Rethinking Vice Investing Unlocks Innovation and Returns

At SXSW London, impact investor Christian Tooley posed a provocative question: what if investors prioritized profit over societal prudence? He specifically targeted the "vice clauses" that limit venture capital investments in sectors like sex tech, psychedelics, gambling, and tobacco. These restrictions, often imposed by large institutional investors, aim to avoid controversial or potentially harmful products but may inadvertently stifle innovation.

Tooley argues that these no-go zones are more about bowing to social stigma than sound investment strategy. For example, the sex tech market is projected to reach nearly $200 billion by 2032, yet it has received only modest venture funding. Similarly, psychedelics offer moderate-to-long-term returns with potentially transformative health benefits. By avoiding these sectors, investors miss out on financial, cultural, and systemic returns.

Institutional investors often shy away due to legal uncertainties and reputational risks. For instance, cannabis remains federally illegal in the U.S., complicating investment. Platforms like OnlyFans, despite billions in revenue, struggled to attract mainstream investors because of associations with adult content and concerns about minors. These barriers create opportunities for smaller LPs, family offices, and progressive funds willing to embrace risk.

Tooley’s own investments include companies like Polari Labs, which enhances sexual health, and linq, a safer platform for sharing intimate content. He envisions a future where more investors support taboo sectors, leading to innovations in sexual health, psychedelic therapies, and biohacking tailored to queer and trans bodies. This shift could dismantle stigma and unlock both social impact and strong financial returns.

The broader lesson? Avoiding controversy often means missing out on groundbreaking innovation. Just as openly discussing menstruation paved the way for venture-backed companies like Flo and WomanLog, embracing vice sectors could catalyze new industries and cultural shifts. Investors who challenge the status quo may find themselves at the forefront of the next wave of transformative startups.