Boston’s venture capital industry, long dominated by white men, has repeatedly pledged to fund a more diverse group of startup founders. But now it’s resisting a state legislative proposal that would prohibit investors from discriminating against women and minorities when deciding which companies to back.
The bill aims to close what its supporters see as a loophole in the state’s civil rights laws. Prohibitions against discrimination and sexual harassment in the workplace generally don’t apply to investors in a company. It also targets a huge imbalance in a crucial industry for the region: Only a tiny share of the billions invested each year go to women and minority businesses.
But the New England Venture Capital Association has told lawmakers it’s wary about extending antidiscrimination laws to what are often informal discussions over the prospect of funding. Investors might turn down meetings with long-shot prospects for fear of getting sued for not funding them, they said, which could actually make it harder for women and minorities to get a foot in the door.
“It is important that we take careful measures to ensure that the language in the proposed legislation does what it aims to do — which is promote diverse founders — versus the opposite,” Jody Rose, president of the trade group, said in a statement.
Rose said the venture capital group supports subjecting investors to laws against sexual harassment.
The bill, proposed by state Senator Cindy F. Friedman, an Arlington Democrat, would subject investors to legal consequences if they sexually harass those they fund or consider funding, or if they discriminate on the basis of race, gender, or any other class protected by state law.
Legal experts said it would be difficult to prove discrimination by venture capitalists, who reject investment opportunities all the time. But it’s not impossible to imagine what a case might look like: A woman founder gets positive feedback from a fund, but then, at a decisive meeting, the fund’s president expresses skepticism the mother of three children would have the bandwidth to lead the company.
The venture industry’s opposition to the measure came as a surprise to its backers. The association had previously expressed general support for the proposal.
“It makes me think they’re not serious,” said Jules Pieri, cofounder and chief executive of The Grommet, a Somerville-based digital marketplace for innovative consumer products. “You have to accept accountability if you want to correct an issue.”
Women remain hugely underrepresented in the venture capital industry, both here and at a national level.
Venture capitalists put $2.3 billion last year into Massachusetts firms with at least one female founder, according to the data firm PitchBook . Though that was an increase over previous years, it represented less than a fifth of the $11.7 billion in venture capital invested here overall. The amount of investment in firms founded only by women were even more dismal: $141 million, or 1.2 percent.
The situation for many minority founders is also grim. One national survey released this year found that 1 percent of venture-supported founders were black, while 1.8 percent were Latino.
The power imbalance between entrepreneurs and the early-stage investors who fund their companies has been cast in harsh light in recent years. In a number of cases, high-profile male venture capitalists lost their jobs after being accused of unwelcome advances against women pitching their companies.
Following those revelations, the industry has faced something of a reckoning. California — the heart of the venture industry — passed a law last year extending harassment laws to cover investors.
‘It is important that we take careful measures to ensure that the language in the proposed legislation does what it aims to do — which is promote diverse founders — versus the opposite.’
Industry leaders have expressed concern over the lack of diversity in their sector, acknowledging that the monolithic makeup of many startups limits the range of ideas that make it to market and weakens the pipeline for talent. It also cuts against research showing diverse teams produce better financial returns.
They’ve taken some steps to nurture minority talent. The New England Venture Capital Association, for instance, runs Hack. Diversity, an internship program to promote hiring of minority candidates.
But the association says the bill pending on Beacon Hill could backfire. Maia Heymann, cofounder of the venture firm Converge, told lawmakers at a hearing last month that, as one of the few women leading venture firms in the Boston area, she listens to many pitches from women starting businesses.
Though many of the businesses do not interest her as investments, she said, she wants to offer advice and encouragement to female entrepreneurs. She said, however, if she faced the prospect of lawsuits from those she didn’t fund, she might not be as keen to take those meetings.
“There would be too much downside risk for simply trying to be helpful,” said Heymann, who is a member of the venture association’s board.
Friedman said she had heard little from the venture association until last week, at a legislative hearing on the measure she proposed several months ago. She said she has since scheduled a meeting with the venture group.
“They need to come talk to us,” she said. “Otherwise we can’t resolve the problem, and I will push ahead with the legislation that we filed.”
Senator James B. Eldridge, an Acton Democrat and cochairman of the committee considering the bill, said he was unconvinced by the argument laid out by the industry.
“That somehow suggests that a female entrepreneur looking to get into the venture capital industry, that they’re inclined to file false charges if they don’t receive an investment,” Eldridge said. “That’s a very hurtful suggestion.”
Rose declined to be interviewed.
Heymann did not respond to requests for comment.
Nancy Gertner, a retired federal judge who is a senior lecturer at Harvard Law School, said she is doubtful that such an antidiscrimination law, if passed, would result in many rejected entrepreneurs winning judgments.
They’d have to prove that they were rejected because of their membership in a protected class, and not for some reason related to the quality of the investment opportunity they presented.
“The difficulty of proof over time will be a disincentive for people to bring these cases,” Gertner said. Nonetheless, she said such a legislative move could make a difference: “Maybe the presence of the law will change the culture.”
That’s the hope of the bill’s supporters, which include some venture capitalists. Adrian Mendoza of Boston-based Mendoza Ventures said he hopes the legislative action “starts a conversation on the investment side.”
Amy Spurling, chief executive of Compt, a Boston-based human resources software startup, said she thinks support is quietly building.
“Something has to change, and it’s not changing on its own, so legislation has to move the needle, which will be better for all of us,” Spurling said.Andy Rosen can be reached at email@example.com.