Starting a business is hard for anyone. Entrepreneurs looking for start-up capital often face uphill battles convincing investors that their product or service is worth the risk. But sexual harassment in lending makes it even harder for women entrepreneurs to get from making a pitch to opening a fully-funded business.
In this blog post, I will discuss the gender discrimination and sexual harassment in lending that women entrepreneurs face. I will address how hedge fund managers and investment bankers use promises of funding in quid pro quo sexual misconduct. And I will review what business owners can do when they are denied lending because of their gender or unwillingness to trade sex for funding.
The Department of Labor estimates that approximately 36% of all businesses are owned by women, and another 2.5 million are owned equally by male and female partners. Women-owned businesses account for over 8.4 million employees and $264 billion in payroll. Women entrepreneurs are opening businesses in every industry group, from child care to logging. Among minority communities, women-owned businesses make up an even larger share of the workforce. Women own over 59% of African American businesses and 44% of Hispanic businesses.
But women have not seen the same advancement in lending capital. A 2016 study by Biz2Credit, an online small-business funding marketplace shows that women are approved for loans 33% less often than their male counterparts. Minority business owners fare even worse.
Often, women seeking venture capital for their startup businesses are faced with gender discrimination and sexual harassment in lending applications and pitches. The venture capital industry is almost entirely male. According to a 2016 report, only 8% of investing partners at active venture and microventure firms are women. At the top 100 firms, that number drops to 7%. Another report reveals that 89% of venture capitalists are male, and 87% are white.
That gender gap has created a culture of sexual hostility. In 2017, the New York Times reported the stories of over two dozen women who faced sexual harassment in lending within the technology start-up industry. Their stories pointed high-profile venture capitalists like Chris Sacca of Lowercase Capital and Dave McClure of 500 Startups. The women reported that after making their pitch to male lending officers, they were touched without permission, hit on, and asked for sexual favors. This behavior was particularly challenging because the women entrepreneurs were not in a position to say no.
“There is such a massive imbalance of power that women in the industry often end up in distressing situations,” said Susan Wu, an entrepreneur and investor.
When the capital you need to start your business comes with that kind of strings attached, saying no to sexual advances can create hurdles to meeting your funding needs. American Banker reports:
"Without access to small loans, women and minority business owners are at a competitive disadvantage. They must rely on personal savings, loans from friends, crowdsourcing and credit cards – when those options are available. Or, they have to seek capital from riskier lenders, increasing debt burdens and diverting funds from business operations."
Saying no to one lender's inappropriate sexual advances can also have wide-ranging effect throughout the industry. When one hedge fund or venture capital company declines funding, for any reason, it can make it harder to convince other investors your product is worth the risk.
Women facing sexual harassment in lending may also have trouble exercising their right to be free from gender discrimination. Title VII, for example, bases its protections against sexual harassment on the employee/employer relationship. But entrepreneurs are their own bosses. The lenders demanding quid pro quo sexual favors work for another company.
The federal Equal Credit Opportunity Act, 15 USC section 1691, says it is unlawful for a creditor to discriminate against applicants based on sex. Depending on the nature of the loan, and if the investor would qualify as a "creditor", a discrimination attorney may be able to use that law to confront sexual harassment in lending. However, this law is usually used in a consumer context, rather than between businesses.
California, for one, has enacted a state law that explicitly prohibits sexual harassment between anyone with a business, service, or professional relationship. In 2017, this law was amended to explicitly include investors, trust officers, financial planners, loan officers, and others who may have control over whether a woman entrepreneur receives funding. Since many venture capital companies are based in California, that law may give women entrepreneurs a new way of ending sexual harassment in lending.
Finding funding for your new startup shouldn't have to include enduring unwanted sexual advances or contact. At Eisenberg & Baum, LLP, our sexual harassment attorneys know that unreasonable demands don't only happen within the company organizational chart. We can help you review your case, and your legal options, to find a solution to the gender discrimination you experience. If you are a woman entrepreneur facing sexual harassment in lending, contact us today to schedule a free consultation.