not only thinking about where money comes from, but where it is returned and how it will be used.

Value alignment is something we are constantly seeking at Pale blue dot. It is important to us that our values align with our portfolio, team members, co-investors, and partners, but also with our LPs. When starting our first fund in 2020, we were conscious of being first-time fund managers, so discussing and seeking this value alignment was a challenge. Because of our inexperience and the overall difficulty of raising a first fund, we felt we were not in a position to ask too many questions from potential LPs. While we are very fortunate to have found a group of great LPs for our first fund, the intention was always to be more deliberate when it comes to raising our second fund.

Some of you may know that my background was in human rights before I founded Pale blue dot, together with Joel and Hampus. I studied Human Rights at the University of London, and my work with my first company Codoc, was dedicated to highlighting human rights issues around the world. I worked with multiple charities and media entities around topics such as the civil war in Sri Lanka, press freedom in Guatemala or the rehabilitation of child soldiers in Northern Uganda. The reason I decided to shift focus to tech is that I strongly believe in the potential of using technology as a tool to solve our biggest societal and environmental problems. So far, I have not seen enough tech innovation aimed at impact, not to the extent that it should be.

Heidi filming in Northern Uganda for Codoc

It helps to be clear about our intentions. For me, my aim has always been to be a force for good in the tech scene. I want to ask questions about what impact our investments have on the world and who is invited to the table to make those decisions. I want to back future leaders who share our values on human rights and intend not only to build a livable but equitable future. I try to be thoughtful about how we make VC better and how we redefine success to ensure profit and impact go hand in hand. There is more to say about this, but I’ll leave it for another time. 

Establishing a baseline for value alignment

When we started fundraising for our second fund, I integrated one key step into our fundraising process around LP value alignment. It included a simple interview with questions about the sources of their capital, the fund's beneficiaries, the fund strategy, ESG considerations, impact measurement, and more.

In our due diligence process, we added the value alignment assessment to the end and only did this with potential LPs who we had previously established an understanding with or were existing larger investors.  

The assessment was in the form of one interview lasting 30-45 minutes. Most LPs brought a senior fund manager to the call, and many sent me relevant documentation on ownership, strategy, etc., prior to the call. After the call, I worked through a period of independent research in order to confirm or supplement what was discussed and build an assessment for myself. I then shared notes, thoughts, and findings with my co-founders. What followed was a longer discussion about the sources of funding that we felt comfortable representing with our brand. Honestly, this discussion was probably the most difficult part of the exercise. We had a lot of conversations that involved an establishing of terminology and acceptability, which were both incredibly nuanced and complicated. 

We came to the conclusion that for us, it was more important to focus on where the money is returned to than the source. Who are the ultimate beneficiaries of the fund? Who decides how the money is used in the future? We wanted to make sure our returns would not go on to contribute toward initiatives that clearly have a negative impact on our climate and society. Now, since many of our new LPs invested from climate allocations, our money was sometimes returned to pension holders or climate foundations with plans for further climate initiatives. This is an uncommon eventuality in this field, so it was refreshing to discover and made our selection process much easier.

There is very little data that can be presented on the process of value alignment assessments so far. It was qualitative research, and from such a small sample, there isn’t much that could be adequately measured. The biggest value for us has been getting to know the decision-makers behind the investment vehicles on different terms, and often hearing them speak about their strategies and their intentions in a refreshingly open way. Much like with the startup investments we make, we have little control over what they end up following through with. We rely on our gut feeling and the trust that is mutually built within our relationships.

I have high hopes that we all get better at asking our investors important questions and using our influence responsibly. An ideal would be collecting both quantitative and qualitative data, and it’s something we will look to do in the future. We, at Pale blue dot, are incredibly happy with the LPs that we ended up selecting for our second fund following this process. I acknowledge that fundraising is incredibly hard, and not everyone is in a position to ask these questions. But I believe that those who have the privilege to select their investors also have the responsibility to incorporate research into their processes. It’s a small step, but one in the right direction. 

I would love to hear what more we can do and welcome any feedback and comments. I am also looking to meet more like-minded VCs who think deeper about our purpose and what we can do to improve our industry. Feel free to reach out on heidi@paleblue.vc to discuss this further.

/ Heidi

The interview questions we used for our LP value alignment assessment are available here.