VC funds add designers to their investment teams

American venture capital funds now consult designers when they decide which companies to invest in.

Recently, I overheard two acquaintances discussing strategies for wise investment decisions: what factors to focus on, and whether it was better to invest directly in a company or to go with an investment fund.

To my surprise, however, the conversation was not about which financial indicators were the most pertinent, or what quantitative data were the best predictors of future performance. Their focus was on the human factor: In making decisions about having others invest on one’s behalf, it matters what kind of people they are. How does the investment team work together, what are the individual team members’ roles, what is the mood like in the organisation, etc.? The two agreed that these ‘soft’ factors often had a decisive impact on an organisation’s performance.

Adding designers to the investment team

In recent years, a similar awareness has spread among some of the most hard-core investors on the planet: the venture capital funds in California’s Silicon Valley. Here, however, the new development is not that they focus on the personal qualities in young start-up firms in high-tech industries, such as IT and biotechnology. The new development is that they are adding designers to their investment teams.

“DMI examined growth among the most design-driven companies in the American stock market index S&P 500 and found that they outperform their competitors by 228 per cent, measured in growth in stock value over a ten-year period.”

Thus, the trend of developing in-house design competences is spreading beyond traditional companies and is increasingly embraced by financial investors. But what exactly is the point of including designers in an investment team?

In a fascinating article, ‘Why VC Firms Are Snapping Up Designers’, the business magazine Fast Company notes that some of the most successful business ventures in Silicon Valley in recent years all revolved around extremely well-designed, attractive and efficient user interfaces generating huge value for the companies: 1 billion U.S. dollars for Instagram, 3.8 billion U.S. dollars for Pinterest, and 3 billion U.S. dollars for Snapchat.

Whether the product is a beautiful app for sharing photos, a digital platform for recipes and practical accessories, or Snapchat’s ability to redefine young people’s visual lifestyle, all three companies reflect what design, properly used, can bring to digital start-ups: providing insight into user needs and generating experiences that attract loyal users to the new social mobile platforms.

A recent analysis from the Design Management Institute (DMI), an international organisation that facilitates professional development in the design industry, seems to confirm the value of design as an integrated part of companies. DMI examined growth among the most design-driven companies in the American stock market index S&P 500 and found that they outperform their competitors by 228 per cent, measured in growth in stock value over a ten-year period.

From the design school to Silicon Valley

Accordingly, some of the venture capital (VC) giants in and around Palo Alto have been quick to hire designers and give them considerable influence on their future investment decisions. One example is Google Ventures, the IT company’s investment arm, which has included designers since 2009. The same is true of the legendary and trend-setting VC firm Kleiner Perkins Caufield & Byers, which recently appointed John Maeda design partner. Before that, Maeda had been head of the internationally renowned Rhode Island School of Design.

So how do designers bring their competences to bear as investment advisors? To Fast Company magazine, John Maeda says that the designer’s role is to find ‘strategic insights’ into where design can have the biggest business impact for the company.

In other words, the advice is not just about quality graphic design or product design but about all the factors that affect client interactions and thus client behaviour, and which drive the basic business model in the company that is the target of the investment.

At the Danish Design Centre, where I am the director, we have always aimed to promote design as a crucial factor for business competitiveness. Now, the venture capitalists are reaching out to designers, inviting them to take on one of the most essential roles in a market economy: deciding whether new start-ups deserve funding or not. The designers also get to define the requirements that the companies’ future design work has to live up to in order to qualify for funding.

Some designers may not like the idea of working for cool-headed investors instead of working hands-on with the new digital services and products. I do hope, however, that at least some designers are going to accept the invitation if Danish VC funds and business angels call on them.

Denmark is often seen as a strong design nation. Our future growth and welfare rely to a high degree on a better use of design in business and industry. However, the potential can only be fully realised the day that designers make it not only onto the executive level but also into the investment teams.

First published on Mandag Morgen blog