Venture capital undermines human rights

VC firms' failure to carry out adequate due diligence means that a vast majority of them are failing in their responsibility to respect human rights.
Michael Kleinman Contributor Michael Kleinman is the director of Amnesty International’s Silicon Valley Initiative.

The future of technology is determined by a handful of venture capitalists. The world’s 10 leading venture capital firms have, together, invested over $150 billion in technology startups. The venture capitalists who run these firms decide which startups today will develop the new platforms and technologies that will shape our lives tomorrow.

There is a startling lack of diversity within the venture capital sector. This means that a small group of men — mostly white men — make decisions that affect all of us. Unsurprisingly, they all too often ignore the broader societal and human rights implications of these investment decisions.

We all live in a world shaped by venture capital. 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. If you spend time on Facebook or Twitter, use Google, travel in an Uber or stay in an Airbnb, then you’ve experienced firsthand the impact of venture capital funding.

Venture capital firms, which provide equity financing for early- and growth-stage startups, play a critical gatekeeper role, deciding which new technologies and technology companies will receive funding.

Venture capital firms need to institute human rights due diligence processes that meet the standards set forth in the UN Guiding Principles on Business and Human Rights.

All businesses — including venture capital — have a responsibility to respect human rights. In order to ensure that their investments are not undermining our human rights, it is therefore critical for venture capital firms to conduct due diligence processes before making investments.

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.

Unfortunately, this is true of the broader venture capital sector as well. Overall, of the 50 VC firms and three startup accelerators analyzed by Amnesty International, we found that almost all of them lacked adequate human rights due diligence policies and processes.

Despite gains, gender diversity in VC funding struggled in 2020

This failure to carry out adequate due diligence means that a vast majority of VC firms are failing in their responsibility to respect human rights.

This almost complete lack of respect for human rights among the world’s largest venture capital firms has three key impacts. 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.

Second, it means that venture capital firms continue to fund companies whose business models have a significant negative impact on human rights, including our privacy 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.

Third, the lack of human rights due diligence by venture capital firms dramatically increases the risk that they fund new and “frontier” technologies without ensuring that adequate human rights safeguards are in place.

For instance, the application of increasingly powerful artificial intelligence/machine learning (AI/ML) tools across a wide variety of sectors risks amplifying existing societal biases and discrimination. Seemingly objective algorithms can be biased by reliance on incomplete or unrepresentative training data, and/or by replicating the unconscious bias of those who developed the algorithms.

This is a critical blind spot, especially as VC-funded startups seek to disrupt such fundamental parts of our lives as education, finance and health.

The negative impacts of the VC firms’ lack of human rights due diligence — especially regarding issues like algorithmic bias — are magnified by these firms’ own lack of gender 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. Groups like Blck VC, Diversity VC and digitalundivided have been calling attention to this issue for years, but venture capitalists have been slow to respond so far.

This lack of diversity is mirrored in the gender and racial composition of founders who receive VC funding. 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.

With power comes responsibility. Venture capital firms need to institute human rights due diligence processes that meet the standards set forth in the UN Guiding Principles on Business and Human Rights.

Further, they should provide support to their portfolio companies to ensure that they comply with human rights standards. Venture capital firms should also publicly commit to hiring more diverse teams, especially in investment-related positions. Finally, they should publicly commit to funding more diverse startup founders as part of their flagship funds.

VC firms have a responsibility to ensure that their investments are not causing harm. A responsibility that they have, to date, largely ignored.

On the diversity front, 2020 may prove a tipping point

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