Last spring, Elizabeth Giorgi was shocked but not surprised by the inappropriate questions from potential investors about her relationships and whether she planned to have children. The cofounder of Denver video-startup Soona decided — enough!
She understood the funding world’s reputation for bad behavior. It blew up in mid-2017 when several prominent Silicon Valley male investors were publicly called out for creating uncomfortable sexual situations for female founders.
Giorgi and cofounder Hayley Anderson did not want those types of guys as investors. But she didn’t want to just sit around and complain. So, she penned the Candor Clause. All investors had to do was disclose whether any sexual harassment or discrimination complaints had been made against them. It was her first time raising money, and including the clause was a big risk. But then she’d know and be better informed about working with the investor.
“And now I feel so grateful because I look at our cap table (showing ownership shares) and I see a list of human beings who I believe are compassionate, empathetic, visionary feminists who will be part of our story,” said Giorgi, whose company raised $1.2 million in May to expand the retail service of same-day social video and photo production. “The challenge is we also want to invite men to be part of the solution.”
The data is stacked against female founders. Last year, companies with an all-female founding team raised just 2.3% of all capital nationwide (companies with both a female and male founder raised 10.3%), according to Pitchbook, a VC research firm. Fewer than 2% of women-owned businesses reach $1 million in revenues. And women partners at VC firms? There’s a growing number, at 14% last year, but not a good sign if people gravitate to fund those who look like them, according to the National Venture Capital Association.
Toss in inappropriate behavior and patronizing attitudes, and it’s a wonder how nearly 2,000 venture-backed companies with female founders raised capital. That’s 6.1% of VC deals last year.
It’s better for women to just ignore the data, Giorgi said.
“We look at those numbers and think, ‘Well, that seems bad.’ The piece of the puzzle that is so strange to me is if we never are willing to explore the why … and just leave it at that, we won’t fix it,” said Giorgi, who had an equality sign tattooed on the back of her middle finger after making her first million at a previous startup. “We have to actually think about this as a community.”
So it was a nice surprise when she started hearing from other women, although she doesn’t know whether they included the Candor Clause in their term sheets. But then another founder she met while attending the Techstars accelerator program in Boulder decided he, too, would add the clause to his term sheets. And then she heard from her own investors who planned to add similar wording in their contracts.
“I thought it was a no brainer,” said Alex Iskold, cofounder and managing partner of New York-based 2048 Ventures, which led the investment in Soona. “Instead of us just kind of walking around and saying that we’re obviously all against sexual harassment … we can actually put this on paper and so it just becomes part of the legal framework of the transaction.”
The Candor Clause, a single paragraph of disclosure, leaves it up to founders to decide whether past behavior is a deal breaker. It also provides a mechanism to get rid of shareholders who lied or misrepresented themselves. Without such language, one of the few options is to kick such investors off their boards, Iskold said.
That’s what happened after Justin Caldbeck at Binary Capital resigned in 2017 after several women said he made unwanted advances. The firm was the lead investor in an earlier $5.8 million round for Havenly, an online interior design service in Denver founded by sisters Lee Mayer and Emily Motayed, and their friend Jesse Dixon.
Mayer asked Binary to give up its board seat after the news broke.
Havenly has gone on to become one of Denver’s faster-growing startups. Last week, the company raised another $32 million, bringing its total to $59 million. Mayer said she feels today’s venture environment is much more supportive of female founders than when she first set out to raise capital nearly five years ago.
“I’ve pitched more women in this last round than I did in previous rounds, so it seems like funds are finally making headway in recruiting talented VC women, and I also certainly had a lot of vocal support from other male and female founders,” Mayer said. “… It’s important to note that I’ve also heard about less egregiously inappropriate behavior by VCs and investors in the past couple of years — where I used to hear about incidents all the time.”
But even with the improvements, the underlying issues remain the same, she added.
“Male investors are still overly paternalistic towards female CEOs (often unintentionally), women still only receive a meager share of all the capital dollars raised, and there are still very, very few women (particularly of color) running companies,” Mayer said in her email.
In Colorado, about 50 female-founded companies have raised capital each year since 2014, according to Pitchbook. But growing firms, like Havenly, are raising larger rounds, and that’s increased the total value to $251 million so far this year from $99 million in 2014.
The most valuable company led by a woman, as proclaimed by Pitchbook, is Guild Education, the education-as-a-perk company founded by college classmates Rachel Carlson and Brittany Stich. Guild has raised at least $71 million to date.
Its push for diversity and inclusion emanates throughout the company, so it’s hard for investors to overlook it. Guild pushes for diversity, has a workforce that is 66% female and has a majority female executive team.
“At Guild Education, we’ve found it important to spend meaningful time with investors and their teams well before starting any fundraising conversations, setting the groundwork for a strong, respectful dynamic based on an established working relationship,” Guild spokeswoman Ricki Eshman said.
After the Silicon Valley VC awakening in 2017, others founders nationwide began organizing. The nonprofit All Raise launched Founders for Change in March 2018, and today includes thousands of founders who’ve pledged to work with only investors who consider diversity and inclusion at their firms. Zebras Unite pushes for alternative and ethical business models when it comes to funding, and it promotes gender and racial diversity.
