A few venture capitalists will determine the future of technology. Together, the 10 largest venture capitalists have invested more than $150 billion in startups. These venture capitalists decide what startups will be developing the technologies and platforms that will change our lives in the future.
Venture capital is not diverse at all. It means that only a few men, mostly white men, make important decisions for all of us. They often fail to consider the wider societal and human rights consequences of their investment decisions.
Venture capital has shaped our world. As of 2019, 81% of all venture capital funds worldwide are clustered in just a handful of countries, primarily in the U.S., Europe and China, which in turn are shaping the future of technology. You’ve seen the effects of venture capital funding first-hand if you use Facebook, Twitter or Uber, or you stay at an Airbnb.
Venture capital firms provide equity funding for startups at both early and late stages. They are crucial gatekeepers, making decisions about which technologies or companies receive funding.
Venture capital companies must establish human rights due diligence procedures that comply with the UN Guiding Principles on Business and Human Rights.
Venture capital and all businesses have to uphold human rights. Venture capital companies must conduct due diligence before investing in order to make sure that they aren’t violating human rights.
Amnesty International recently surveyed the world’s largest venture capital firms and startup accelerators. Of the world’s 10 largest venture capital firms, not a single one had an adequate human rights due diligence process that met the standards set forth in the UN Guiding Principles on Business and Human Rights.
This is also true for the wider venture capital industry. Amnesty International found almost every one of the 50 VC companies and three startups accelerators that were analyzed, lacking adequate processes and policies for human rights due diligence.
Due diligence is not enough to ensure that VC companies respect human rights.
The three main consequences of this almost total disregard for human rights by the largest venture capital companies in the world are: First, and most immediately, it means that venture capital firms invest in companies whose products and services have been implicated in ongoing human rights abuses, such as companies that provide support to the Chinese government’s repression of the Uyghur population in Xinjiang and across China.
It also means that venture capital funds continue to invest in companies whose business models negatively impact human rights including privacy rights and labor rights. For instance, leading venture capital firms continue to support companies that rely on app-based or “gig” workers, who often face exploitative or otherwise abusive work conditions, as well as companies whose “surveillance capitalism” business model undermines our right to privacy.
The third is that venture capital companies are less concerned about human rights and may fund “frontier” technology without having adequate safeguards in place.
The application of artificial intelligence/machine-learning (AI/ML), tools in a variety of industries can lead to discrimination and societal biases being amplified. It is possible for seemingly objective algorithms to be biased by using incomplete training data or by replicating unconscious biases of the algorithm developers.
This blind spot is critical, particularly as VC-funded startups attempt to change fundamental aspects of our lives such as finance, education and health.
The negative effects of VC firms not doing due diligence on human rights, especially in relation to issues such as algorithmic bias, are amplified by the firms’ own lacks of gender diversity and racial diversity. For instance, women comprise only 23% of venture capital investment professionals (i.e., those involved in deciding which startups to fund).
The numbers are even worse when it comes to racial diversity — just 4% of investment professionals at VC firms in the U.S. are Latinx, and only 4% are Black. Blck VC (Diversity VC), digitalundivided and other groups have raised this concern for many years. Venture capitalists, however, have not responded to the issue.
The racial and gender compositions of founders receiving VC funding reflects this lack of diversity. In 2018, all-female founding teams received just 2.2% of all U.S.-based venture funding. At the same time, Black and Latinx founders received less than 2.3% of all U.S.-based venture capital funding in 2019.
Power comes with responsibility. Venture capital companies must establish human rights due diligence procedures that comply with the UN Guiding Principles on Business and Human Rights.
They should also support their portfolio companies in ensuring that they adhere to human rights standards. Publicly, venture capital companies should commit to hiring diverse investment teams. They should also publicly pledge to fund more diverse founders of startups as part their flagship funds.
Venture capital firms are responsible for ensuring that investments do not cause harm. This is a responsibility they’ve largely neglected to fulfill.
Publiated at Wednesday, 4 Aug 2021 21:41:47 +0000