There is little doubt that tech start-ups, fuelled by venture capital, can be a force for good, boosting economies, creating jobs and transforming industries. For proof, just look at San Francisco’s Bay Area, which along with Silicon Valley held the largest concentration of tech jobs in the US, bringing opportunity and prosperity. Based on per capita income, this small corner of California rivals some of the world’s richest countries.
It is small wonder that Silicon Valley stands as a shining model for emerging markets looking to diversify their economies and create jobs.
But there is a flipside to this tech boom. While enviable by any measure, it has created several unforeseen consequences, from economic inequality to privacy violations and environmental damage. In the rush that accompanies the birth of a new company and its limitless potential, founders rarely pause to think about the harmful ways in which their technology might impact their ecosystem or society at large.
In countries where economic disparities are acute, unintended consequences could be even more detrimental. For that reason, developing start-up ecosystems around the world have a chance to learn from Silicon Valley’s mistakes, and set the path straight for responsible and inclusive tech.
For all its track record of job generation, there is the potential for tech to create inequities. Once again, the Bay Area is a case in point, where the gap between the haves and have-nots is particularly wide. Top earning households made 11.5 times as much as those at the bottom of the economic ladder in 2019, according to the Public Policy Institute of California.
Unfortunately, not all tech jobs are created equal in terms of quality. While on-demand services have created flexible work for millions of people, ‘gig workers’ still struggle to make ends meet. For example, after fees and costs, Uber drivers take home an average of $9.21 per hour, according to the Economic Policy Institute — 52% less than California’s basic minimum hourly rate.
Social media has facilitated connections, but as we are now painfully aware, it is also a conduit for disinformation. Agents and organisations are capable of manipulating Twitter, Facebook and Instagram to propagate conspiracy theories that are damaging to democracies. Misinformation about Covid-19 vaccines is rampant. Advances in computer-generated imaging and artificial intelligence can make disinformation more insidious, with the use of such tools as deepfakes, which distort identities.
Another example is privacy violations. Some 90% of US consumers expressed concerns about the access, collection and storage of their data by social media companies in a 2018 Verizon Media survey. Nearly 20% of users say they experienced privacy violations on social media. Those can be costly, not only financially but also to a company’s reputation, as Facebook found out when it received a $5bn fine for misusing user data.
Unintended consequences lurk. For example, fintech apps facilitating cash advances to gig and low-income workers could turn out to be another form of payday loans, sinking their customers into debt. It is imperative to pair such lending tools with financial literacy.
Another potential area is cryptocurrencies and their impact on the environment. Mining digital coins, for example, requires a substantial amount of energy, as Elon Musk recently pointed out.
Things can turn out differently if tech company founders, who often start out with the best of intentions, take the time to answer a few questions to help them avert unintended consequences.
One way to address those issues is to establish a framework for a company’s operations by applying environmental, social and governance (ESG) criteria. Venture capitalists can guide founders by formulating a set of questions, asking:
- Is the company aware of any potential health and safety risks for its staff, customers, and supply-chain partners? If so, are there guidelines in place to manage these risks?
- Does the company have a process in place to protect sensitive data, such as customer and employee information?
- Does the company monitor energy and water sources and consumption?
- Does the company’s product, service, technology or field of activity help to promote or achieve any of the UN Sustainable Development Goals?
- Does the company view the integration of ESG as an opportunity to identify additional opportunities and risks for their own entrepreneurial activity?
The IFC exclusion list and the 10 principles of the UN global compact are good places to start. The Omidyar Network, in collaboration with the Institute for the Future, has also developed a useful toolkit called the ‘Ethical operating system’. This encourages founders and other stakeholders to analyse emerging areas of risk and social harm, and adopt “proofing” strategies.
By building such considerations into the fabric of a company, venture capitalists and companies can help thwart unforeseen negative consequences. A start-up that hires and nurtures a diverse workforce, for example, can begin to address income equality and uneven access to opportunity.
Hindsight is 20/20
A few developing start-up ecosystems are taking note. In Singapore, investors are starting to take an interest in start-ups that are developing sustainable food processes. Saudi Arabia’s public investment fund governor recently acknowledged that ESG principles can help economically. And in Latin America, the Association for Private Capital investment in Latin America now considers responsible investment an important area of focus.
Stakeholders can start laying the groundwork for responsible and inclusive tech, adapting it to their economy and culture. By asking the difficult questions as they chart their journey, the fallout from unintended consequences can hopefully be mitigated.
Christine Tsai is the chief executive and founding partner at 500 Startups. Since the firm’s inception in 2010, she has led the growth of 500 to more than $650m in committed capital, more than 2500 portfolio companies and a vibrant community of founders spanning 77 countries.
This article first appeared in the August/September print edition of fDi Intelligence. View a digital edition of the magazine here.