Silicon Valley’s Toxic Culture Requires a Legal Fix

Closing a legal loophole will improve the tech industry’s office culture—and help gig-economy workers and other independent contractors, too.

To see this venture-capital firm’s sexual-harassment policy, my only option was to show up in person. This firm is one of the biggest names in start-up investing. Last year, I emailed one of the firm’s partners to ask for a digital copy of its harassment and discrimination policy, and learned it was available only if I traveled to Menlo Park. The next week, I took a $57 Uber from San Francisco to Sand Hill Road, a row of office parks housing scores of venture-capital, or VC, firms. This unassuming strip is the seat of power in Silicon Valley; it’s where every entrepreneur dreams of raising money for her company. Entering the building through glass doors, I sat down to read a printed sexual-harassment policy under the gaze of the firm’s human-resources chief. I could not take photos or notes.

I am a software engineer who has worked for two San Francisco startups and launched a nonprofit of my own. Like many women in the tech industry, I have been harassed by a VC investor in the course of my career. But reporting my own experiences was not the point of this excursion. In 2018, I teamed up with three tech veterans, who had also experienced harassment, to launch the #MovingForward movement to reform the venture capital industry. Investors have enormous power over whether a startup company survives. They take advantage of that power to harass startup founders, which federal civil-rights laws have allowed them to do with legal impunity. Venture capital and private equity hardly existed in the mid-1960s, when equal-employment laws were written, so the role investors play in establishing fair workplaces was never considered.

Both then and now, employees of a company are theoretically protected from being discriminated against or sexually harassed on the job. But other economic relationships—such as accepting investment money or serving as an independent contractor—have no legal foundation and can expose a would-be entrepreneur to abusive behavior.

In news reports in The New York Times and The Information in the summer of 2017, two dozen female entrepreneurs spoke out about sexual harassment from high-profile investors, including Justin Caldbeck of Binary Capital and Dave McClure of 500 Startups. The former initially denied wrongdoing, then apologized and resigned; the latter wrote a now-deleted mea culpa entitled “I was a creep. I’m sorry.” The need for culture change was evident, but my #MovingForward collaborators and I also wanted VC firms to change their policies to explicitly forbid harassment of and discrimination against start-up founders and other third parties with whom the firms work. We rallied 89 VC firms to make their harassment policies publicly available on our website, VentureMovingForward.org; an additional 33 made their policies available via email. Every participating firm also published information about which of its employees would field complaints. Making these documents available online meant entrepreneurs no longer needed to show up in person and risk seeing their harasser just to learn—much less exercise—their legal rights.

Changing corporate policies is helpful, but it is not enough. To systemically curb harassment and discrimination in the venture-capital business, we need new laws. Young companies fall through the cracks of federal employment law when it comes to harassment and discrimination protections. Legally, entrepreneurs are third parties, not employees of VC firms. In reality, investors are the closest thing an entrepreneur has to a boss: Many are board members with voting power to fire the CEO. Employees have grounds to report bad behavior to the U.S. Equal Employment Opportunity Commission under Title VII, but Title VII does not apply to third parties. As such, entrepreneurs have no grounds to take legal action when they are harassed or discriminated against by investors, no matter how generous the company’s internal policy toward its own employees.

The legal classification of entrepreneurs as nonemployees exacerbates the already intense power imbalance between entrepreneurs and their investors. Entrepreneurs need VC funding to turn their innovations into companies. Female founders receive only 2.2 percent of venture-capital money and only about one in 10 VC-backed entrepreneurs is nonwhite. Conversely, 92 percent of investors at the top 100 venture-capital firms are men, and 78 percent of VC employees are white. The power imbalances at play mean that when harassment and discrimination occur, they are rarely reported. VCs who behave poorly surely discourage underrepresented entrepreneurs from continuing to chase capital, leading promising business ideas to die prematurely.

Venture-capital investors’ tolerance for harassment and discrimination trickles down to the tech companies they fund. When toxic workplace cultures pervade any of their portfolio companies, VCs are in a strong position to force these companies to confront the problem. Because investors don’t see discriminatory or harassing behaviors as harmful or illegal, they don’t. Without top-down pressure to cultivate a dignified workplace, many entrepreneurs aren’t as motivated to care about inclusion within their companies. For the system to change, investors need to understand harassment and discrimination and commit to eliminating them—not just within their own firms but also in the portfolio of companies that they back.

The corporate policies that the #MovingForward movement advocates are designed to restore power to entrepreneurs who might otherwise remain silent. Similar protections should exist in the law so that all VC firms and all entrepreneurs are covered. Firms who have made their harassment and discrimination policies available have seen an uptick in the number of reports received from entrepreneurs; one firm that had never before received reports received three the week that VentureMovingForward.org went live. States are catching on. In October, California approved legislation to protect against harassment in third-party business relationships. It specifically forbids investor-entrepreneur harassment. New York followed with similar legislation in June, and new legislation in Massachusetts is expected to move this year. These changes would cover the three largest VC markets in the United States and serve as precedent for other states—such as Texas, Florida, and Maryland—with booming venture-capital communities.

VC industry representatives oppose such legislation, arguing that it will dissuade investors from meeting with women and entertaining their business ideas. This rebuttal—Fine, we won’t meet with women at all!—epitomizes the immaturity and bias that are allowed to thrive in an industry with no legal safeguards to curtail them.

New legislative measures from states could have broad implications nationally. The more states begin to recognize specific third-party relationships, the more grounds advocates for greater inclusion will have to reclaim Title VII and reform federal laws in ways that give recourse to people subjected to harassment and discrimination in the workplace, no matter how they are classified.

The fight for entrepreneurs opens the door for any worker who doesn’t fit traditional employment models. The gig economy and contract labor are on the rise; ever more Americans work in a third-party capacity. We need a baseline of decency in the workplace, one that cannot exist without a standard that applies to all, employees or not.