Illustrations by Bianca Bagnarelli
Before Harvey Weinstein, Charlie Rose, and Steve Wynn, there was Justin Caldbeck. A prominent venture capitalist, Caldbeck was accused last year of unwanted and inappropriate advances by half a dozen women working in the technology industry, reports that would ultimately result in his resignation from his firm, Binary Capital. In the months that followed, allegations of sexual misconduct by men at other venture capital firms would be made public.
The Silicon Valley revelations emerged from a “bro culture” in which women face, at best, high barriers to becoming one of the few executives in the room. As of October women represented 21 percent of employees at venture capital firms and held just 11 percent of senior-level positions in the industry, according to Preqin, a provider of alternative-assets data.
Behind this industry are institutional investors who allocate billions of dollars to venture capital funds each year in hopes of reaping high returns from the bets made with their money. Among the most prominent are college and university endowments, which, following the lead of Yale University chief investment officer David Swensen, have adopted an asset allocation model emphasizing so-called alternative investments like venture capital. The latest survey of endowments by Commonfund and the National Association of College and University Business Officers found that those with more than $1 billion of assets maintained an average 7 percent allocation to venture capital.
University endowments now find their investment partnerships at risk of being hit by the harassment claims that have picked up since last year. For the venture capital industry, the floodgates opened in June, when tech news site The Information reported that Caldbeck, the co-founder and managing partner of Binary Capital, had been accused by six women of inappropriate or unwanted advances. Following the publication of these allegations, Caldbeck left the firm and issued a public statement of apology.
“The power dynamic that exists in venture capital is despicably unfair,” he said in a statement provided to Axios in June. “The gap of influence between male venture capitalists and female entrepreneurs is frightening, and I hate that my behavior played a role in perpetrating a gender-hostile environment.” Both Caldbeck and a spokesperson for San Francisco–based Binary Capital declined to comment for this story.
“For the entire venture capital industry, the Caldbeck issue was a wake-up call,” says Emily Mendell, a spokesperson for the Institutional Limited Partners Association, a group of large investors, or limited partners, in private equity and venture capital funds — often referred to as LPs. “There had been no indication that he had committed any of this bad behavior. ”
Major endowments may be largely unprepared to handle such allegations. Few appear to have concrete policies in place to address issues of sexual misconduct or discrimination at the companies and asset management firms tied to their portfolios.
Institutional Investor contacted each of the 50 largest college and university endowments, as ranked by NACUBO and Commonfund, and asked whether they screen fund managers and portfolio companies for diversity or instances of harassment, assault, or discrimination — in venture capital or across all areas in which they invest. Each endowment was also asked if it has an existing policy on how to address allegations of misconduct at the asset management firms they’ve hired or the companies in which they’re invested.
Twenty endowments did not respond to multiple requests for comment made by phone and email over a period of seven weeks. A further 12 declined to comment.
In total, just 18 of the 50 largest endowments provided responses for this article, with University of Texas/Texas A&M Investment Management Co. answering on behalf of each of the endowment funds it manages. Though every firm that responded noted that its investment staff undertakes a thorough due diligence process before making an investment, only a small number offered explicit policies relating to sexual misconduct or discrimination.
Sixteen of the 18 endowments that responded to II’s inquiry about their policies on sexual harassment declined to comment on whether they work with Binary Capital or three other firms whose founders became embroiled in allegations of inappropriate behavior toward women: 500 Startups, Draper Fisher Jurvetson, and Sherpa Capital. Stuart Mason, CIO at University of Minnesota, says his school’s endowment does not have any exposure to these firms. University of Southern California did not respond to a request for comment on this particular matter.
Johns Hopkins University’s endowment says it conducts “rigorous qualitative assessments” of potential managers, including background and reference checks, and “excludes those who either have a record of or exhibit material potential risk of behavior along one or more dimensions, including, but not limited to, fostering a hostile work environment or failing to respond effectively to sexual misconduct, discrimination, and harassment,” according to a statement from Johns Hopkins.
Likewise, Washington University in St. Louis says that its endowment office conducts “in-depth background checks on managers” and has a policy not to invest “if there is any concern that the manager’s behavior is not representative of Washington University’s core values.” A spokesperson for Harvard Management Co. notes over email that a “well-established and comprehensive code of conduct for employees” is a “basic requirement” for all firms that the $36 billion endowment manager invests with.