Another group, #MovingForward, uses open-source tools to track VC firms and their anti-harassment and discrimination policies. Cofounder Ginny Fahs said the project set out to help VCs define harassment legally in order to prevent it at their firms and with founders they invest in. But even just two years ago, few VCs had a policy.
So #MovingForward provided templates and even language that could be cut and pasted into a company’s own policy. They include things like who to contact if there is an issue, what the investigation will be like and who else will see the report. It launched in March 2018 with support from 40 VC firms. There are now 140 firms worldwide, with about 100 in the U.S. The project wants companies to share their policies online.
“We only work with people who are willing to publish a publicly facing document with rigorous definitions of harassment and discrimination,” said Fahs, who at the time worked as a software engineer at Uber and is now an Aspen Institute tech policy fellow. “In that sense, our organization is self-selecting, like we’re a social movement of VCs who are willing to opt in and, to be clear, there are a number of VCs who have chosen not to work with us. But at this point we have critical mass with a lot of the biggest names in the industry.”
Fahs said some firms feel they’re too small to need such policies or they just don’t have time to create one. But she knows startups use the site to check which VCs have posted their policies. She also hears stories about the impact of adopting new anti-harassment policies. One VC firm, for example, told her it had never received any reports of harassment or discrimination.
“The week that they posted their policy on our website, they received three reports,” Fahs said. “To us, that seems like good evidence that the lack of transparency was holding people back from saying something when bad behavior occurred.”
Some of the templates come from the National Venture Capital Association, a trade group representing 350 VC firms. The sample policies were created in response to the 2017 sexual harassment cases, said Maryam Haque, NVCA’s senior vice president of industry advancement.
“It became very clear that there was a lack of these resources and policies and some firms just didn’t have them in place,” Haque said. “So that’s where we leveraged our strength of knowing that we’re a go-to for some of these documents and have worked with legal experts and general counsels and some employment experts to create these.”
Friends and founders
Colin McIntosh may be a guy, but he remembers what it was like to work at the female-led Revolar, a Denver-based maker of app-based personal safety devices.
“I walked into a room with my female cofounders and I was not a founder, but investors would shake my hand assuming that I was the CEO,” McIntosh said. “It also makes me feel very sad because people come to me (to ask about female founders) and they’ll say ‘Do you think that she’s a serious person’ and stuff like that. I guarantee you no one’s ever asked that question about me before.”
McIntosh went on to start Sheets & Giggles, which sells naturally soft bed sheets made from eucalyptus wood pulp. He also happened to be in the same Techstars cohort as Elizabeth Giorgi at Soona. When he heard about her Candor Clause, he decided to include it in his term sheets.
“You hear this question all the time. How can we fix this? How can we improve this? And no one ever has a good answer. And then here (Giorgi) came up with this idea of let’s stop focusing on the woman’s side of the equation. And let’s stop focusing on how to get more people into a bad system. Let’s focus on the system,” he said. “This is a very private, scalable way. And that’s the key for me. If tons and tons of people put this in their documents, you’re going to shut out bad actors from the ecosystem over time.”
Other companies and investment firms have their own policies. At the Techstars organization, its Code of Conduct specifically addresses harassment (“We will ban or fire mentors, investors, employees, contractors and others…” and “We respect ‘no’ as an answer”).
Foundry Group, the Boulder VC firm that invests in many local startups, including some mentioned in this story, includes similar language in their policy too (it defines harassment and discloses that none of the partners have been accused of it).
“We don’t see a lot of these on the company side, but we have been including a version in our fund investing to make sure we’re sussing out any issues before we become LPs in a fund,” Seth Levine, a partner at Foundry, said in an email. “Overall I think there’s a growing awareness of unconscious bias and the role it can play in making investment decisions among VC investors (the majority of whom continue to be white and male).”
But it’s not easy for very young companies to add something like the Candor Clause. Vanessa Clark, cofounder of Atomos Space, said finding capital was difficult enough because investors weren’t familiar with her industry. Her capital-intensive business is building a space transportation service to shuttle satellites to their destination so companies can cut down on rockets and fuel.
“Our last fundraising was very difficult, a lot of the investors didn’t know the space. And we are a very, very early stage company,” Clark said. “We definitely wouldn’t want to do anything that could jeopardize the raise.”
She learned of the Candor Clause after her first pre-seed fundraising effort. She’s supportive of it and feels it’s a way to give investors a heads up on your standards. Looking back, it would have come in handy, she said. One potential investor spent a few weeks doing critical diligence.
“Then I realized that he just wanted to meet with me personally and alone to get to know me better. Ultimately, he decided against investing in the company and in the same sentence asked me out on a date,” said Clark, who’s married to her cofounder, William Kowalski. “It definitely can be a predatory environment.”
Giorgi, with Soona, continues to plug away with investor meetings. Now that the Candor Clause is out there, she doesn’t shy away from it. It came in handy earlier this month when an investor from Silicon Valley that she said is well known for inappropriate behavior, approached her about investing in Soona.
“I was very honest with him,” Giorgi said. “I said, ‘I just don’t believe based on a simple Google search that you are the kind of person that should be involved in my business. And while I have a ton of empathy and compassion for the idea that you can change and evolve and become a better person, it’s not my responsibility to make you a better person.’”
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