A US Congressional hearing on the “fight against tech bro culture” in the venture capital world will take place this week, with some of the biggest names in startup funding in the spotlight.
The House Financial Services Committee’s fintech task force is scheduled to meet on Thursday. Majority FSC staff said in a note [PDF] the hearing will focus on how VCs have failed to invest in, for example, fintech companies founded by women and people of color.
We’re told Sallie Krawcheck, CEO and co-founder of Ellevest; Marceau Michel, founder of Black Founders Matter; Abbey Wemimo, co-founder and co-CEO of Esusu; and Maryam Haque, executive director of Venture Forward were at least invited to speak at the meeting.
“Venture capital firms have shown strong interest in tech-based companies, including fintechs,” the staff wrote. “However, the majority of this investment has been directed to white and male-founded businesses.”
The memo claims that investors are 21% more likely to back founders of the same ethnicity — white employees make up about three-quarters of the VC workforce — so either more diversity is needed or a little less prejudice.
We are told that the black founders only received one percent of the funding. Latin American founders only received slightly more at 1.8%. Asian founders received 17.7%. That doesn’t quite match the adult population of the United States; less than 17.7% of the American population is Asian and more than 1% is black, for example.
The same goes for gender: companies founded by women consistently receive only 2% of venture capital funding, despite women owning 20% of all US companies, the memo says.
The FSC memo names three well-known venture capitalists in the tech world: Y Combinator, Sequoia, and Andreessen Horowitz, aka a16z, though it does not address any specific accusations against them.
Going through the archives, we can find widespread harassment of women by various venture capitalists. In 2018, a survey of female founders working with Y Combinator found that one in five experienced sexual harassment. Sequoia-backed Uber paid more than $4 million to settle sexual harassment and retaliation claims in 2019; the same year, the CEO of an a16z-backed fintech start-up was sued by three employees on sexual harassment.
The agenda for the hearing includes an overview of policy tools that could help women and minority-owned businesses attract more venture capital investment, although it does not say what those policies might be. . However, it contains a clue to the origin of a possible action.
The final section of the note examines the differences between disclosure laws for venture capitalists and venture capitalist advisers, the latter of which come under much greater scrutiny by the SEC. Venture capital advisers may include fund managers, who are responsible for identifying investment opportunities.
According to the memo, the SEC is “increasingly engaged” in addressing the lack of diversity in the venture capital ecosystem. The SEC’s Small Business Capital Formation Advisory Committee has recommended that the regulator take steps “to reduce barriers to entry for underrepresented founders and their investors.”
Those interested in seeing what direction venture capital regulation might take can tune in to the virtual hearing at thursday noon US Eastern Time. ®