At Princeton Investment Management Co., president Andrew Golden says his staff’s initial and continuing manager due diligence includes ensuring that managers have “suitable” and well-enforced policies on employee conduct. “Harassment and discrimination are antithetical to good partnership,” he notes in a statement emailed to II. “We treat such allegations seriously and seek to assure that any allegation is handled appropriately and justly.”
Other endowments say that though considerations of ethics and character are included in their investment due diligence, they do not have formal written policies on how to address issues of sexual assault, harassment, or discrimination. These include University of Texas/Texas A&M Investment Management Co., Duke Management Co., University of Virginia Investment Management Co., University of Minnesota’s endowment, Brown University’s investment office, and the University of Wisconsin Foundation.
Still others, namely the endowments of University of Southern California and Northwestern University, say all such issues are evaluated case by case.
“We highly value diversity, and we take issues of sexual harassment and misconduct very seriously,” a spokesperson for University of Wisconsin’s endowment says in an emailed statement. “However, it’s much easier to apply specific policies within our own organization than it is to apply them to outside organizations.” Still, should any allegations of misconduct arise within the portfolio, he says the foundation would act to investigate the matter.
University of Minnesota’s Mason tells II by email that his office has terminated managers in the past over such allegations. Although the $3.5 billion endowment does not have a specific policy relating to sexual misconduct or discrimination claims occurring at its asset management firms, it does adhere to an overarching environmental, social, and governance policy.
“Allegations of sexual misconduct and harassment would be considered a serious negative characteristic in that relative evaluation,” he says.
At the University of Texas and Texas A&M endowments, the manager due diligence process — which includes background checks on key principals and informal reference calls with peers, colleagues, and investors — is designed to uncover any legal or regulatory action against prospective managers, detect any negative mentions in the press, and assess a manager’s character and integrity, according to a spokesperson for UTIMCO. “We don’t have a formal policy for what we do with information pertaining to alleged sexual misconduct or discrimination, but all such information is ultimately incorporated into the final decision-making process,” the spokesperson says in an emailed statement.
A spokesperson for Duke’s endowment similarly notes that DUMAC subjects managers to “thorough due diligence that includes reviewing their commitment and actions related to character and diversity.” A statement from Brown explains that its endowment has a “high standard of integrity” for its investment managers.
Likewise, “integrity and ethics are a key consideration” in UVIMCO’s manager selection, according to a statement from chief operating officer Kristina Alimard. “We conduct rigorous due diligence and ongoing monitoring of all third-party investment managers, and we seek to partner with only those who demonstrate the highest standards of both investment acumen and ethical behavior,” she says.
At University of Chicago a “comprehensive and thorough” due diligence process includes background checks and broad reference checks, explains Joanna Rupp, managing director of the endowment’s $1.1 billion private equity portfolio. Although these evaluations have always included general questions about an asset manager’s character, the recent outpouring of news and activism regarding sexual harassment in the workplace has “caused us to evaluate whether we can be more thorough and address these issues specifically,” she says by phone. “We now ask very specific questions during reference checks regarding whether the person is aware of any harassment or any accusations of harassment,” Rupp adds. “We’re also making an effort to specifically identify women who can provide references.”
The #MeToo Problem
Apprehensions about sexual assault and harassment in the venture capital industry and beyond are increasingly being brought up in endowment investment committee meetings, according to Kristin Reynolds, a partner at consulting firm NEPC.
“Endowments are definitely concerned,” she says in an email. “This is especially true for colleges since their student body is passionate and vocal about important issues. Colleges need to answer to a variety of audiences, and their own students are certainly a group that’s keeping a close eye on sexual harassment and other forms of bad and improper behavior.”
Social movements like #MeToo and Time’s Up have emboldened alleged victims of sexual misconduct to come forward. The MeToo hashtag began trending on social media in October, after reports from The New York Times and The New Yorker detailed allegations portraying movie mogul Harvey Weinstein as a sexual predator. In response to the Times report on his treatment of women in Hollywood, Weinstein issued a statement apologizing for his behavior.
In other examples of accusations of misconduct by high-profile figures, The Washington Post reported in November that TV host Charlie Rose had made unwanted sexual advances on women, including lewd phone calls and walking around naked in their presence. In February, Casino mogul Steve Wynn resigned as CEO and chairman of Wynn Resorts following a Wall Street Journal report that he allegedly had pressured employees to perform sex acts. Wynn told the Journal the claims were “preposterous.” Rose provided a statement to The Washington Post in which he apologized for inappropriate behavior while saying he did not believe all the allegations were true.
