Jul 8, 2019

Extending anti-discrimination laws to VC investments

illustration of six quarters and one of them gold

Credit: Lazaro Gamio/Axios

Massachusetts lawmakers are considering a proposal that would extend anti-discrimination laws to venture capital investment decisions.

Why it matters: The goal is to increase the pitiful percentage of VC dollars disbursed to women and minority-led startups, which often are hampered by systemic "pattern matching" and "old boy networks" within the white male-dominated industry.

  • Laws against discriminating on the basis of gender or race already are on the Massachusetts books when it comes to employment, including within VC firms, but not when it comes to investments.
  • Yes, this is exactly as thorny as it sounds, perhaps proving that the road to headaches are paved with good intentions. In short: How would founders prove they didn't get an investment because of gender or racial discrimination, save for some sort of smoking gun? So many VC deals are more about gut feeling than anything else, with investors turning down the vast majority of opportunities.
  • Perhaps plaintiffs could make their case via statistical percentages, aided by discovery, but it's hard to imagine a startup founder wanting to spend her valuable time, resources and reputation on such an endeavor.
    • It also could raise the legal liabilities for Massachusetts VC firms, thus making LPs less likely to fund the local ecosystem.
    • A local VC trade group also argues that the law could make VC firms less likely to take meetings with female and minority founders, for fear of being sued if they don't do the deal. But that seems fairly remote ⁠— again because it's not likely in a founder's interest to sue, save for explicit cause, and because not taking the meeting could open up the same potential liability.

The proposal also would extend anti-sexual harassment rules to investor-founder interactions, which is a much more sensible policy and one that was recently applied in California.

Go deeper