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Lazaro Gamio / Axios

Limited partners in venture capital funds are having conversations about how to prevent themselves from investing in the next Binary Capital, the Silicon Valley firm that has collapsed over allegations that one of its co-founders sexually harassed female entrepreneurs. This includes the largest LP trade group – the Institutional Limited Partners Association – which tells Axios that it is planning to address these issues this summer, as part of the development of its new ILPA Principles 3.0 document.

Why it matters: Silicon Valley, and venture capital in particular, has swept sexual harassment under the rug for decades. Binary Capital, coming on top of the situation at Uber, has grabbed that rug and begun to shake it vigorously.

Who are limited partners in VC funds? Usually institutional investors, like college endowments, pension funds and charitable foundations. Also a lot of funds-of-funds that invest money on behalf of those aforementioned groups.

A big problem: Investing in a VC fund is really investing in people, even more than investing in a startup. But LPs rarely spend more than a few hours face-to-face with prospective managers, and often live outside the startup hotbeds where it's easier to hear market rumor. Instead, they often rely on past investment performance (which wouldn't reflect something like harassment) and references (both "on list" and "off list," if they're doing proper due diligence). The reality, however, is that few in the venture ecosystem are willing to be honest with LPs are the personal failings of a peer, particularly if it's a former colleague launching a new firm. Even if that colleague is only "former" because they've been told to find a new place of employment.

Need proof? When's the last time you heard of a VC being fired from his or her firm, outside of some extraordinary situations that involved outside legal action (e.g., Michael Goguen with Sequoia, Ifty Ahmed with Oak). Instead, firms ask troublesome partners to leave, and then play along with cover stories like the ex-partner leaving "to pursue a different investment strategy." Binary is an obvious example of this happening, but it's hardly unique.

What can LPs do? For starters, many LPs need to improve their due diligence. "Check the returns and check the box" no longer cuts it and, if an LP walks into the next Binary that way, they deserve what comes from their superiors. There has been some talk of inserting morals clauses into LP agreements, and that could be helpful if well written. A better option, however, could be to require that any allegations of sexual harassment, discrimination (sexual or racial), violence or other misdeeds by a member of the VC firm be confidentially reported to the firm's limited partner advisory committees (LPACs). Even if no action is taken, the largest fund investors would be aware, and it would better inform future commitment decisions.

What VCs can do: Stop covering up for bad behavior. Perhaps you are legally prohibited from telling an LP why a former partner has gone solo, but that doesn't mean you need to give a reference. An un-returned phone call can speak volumes without counting as defamation. If you believe your partner harassed women but you still tell LPs that they should support his new fund, then you're Silicon Valley's version of Catholic Church officials who moved around pedophile priests.

What's promising: I never before recall hearing LPs discuss these issues. Change is coming.

Go deeper

Scoop: Stephanie Ruhle to replace Brian Williams on MSNBC

Photo: Nathan Congleton/NBCU Photo Bank/NBCUniversal via Getty Images via Getty Images

MSNBC will soon announce plans to move morning anchor Stephanie Ruhle to the 11 pm ET hour that Brian Williams turned into an elite destination, two sources familiar with the move tell Axios.

Details: The 9 am ET hour, currently hosted by Ruhle, will become part of MSNBC's flagship morning show, "Morning Joe," which currently runs from 6 am to 9 am ET.

Oath Keepers leader denied bail on Capitol riot sedition charge

Oath Keepers co-founder Elmer Stewart Rhodes. Photo: Susan Walsh/AP

A federal judge ordered Oath Keepers leader Stewart Rhodes to remain jailed Wednesday until trial on charges stemming from the Capitol riot.

Why it matters: The judge said the most prominent far-right figure charged in the Jan. 6, 2021, insurrection had access to weapons and his alleged "continued advocacy for violence against the federal government" gave credence to prosecutors' view that, if released, Rhodes could endanger others.

Who in Congress is talking about Ukraine the most

Data: Quorum; Chart: Will Chase/Axios

Mentions of Ukraine or Ukrainian President Volodymyr Zelensky in congressional statements and social media posts have been on the rise — with nearly 1,000 already this month, according to data from Quorum.

Why it matters: The growing threat of a Russian invasion has been mirrored by a growth in Ukraine-related chatter.