Greening the portfolio: LP preferences for social impact and sustainability orientation of VC funds

This study investigates the burgeoning phenomenon of investing in sustainability and traces the influence stemming from the origins of venture capital. We examine how limited partners with varying preferences for social impact wield their influence on shaping venture capital funds’ sustainability orientation. Using a large sample covering 4,419 funds and their investments in 45,872 ventures, our research reveals that funds predominantly backed by limited partners with a higher willingness to pay for social impact tend to include a greater number of sustainability-driven startups in their portfolios. Moreover, this effect is more pronounced in conventional venture capital funds and early-stage funds, as well as when the fund is managed by first-time and young VC firms. Our findings underscore the crucial role of limited partners in shaping the sustainability orientation of venture capital funds.