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Venture Capitalists to Face More Scrutiny for Harassment

By William Vogeler, Esq. on August 31, 2017 | Last updated on March 21, 2019

Venture capitalists -- predominantly men -- have been like the gorillas in the boardroom; they sit wherever they want.

Women, on the other hand, have barely had a seat at the table. They've long suffered silently from sex discrimination and harassment in the tech industry, where startups often survive only as long as they get funding.

That culture started to change several years ago after a tell-all lawsuit scorched the Silicon Valley. Now with new legislation on the horizon, general counsel should make sure traditional VCs sit down where they're told.

"Imbalance of Power"

State Senator Hannah-Beth Jackson outlined a proposed bill in California, "the epicenter for the industry's companies and the investors who fund them." Forbes reported that the law, if approved, will target investors who sexually harass those who seek funding.

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

The bill comes before the Legislature in January, and proposes to make VC's liable for harassment in business situations. It extends existing law designed to protect employees.

Sexual harassment laws generally prohibit conduct between co-workers, not outsiders. It is a loophole that VC's have slipped through successfully in the past.

The Pao Effect

Ellen Pao, a venture capitalist who sued her firm for sex discrimination, lost in a scandalous tale of Silicon Valley excess in 2015. But she broke the taboo on complaining about sex harassment, leading other women to sue.

The effect has led to some subtle and some spectacular changes in the tech and venture capital industries. Susan Ho is one of six woman who accused a Binary Capital partner of making unwanted sexual advances, resulting in multiple resignations at the San Francisco firm.

"In the Binary case, there's been a real and significant financial impact that we haven't ever seen before," Ho told USA Today.

Considering the "Pao Effect," general counsel should adopt strict policies against sex discrimination and harassment. Ho said they should also be "proactive in calling it out and not enabling it."

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