Despite all the attention given to #MeToo, sexual harassment remains widespread in the startup world. Some 65 percent of women entrepreneurs say they've been subjected to either sexual harassment or discrimination, according to a joint Inc. and Fast Company survey of more than 600 female founders. Some 46 percent of those said a banker or investor was the culprit. That's bad enough when an entrepreneur is trying to raise money. But if an investor acts inappropriately after they're already on a company's board, generally, the entrepreneur has very little recourse.

Now, Alice, a startup that has developed a platform that uses artificial intelligence to advise small-business owners, is making an effort to address just this problem. Wednesday, Alice announced that it has raised an A round, led by Silicon Valley Bank Financial Group, with some unusual terms. Although the company won't disclose the size of the round, the investment is significant partly because Alice has a Latina founder, Carolyn Rodz, and Latinas get well under 1 percent of venture capital. But also contained within those deal documents is a unique provision to oust any investor who discriminates or harasses on the basis of gender, gender expression, or race.

The legal language is contained in the voting agreement, which is typically put in place with a company's first stock financing. "They agree whom they're going to put on the board, and how they'll vote their shares in certain instances," says Deborah Carrillo, counsel in the San Francisco office of Pillsbury Winthrop Shaw Pittman, who worked on the deal. "What's unique about this is the specific reference to sexual and racial discrimination." With this language, the board agrees in advance to vote their shares to oust any director who harasses or discriminates. "It is time for us, whether it is #MeToo, Black Lives Matter, or our gay and lesbian communities, to say that acting this way is morally wrong, but it is also bad for business," says Elizabeth Gore, president and chairwoman of Alice (and Inc.com contributor). "You cannot have the ability to influence my company any more if you behave in this way."

While Gore hopes the language will be precedent-setting, Carrillo says she's not sure what the demand for similar language might be from other entrepreneurs. Each investor tends to have their own deal documents, she says. The National Venture Capital Association does have a set of deal terms that are considered a baseline, and if such a clause were added to those documents, it could quickly become more common. The NVCA declined to comment in response to a request from Inc.

Gore says Alice intends to make the legal language available to any other entrepreneur who wants to use it. Says Gore: "To have a partner like Silicon Valley Bank and John [China, president of Silicon Valley Bank Capital] say we're going to do this ... It makes me believe in our future."

Published on: Oct 16, 2019