Spokespeople for Weinstein and Wynn didn’t return phone calls seeking comment for this story, and a CBS spokesperson didn’t return a phone call and an email seeking comment about the allegations against Rose.
According to ILPA’s Mendell, the revelations surrounding Caldbeck made investors realize just how little they really knew about what went on behind the scenes in venture capital. “When these allegations first came to light, specifically with the Justin Caldbeck issue, investors were concerned about the information they didn’t have about the behavior of Caldbeck when they invested in the fund,” she says. “It was news to the LPs that it had gone on at his previous firm.”
Before co-founding Binary in 2014, Caldbeck worked as a managing director at Menlo Park, California–based Lightspeed Venture Partners. Lightspeed was an early investor in Stitch Fix, whose founder and CEO, Katrina Lake, alleged that Caldbeck had sexually harassed her when he worked for the venture capital firm, Axios reported in June. Lake and a Lightspeed spokesperson did not return phone calls seeking comment.
The VC industry soon saw it had a wider problem with sexual harassment.
On June 30 a New York Times report alleged that Dave McClure, founder of 500 Startups, had made inappropriate advances toward a potential employee. McClure copped to the allegation a day later in a post on publishing platform Medium entitled “I’m A Creep. I’m Sorry.” In the post he apologizes for making inappropriate advances toward multiple women in what he characterizes as “work-related situations.”
Since then, 500 Startups has made several internal changes in an attempt to prevent future harassment. Spokesperson Kelsey Cullen says the firm has started to conduct employee surveys and initiated ongoing employee education, while also updating its workplace conduct, anti-harassment, and diversity and inclusion policies. 500 Startups has brought on two new hires to develop a diversity and inclusion training program, and has established an anonymous hotline where employees can report incidents of harassment or bias at work, according to Cullen.
“This is by no means comprehensive, and our work is far from done,” she says in an email. “It is a long-term commitment, because meaningful change takes time.” McClure didn’t respond to an email seeking comment.
Elsewhere within the venture capital industry, incidents of sexual misconduct continued to be detailed in the press. In November technology news site Recode reported that Draper Fisher Jurvetson co-founder Steve Jurvetson had resigned after being investigated by his own firm for sexual harassment. He tweeted that the misconduct allegations were “false statements” and then deleted his account, and separately told Recode that he was leaving the firm to focus on personal matters that included legal action against those who had defamed him, the tech website reported. A spokesperson for Draper Fisher did not respond to calls seeking comment, and Jurvetson didn’t respond to a LinkedIn message seeking comment.
Also in November, Bloomberg reported that five women had alleged that Uber investor and Sherpa Capital co-founder Shervin Pishevar “used his position of power to pursue romantic relationships and unwanted sexual encounters.” Pishevar resigned roughly two weeks later, calling the accusations “untruthful attacks” in a statement he published on Twitter. When reached by II over email, a spokesperson for Sherpa said that “maintaining a workplace of respect, professionalism, and accountability requires an ongoing willingness to look at what you’re doing right and where things could be improved.” Pishevar didn’t respond to direct messages sent over Twitter and LinkedIn.
Preventing Bad Behavior
One organization now focusing on how asset managers can create a more inclusive culture is the National Venture Capital Association, led by chief executive Bobby Franklin.
“When this hit back in the early summer, we approached it a lot like we did when we started our diversity task force back in 2014,” he says. “We are not the experts, so we’re listening to those who are dealing with these issues for a long time.”
According to Franklin, the NVCA has created templates for human resources policies and bias training for its member firms to adopt and implement. The group, whose members include 500 Startups, Draper Fisher Jurvetson, and Sherpa Capital, has also been outspoken about diversity and gender representation in the industry, publishing several blogs on the subject.
As for ILPA, Mendell says the association is working to update its due diligence questionnaire template — one of the most downloaded documents on its website — to include queries on diversity and inclusion. Meanwhile, consultants at NEPC recommend that clients ask potential managers how they would respond to situations like allegations of misconduct, should they arise.
“By conducting an extensive due diligence process before investing with a fund and being proactive with ongoing due diligence, endowments can put themselves in a stronger position than they otherwise would have been,” NEPC’s Reynolds says over email. When misconduct does occur, she says it is important that fund investors establish a dialogue with the asset manager and evaluate the situation on a case-by-case basis.
“Bad actions can occur at good firms, so by communicating with the manager and asking questions, endowments can determine if they feel comfortable or not with how a manager is handling the problem,” Reynolds says. “Very often it’s the poor handling that leads to a relationship being terminated, not the original action itself.”
