附近上门

As much as funding to startups is up and it seems like all sorts of companies are raising money, there鈥檚 still one thing stopping investment in certain companies: vice clauses.

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I wanted to write about vice clauses after the whole situation a couple of weeks ago. If you somehow missed it, London-based said it would stop allowing porn–what it鈥檚 most widely known for–on its content-sharing platform. The company attributed the change, which it later reversed, to pressure from banking partners. But Axios also that the company struggled to raise money from investors.

The company鈥檚 reported issues raising money more or less came down to VCs being uneasy with the idea of investing in porn. For some funds, at least, that鈥檚 because of so-called vice clauses, or prohibitions on where money can be invested.

Vice clauses and how they work

In the case of venture capital, vice clauses are restrictions by limited partners on where their money can be invested. According to , a corporate attorney focused on startups at the law firm , VC funds typically don鈥檛 have their own vice clauses, but limited partners who invest their money in the fund do.

鈥淭he LPs that require this stuff are almost always larger institutional investors, and the reason why they can pull this stuff is because they鈥檙e usually investing a lot of money in larger funds,鈥� Smick said. 鈥淵ou don鈥檛 see vice clauses in smaller, seed-stage funds.鈥澛�

Smaller funds typically have family offices or high-net-worth individuals as limited partners. Larger firms usually count institutional investors like pension funds or university endowments as limited partners, and those LPs are the ones that typically have more restrictions on where their money can be invested.

A religious institution or a sovereign wealth fund, for example, wouldn鈥檛 want it to come out later that it was indirectly investing in OnlyFans, a company that offers porn on its platform, Smick said.

鈥淎 big LP will be like teachers unions or basically a teachers鈥� retirement fund,鈥� Smick said. 鈥淪o you can imagine that a teachers鈥� retirement fund won鈥檛 want to be a large holder of or a cannabis company.鈥�

The reason OnlyFans ran into problems raising money was because it wasn鈥檛 looking for a seed-stage investment, it needed a growth-stage investment, and the funds that could write that large of a check likely had restrictions from their LPs, Smick said.听

Cannabis brought the idea of vice clauses to people鈥檚 attention a few years ago, according to , founder of seed stage fund .听

Vice Ventures focuses on investing in companies in 鈥渘ontraditional sectors鈥�–areas that have historically been taboo for venture capitalists. The firm has invested in companies including sexual wellness startup , nicotine alternative company , and espresso martini company from its $25 million fund.听

As for vice clauses dissipating, that may depend on the industry in question. For example, venture-backed startups in the cannabis space have raised nearly $848 million globally in funding so far this year, according to 附近上门 data. That鈥檚 up from around $691 million raised last year, but not close to the nearly $2 billion raised globally by cannabis companies in 2019.

鈥淚 think as we see nationwide legalization, I think that鈥檚 when we start to see attitudes changing, specifically for cannabis, but across the vice category,鈥� Dockery said.

But while specialized investors like Vice Ventures exist, vice clauses likely aren鈥檛 going away anytime soon, according to Smick. As more institutional investors focus on the venture asset class, it could be that the LPs with vice clauses will bring those restrictions to more VC funds.听

鈥淭here is a trend right now that more and more institutional investors are getting into the venture asset class,鈥� Smick said. 鈥淎nd as venture investing becomes more commonplace, it could be that these things start to relax over time. But I don’t know if there’s anything in the works right now that鈥檚 pushing a huge shift.鈥�

鈥淭he news has really pointed out that institutional investors and hedge funds, and really downstream investors are focusing more on the venture asset class,鈥� Smick said. 鈥淚t could be that they could invest more in smaller funds and bring their vice clause to those things.鈥�

Illustration: Dom Guzman