What The Kleiner Perkins Sexual Discrimination Lawsuit Means For Female Entrepreneurs

By June 1, 2012

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The venture capital industry has spent years protecting its public image as gender neutral. Partners at firms like GRP Partners and Foundry Group combat statistics stating that only 10 percent of venture backed companies are founded by females by saying that women-led startups don’t pitch them as much as male-led startups do. According to Mark Suster, partner at GRP, “probably only 2-3 out of every hundred pitches I receive are from women.”

Just as I was starting to believe that the low number of women pitching their startups was in fact the reason that fewer women-led companies are venture backed based on my own observations, Kleiner Perkins partner Ellen Pao dropped a bomb that has exposed the inner workings of her firm. Pao alleges that a partner who sexually harassed her, Ajit Nazre, was promoted after her allegations, and that she was left out of important meetings. Pao also alleges that she was pressured to move to the China office, and that another partner who harassed her participated in her performance reviews. That partner cited her in reviews for “clashing with her peers.”

Pao’s sexual discrimination lawsuit highlights a number of issues that have been simmering in female entrepreneur circles for some time. Many females are afraid to speak out about the bias they have experienced, except for a brave few who dare to detail what happened to them. One popular angel investor Paige Craig (whose company BetterWorks is hanging on by its teeth after shutting down its main services at the end of this month) wrote about his doubts when deciding whether or not to fund successful entrepreneur Jessica Jackley (who previously co-founded microlending company Kiva) because of her pregnancy.

She responded with a post that highlighted a few false assumptions that investors have about founders – specifically that the female entrepreneur is still the primary caretaker in the family and that a male entrepreneur expecting a child is not a big deal. She also pointed out the fallacy that balancing a personal life with a startup is not ideal.

“When my titles expand from just founder-CEO to founder-CEO-mom, I may have a different kind of load to bear than that of other entrepreneurs, especially if we’re talking about ones who fit the old Silicon Valley stereotypes (fill in the blank here with the obvious demographics and attitudes that come to mind). I’ve tried forcing myself to fit more into this profile during other seasons of my life and would like to report that, shockingly, there’s really no correlation between eating takeout everyday or skipping that 30-minute jog again and great entrepreneurial success. If anything, I’ve found the opposite to be true.”

In the end, Craig did decide to invest. In a disappointing turn of events, Jackley’s startup failed. ProFounder did not succeed not because of her family commitments, but because of the lengthy political debate over changing the SEC laws about unaccredited investors. ProFounder was a crowdfunding platform for entrepreneurs.

Some venture capitalists have been accused not of discriminating against women, but getting too casual with single women entrepreneurs. Last year, New York City-based technology blog BetaBeat published an expose of Charlie O’Donnell, formerly of First Round Capital. The article alleges that several anonymous sources in the startup ecosystem have felt that O’Donnell used his clout as a venture capitalist to turn meetings with female entrepreneurs into unexpected and unwelcome dates. In the comments section of the article, one anonymous woman wrote:

“In my experience, he hit on my co-Founder so unabashedly, so relentlessly, that even when she told him she was not interested, he sent her a text saying ‘oh, but you are too sexy to give up on…’ This abuse went on for months. My co-Founder would call me at least once a week with a new Charlie story. And the sad thing was that she felt incredibly uncomfortable calling him out on this behavior. He is a senior member of one of the most prestigious VC funds in the country, and it is his responsibility to not abuse this power or cross ethical lines.”

Many notable women in New York City’s startup scene rushed to defend O’Donnell, including Rachel Sklar and Caroline McCarthy.

Gender issues in the venture capital industry have less to do with dating, sex, and family, and more to do with power. According to the National Venture Capital Association and Dow Jones VentureSource survey of 600 venture capital professionals, only 11 percent of venture capital positions were held by women (as of 2011). Regardless of the opinions that people have about gender dynamics and appropriate versus inappropriate behavior during meetings, the facts remain that most venture capitalists are males even as the number of female startup founders continues to rise.

According to the Startup Genome Ecosystem Report, 51 percent of (female) respondents now need capital to grow their businesses. Pattern recognition can cause many male venture capitalists to unconsciously fund a certain set of characteristics in entrepreneurs that they have seen before – young white males.

Even with these statistics and allegations, some men continue to deny bias in the venture capital industry. In an all male panel at TechCrunch Disrupt, Sequoia Capital partner Greg McAdoo stated:

“We look for folks who can help companies become great businesses over time and we don’t ask a lot of questions about gender or what have you.”

Also on the panel included First Round’s Josh Kopelman, CrunchFund’s Michael Arrington, Charlie O’Donnell (now of Brooklyn Bridge Ventures) and Kleiner Perkins’ Mike Abbott. No one else addressed the issue.

Kleiner Perkins claims that Pao’s allegations are unfounded, and that the firm is female friendly. It recently announced that Megan Quinn, formerly of Square and Google, will join the team. The firm notes that it was in talks to hire Quinn before Pao’s lawsuit was filed, and that this is not a token hire to improve its image.

So what does the all mean for female entrepreneurs? I think it comes down to one thing: work with people who share the same values that you do. For every person out there who behaves badly, there are plenty of people who want women to succeed. Entrepreneurs need to do their homework before they work with mentors and venture capitalists, even if they are well connected and look good on paper. Money always comes with strings attached. Make sure that the people that you take money from are people that you are proud to associate with throughout the lifecycle of your startup.