In venture capital, limited partners may not be able to terminate a manager relationship — at least not right away. “You marry them,” says Jim Dunn, CEO and CIO of Verger Capital Management, an outsourced-CIO firm that spun out of Wake Forest University in 2014. “You’re stuck.”
Verger now manages about $1.7 billion for six clients, including Wake Forest’s $1.2 billion endowment. About 14 percent of the portfolio is invested in private equity, including $51 million in venture capital. In private equity, where investors can lock up money for a decade at a time, Dunn notes that there’s a stronger need for thorough due diligence upfront.
“As an LP we have some legal opportunities with ‘key man’ clauses and we can get involved at an advisory board level, but at the end of the day, they have the ability to keep our money,” he says by phone. “We really have to make sure going into it that we feel comfortable, that this firm has a culture we can get behind and is willing to engage with us when these issues arise.”
As the University of Chicago endowment’s head of private equity, Rupp says her job involves a “higher level of scrutiny and engagement” relative to working with more-liquid investments.
“That’s one of the big pieces when we’re doing the initial due diligence,” she explains. “We’re looking for a partnership mind-set and the willingness to engage constructively with LPs. We do not want an adversarial relationship.”
Rupp adds that she knows of only one instance of a University of Chicago general partner being accused of sexual harassment. Although the alleged behavior did not occur in the workplace, it was evidently serious enough that it was “immediately taken care of” by the other partners in the fund, she says, declining to name the investment firm.
“We had subsequent discussions with the manager about their ongoing efforts to make sure their culture was supportive of the long-term health of the partnership,” Rupp says. “As an LP, legally you’re not often able to do very much, so it really comes to having a strong relationship and being able to engage with the manager and identify helpful and appropriate courses of action.”
At Verger Capital, Dunn and his team have sought to identify any allegations of sexual misconduct or discrimination at the firm’s asset managers, and then to engage with them on the issue. In August, Verge hired Wake Forest senior Emily Claire Mackey as an intern to help evaluate all 65 fund managers according to environmental, social, and governance criteria, including diversity. The project was just getting underway when the allegations of sexual assault and harassment against Hollywood’s Weinstein were made public in early October.
“From the beginning we’d talked about gender equity and balance,” Mackey says by phone. But as more accusations of sexual misconduct made headlines, it became increasingly apparent that they needed to specifically address workplace harassment. “It seemed like the next domino in the conversation,” she explains.
Led by Mackey, a “forensic dig” into each asset manager’s history, including past media coverage and litigation, uncovered incidents of sexual misconduct at 12 of the 65 asset managers employed by Verger. Mackey then spoke with representatives of each firm, addressing their sexual harassment policies, prevention efforts, and incident reporting protocols, as well as broader support measures for female employees, such as parental leave.
“We fleshed out what concerns we had and why the issue was handled the way it was,” she says. “Questions like ‘Is this a situation that could’ve been prevented?’ When it comes to sexual harassment, you hate to ask if it will happen again, but that’s what a lot of these conversations came to.”
Dunn declines to name the firms that had faced allegations of sexual misconduct. In a number of cases, Dunn says, asset managers “did not take it seriously or did not understand why we were asking the question.” Smaller firms in particular often did not have formal sexual harassment policies.
Some institutions outsource their human resources functions, according to Chris Culbertson, who leads Verger Capital’s fund manager due diligence. “It’s not on the agenda,” he says by phone. “So we’re trying to be engaging and, where there are gaps, provide some feedback and be partners with them.”
In recent weeks a new movement aimed at harassment prevention within venture capital has emerged, led by female entrepreneurs seeking to force industrywide change. The #MovingForward initiative, started March 8 by Silicon Valley’s Cheryl Yeoh Sew Hoy and Andrea Coravos, is a public database where venture capital firms can share their anti-harassment and discrimination policies and provide contact information for entrepreneurs who want to report an issue. As of March 11 the directory included data from 48 venture capital firms, including 500 Startups. Twenty-one firms had pledged to share their external policies and points of contact.
After last year’s outpouring of sexual misconduct allegations, the venture capital industry is making progress toward a safer and more equitable environment for all participants, regardless of gender. But there is still work to be done, and room for venture capital investors like university endowments to address the problems within their own portfolios.
“As awful as the #MeToo movement is, we are looking at it as a positive way to go forward,” ILPA’s Mendell says. “Had all of this stuff not come to light, it would still be going on. It can be looked at as a challenge or as a positive opportunity.”
Most likely it will be both.
