Patterns of sexual harassment disturb limited partners–but how do you spot them early?
As I write this, social media is on fire with stories of sexual harassment and assault from VCs to founders. In my previous post, I shared why some of the approaches–like decency pledges–just aren’t touching the core of the issue.
Sexual harassment in venture is not just one or two outlying cases but a cultural undertow that has destroyed many would-be productive investing relationships and is inimical to prudent investors. From the voices of the perpetrators themselves through blogs and tweets, they follow a certain path . . .
- Denial and outright rejection they’ve done anything wrong. “You can’t touch me.” This is where it used to stop, and this behavior was rewarded so many times it’s the standard reaction. That needs to change and it’s why prudent LPs are going to find ways to create that change.
- Continued confrontation by their victim(s), often through appropriate channels and backed with evidence (texts, tweets, etc.). The victims are vocalizing they are finding the courage to come forward for a sense of gain–so far, no one has asked for anything–but out of an instinct to protect the next victim.
- Eventually, some acknowledgement of the claim by someone else in power, like another partner, a limited partner, or the media, or all three. Outlets like The Information, Pando Daily, and the New York Times have spoken with and verified stories from over a dozen women in just the past week. Some women are courageously posting their own stories, like Cheryl Yeoh, who who was watching the 500 Startups co-founder Dave McClure publically expressing that he’s a creep (and dozens of folks assuring him he’s great), when he assaulted her one night and was at the same time in conversations at 500 Startups about a team member and partner he sexually harassed.
- Some slight acknowledgement by the perpetrator–rationalizing and minimizing. Crocodile tears.
- More exploration by stakeholders, resulting in often finding many more examples of a pattern of illegal, investment destroying and morally troubling behavior.
The limited partners who invest in venture capital have the strongest voice to create systemic change.
Many of them, from academic institutions to charities and foundations, have a stated goal of doing good in this world. Many more, like pensions, have mandates to support their own populations, which particularly in the case of teachers, are often dominated by women. For a number of limited partners, the conversation is evolving into how do you protect yourself from predatory venture capital firms, a great term I am borrowing from Kara Nortman at UpFront. I hope that conversation takes hold hard within the ranks of the ILPA and groups I belong to like NVCA, NASP and GAAPT.
So how would limited partners tune diligence to uncover these kinds of risks?
When I’m looking at another VC firm–for example, to coinvest with–I use three tests to help me figure out what kind of culture they have. All of these have an objective bar:
- Pipeline. We know the facts of what tech entrepreneurship looks like today (60% white male / 40% women and minority). Does their pipeline look like the entrepreneurs? Every deck has a pipeline slide. Check. You don’t even have to ask. You can use LinkedIn.
Valor started Startup Runway to help us uncover early stage founders from minority backgrounds because we didn’t see a representative enough sampling of entrepreneurs in our pipeline. If you track, you can adjust. If you don’t track, you’re also saying something with that approach. LPs take note.
- Passes. What are the last 10 or 25 companies the firm passed on, after they got past initial diligence. Why? Looking for patterns in the passes can also reveal biases the firm may not even be aware of (back to point one from above: these folks look credible and confident because they haven’t internalized the illegal nature of their actions at all, so they never “feel” guilty or look like they are hiding anything).
You can reach out to some of the passes. Sure, they’ll be generally displeased with the rejection–expect that–but was there a credible reason like valuation mismatch, stage mismatch? A firm that doesn’t track its passes also gives a limited partner valuable intelligence about what kind of a learning, growing organization that firm is. If you’re focused on being a great investor, you care a lot about what you missed. If a venture firm can tell you how many companies they review, they can tell you how many they didn’t move forward on.
- Partners. Is there a diverse set of voices around the firm, perhaps on the advisory board if not within the general partnership (which is often small)? How about the last 3 hires? How about the co-investors? If there is not some diversity here, then you know despite words like “caring about inclusion” and “commitment to diversity,” there is no action backing up those sentiments.
There are hundreds of great VC firms out there that have the processes to show you their pipeline, their passes and their actions around curating the best entrepreneurship has to offer–they’ve got more than a decency pledge to back them up but an actual diligencable history of decent decision making. Find them, and forget the bozos.
Curious to hear from my colleagues about other trackable, verifiable ways to diligence a disposition to bias (or worse). What would you suggest?