Sexual harassment by VCs target of proposed law

CALIFORNIA

LIZETTE CHAPMAN SAN FRANCISCO •Arashof sexual harassment scandals this summer involving venture capitalists has laid bare a major weakness in laws meant to protect workers from unwelcome advances. While legislation is clear on many workplace interactions, there’s next to nothing on the books concerning the investor-entrepreneur relationships accounting for billions of dollars in startup funding.

California legislators want to address that shortcoming, creating the prospect of a wave of lawsuits against VCs. Changes to California law would also provide a template for other states.

One of the first bills the California legislature will consider when it returns from recess in January would prohibit investors from sexually harassing founders. The proposal is simple: Add one word, “investor,” to a list of professionals who can be held liable for harassment. The state has carved out similar provisions to cover landlords, teachers and real-estate agents.

Venture investors somehow escaped scrutiny previously, despite their outsized roles as technology kingmakers. The industry is about 90 per cent male, and women are similarly outnumbered when it comes to raising venture capital. Female founders represented 7 per cent of venture-backed companies in an analysis by Bloomberg last year.

The industry recently began to grapple with harassment issues after more than a dozen women told stories of mistreatment when they sought funding, pushing at least four men to leave their VC firms in recent months. The initial response was to create a “decency pledge,” in which investors promised not to be predators and report bad behaviour.

“There is a cultural zeitgeist on harassment issues,” said Noreen Farrell, executive director of Equal Rights Advocates, which supports the proposed bill. “We’ve heard from the mouth of industry that some clarification is needed, and we will enlist them to make the case.”

State Senator HannahBeth Jackson outlined a proposed bill last week. Changing the law in California will create clear consequences by forcing investors to behave professionally or risk being sued. Jackson, a Democrat who authored 2015’s landmark fair-pay reform that cracked down on employers’ ability to discriminate against women, said the power dynamic between venture capitalists and entrepreneurs pursuing their dreams can create inequity that requires legal protection.

“There is clearly an imbalance of power between those with financial wherewithal and those with ideas trying to get a foothold,” she said.

The law’s proponents plan to cultivate support during the state legislature’s recess, which starts this month. Democrats control both chambers of the California legislature and the governor’s office. The bill needs a simple majority to pass.