The Solution for Declining Venture Capital Ethics
Venture-backed entrepreneurial dreams don’t die because of governance. They die in the absence of ethics, accountability, and oversight.
For a long time, I have been concerned about the loss of ethical perspective among certain venture capital firms. During the era of cheap capital coming out of the pandemic, many funds pushed a “growth at any cost” mentality on portfolio companies. Forced to grow too fast, compromises followed. Ethics declined, and consequences emerged. Consider Facebook’s early promise compared to its later blowback over data misuse and misinformation. That arc is not unique.
By 2023, the frenzy began to cool. Many VCs returned to fundamentals, backing companies with resilient business models, sound markets, great talent, and purposeful innovation. Yet conversations about “blitzscaling” suggest that some haven’t reprioritized.
Blitzscaling is a hypergrowth idea born after the financial crisis amid mobile and cloud disruption. It became a bellwether during the VC boom following the Great Financial Crisis and ushered in the Unicorn era of 2011-2018. The concept is re-emerging, seemingly tethered to the AI hype cycle as some (large, established) investors are demanding speed instead of prioritizing sustainability to win markets.
The Current State of Ethics in VC
Recent years have shown how neglecting governance and ethics can destabilize markets. The collapse of FTX is the clearest example. The exchange served as a custodian of individual deposits yet had no Board of Directors. Its largest investors, including venerable firms, failed to demand one.
When pressed, Sam Bankman-Fried reportedly dismissed the idea of governance outright. His disregard for oversight revealed not only a failure of leadership but also a failure of investors to fulfill their fiduciary role. FTX is an easy example, but not an isolated one. Even small VC firms carry responsibility to their limited partners and local communities. Without governance and transparency, they put investor wealth at risk. Because mainstream media often underplays ethical lapses, misconduct can persist unchecked until the damage is irreparable.
Boards of Directors Are Non-Negotiable
A Board of Directors is neither optional nor a formality. It provides accountability, oversight, and assurance that companies act transparently and in the interest of stakeholders. Without this structure, startups and the investors backing them are freer to prioritize growth and profit over ethics. That increases the odds of fraud or systemic failure.
I'm not the only one with these concerns.
"VC firms are responsible for ensuring that the companies they invest in adhere to ethical standards. When they fail in this duty, the consequences can be severe for small investors."
(William Black, Professor of Economics and Law at the University of Missouri-Kansas City)
Similarly, Richard Levick, CEO of Levick Communications, warned that "VC firms must prioritize ethical considerations over short-term gains."
Despite the expertise and historical evidence, some leading VCs dismiss the role of governance as incompatible with founder vision. One leader even described his firm’s role as “dreaming with founders” and insisted that adding a Board could stifle that dream.
That mindset misses the point. Proper governance does not suffocate innovation; it strengthens its odds of success. The market’s recent track record of poor performance speaks to what happens when firms ignore that truth.
Proposed Ethical Guidelines for VC
To restore trust and ensure long-term participation in innovation, venture firms must adopt a clear ethical framework. At a minimum, this should include:
Establish Boards of Directors for every funded company, with true oversight of operations.
Prioritize ethics over short-term returns, ensuring every investment aligns with universal ethical standards.
Mandate transparent reporting so investors have access to timely, accurate information.
Disclose and regulate conflicts of interest, with strict policies in place.
Implement audit procedures once a company raises beyond a set capital threshold.
Support founder development in ethics alongside leadership and operating skills.
Without these guidelines, firms risk more than reputational damage. They risk eroding investor confidence in the innovation economy itself. Diligent investors are watching closely – those who perceive systemic disregard for ethics will also perceive the risk. And that could create negative ripple effects on capital formation for years.
Venture capital is not just about building valuable companies. It is about shaping businesses that affect people’s lives. By putting transparent accountability structures in place and adhering to them, VCs strengthen the companies they fund, their investor relationships, and the broader economy. When ethical standards are clear, investors are more confident, founders are better supported, and innovation is freer to thrive.
About Mark Buffington
Mark Buffington is the co-founder and CEO of BIP Capital and the Managing Partner of BIP Ventures. Since launching BIP Capital almost 20 years ago, he has led the firm to become one of the most consistently active and recognized venture capital brands outside of Silicon Valley.
Under Mark’s leadership, BIP Ventures has established a reputation for delivering exceptional returns to investors, consistently outperforming public market equivalents and top-quartile Venture Capital benchmarks. (1)
With decades of experience as an entrepreneur and operator, Mark is deeply committed to helping founders and portfolio company leadership teams build category-leading companies and drive premium exit outcomes.
He has developed some of the industry’s most innovative platforms, including a private equity Evergreen BDC, a proprietary deep-data AI platform, and a Performance Engineering framework that drives repeatable, high-growth outcomes for founders. The results of these efforts speak for themselves. Founders who partner with Mark and the BIP Ventures team achieve more life-changing outcomes than when they work with other VCs. Across six vintages of funds, more than 60% of capital invested has returned gains, and over half of all investments have achieved a 3x return or better. (2)
Since 2006, Mark has led investments in more than 150 companies spanning growth stages and sectors, including Healthcare Tech, Digital Media, EdTech, Enterprise SaaS, FinTech, and Advanced Computing. Notable investments include Vendormate, Ingenious Med, QA Symphony/Tricentis, PlayOn, Huddle Tickets, Tropical Smoothie Cafe, Cypress.io, ConnexPay, REACH Health, Trella Health, Shareholder InSite, ChartSpan, and Aspirion Health Resources. (3)
Mark holds an MBA from Tulane University’s A.B. Freeman School of Business and a B.S. from the Georgia Institute of Technology, where he was also a varsity letterman in baseball. He serves on the boards of several companies, including NFHS Network, Rhyme, ShiftMed, AchieveIt, Trella Health, PlayOn, ChartSpan, and the BIP Advisor Acquisition Fund. He is also active on several nonprofit boards, including the Buckhead Coalition and the Metro Atlanta Chamber Executive Board.
(1) Top-quartile based on net DPI for BIP Ventures anchor funds with vintages of 2009 to 2018 when compared against Cambridge Associates US Venture Capital Index and Selected Benchmark Statistics as of 9/30/24. Information on all funds available upon request.
(2) Represents aggregate returns for seven single asset LLCs that invested in three portfolio companies from 2006 to 2008.
(3) Includes Predecessor Performance for Mark Buffington for investments made prior to BIP Capital that were sourced and managed by Mr. Buffington and had similar investment objectives.