raceAhead: Venture Capital Tries Diversity Again
Recode is reporting on a new strategy that one venture capital firm has adopted to better address sexual harassment and diversity in their portfolio companies: The side letter.
Lightspeed Venture Partners, investors behind The Honest Company, Affirm and the currently buzzy HQ Trivia, are asking their company CEOs to sign a letter—bigger than a memo but smaller than a term sheet – that “at least one candidate from an underrepresented background be considered for every open leadership and independent Board member position in the company.”
Some 17 companies have already signed on. Some, like Max Levchin, the founder of Affirm, already had rigorous diversity recruitment standards in place. Others, like HQ Trivia founders Colin Kroll and Rus Yusupov, have had recent trouble finding funding because of allegations of Kroll’s managerial abuse and “creepy” behavior toward women in his past life at Vine/Twitter. (The letter does not seem to have helped.)
Lightspeed has also had some near brushes with trouble.
Former Lightspeed partner Justin Caldbeck was one of many venture capitalists recently accused of making unwanted advances toward women entrepreneurs. Last June, Caldbeck was ousted from his most recent firm, Binary Capital, rocking the startup world.
The idea, while well-intentioned, appears to be more performative than reformative.
First, the letter does not ask for verification or benchmark, nor is it currently linked to the signing of a term sheet or other funding mechanism.
And research shows that there is no statistical chance that any lone diversity candidate will be chosen.
Other industries have tried a toothier version of this diversity scheme. Last fall, nearly fifty law firms and corporate legal departments signed on to the ‘Mansfield Rule’ a data-driven, modified version of the Rooney Rule, which was proposed by Dan Rooney and adopted by the NFL in 2003. Where the Rooney Rule asked NFL teams to consider one minority candidate for a leadership role, in this case, head coaching vacancies, the Mansfield Rule requires law firms to go further.
The Diversity Lab, a research outfit which helped develop and implement the Mansfield Rule, says signatory firms have agreed that at least 30% of candidates on a slate for open leadership and governance roles be drawn from an underrepresented minority cohort. “Research shows that 30% in a candidate pool is a real tipping point,” says Caren Ulrich Stacy, Diversity Lab CEO.
Jeremy Liew, a managing partner at Lightspeed, told Recode that they expect their portfolio companies to comply willingly without additional threats from them.
“If we did that with a prospective entrepreneur, it wouldn’t get signed at all,” he said. “We’re thought partners. We’re not their mom or dad. We’re not the police.”
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