The next wave of business founders will usher in new priorities, according to a new study commissioned by Connectd, a growth marketplace connecting start-ups with investors and advisors.
In a poll of 50 Generation Z entrepreneurs (aged between 18 and 24) and 50 entrepreneurs aged 25 and over, Connectd found that 96% of Gen Z entrepreneurs would turn down cash from a prospective investor based on moral and ethical objections, highlighting the importance of environmental, social and governance (ESG) credentials to new business leaders.
Commenting on the findings, Roei Samuel, serial entrepreneur, investor and CEO of Connectd, says: “This study demonstrates the shift in focus for the new wave of entrepreneurs, who are increasingly prioritising ethical and societal purpose when choosing their partners. This can only be a good thing for future business leaders, ensuring that ESG is at the forefront of company growth from now on.”
Generation Z wants more than just money
While funding remains the number one benefit investors bring, Connectd’s study found that 80% of Generation Z entrepreneurs value investors’ networks and connections, which drops to 63% for those aged 25 and over.
More than half of Generation Z entrepreneurs consider an investor’s green credentials when deciding who to partner with.
“Investors must be mindful that their ESG credentials are under the spotlight like never before,” says Samuel. “They can make it a real point of differentiation when partnering with new businesses.”
The research also found marked differences in how entrepreneurs across the generational divide are searching for investment. The vast majority (82%) of Generation Z entrepreneurs are using online platforms to find potential funding, compared with just 65% of older founders, who tend to use more traditional routes such as friends, family and legacy networks.
Latika Vij, head of investor relations at Connectd, says: “The drive and dynamism of entrepreneurs doesn’t change across generations, but clearly there is an ethical and societal shift taking place. This puts extra onus on start-up investors to put ESG initiatives at the heart of their strategy to attract new start-ups to their portfolios.”
The study also found a generational gap in the use of social media, with 72% of Gen Z founders using sources such as LinkedIn to seek investors, and only 60% of founders aged over 25 doing the same.
This changes how Generation Z invests too
Connectd’s study has big implications for how future boardrooms, run by members of Generation Z, will look for, and receive, funding or mergers and acquisitions. It also presents an insight into how they, as companies, will invest themselves, domestically or abroad.
If Generation Z businesses are more concerned about being backed by ESG money, they are likely to care more about ESG concerns when undertaking foreign direct investment, for example. The study also implies that such companies will be far more digital than their predecessors when looking for potential locations or sites to invest in.
Should these findings be replicated in the real world, they bode extremely well for any climate change and social justice agenda.