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Melinda Gates on Stopping Harassment in Tech: 'We Need LPs to Step Up'

Philanthropist Melinda Gates, who invested in Aspect’s second fund, says it’s time for LPs to step up and demand change. Luisa Dorr

Yet another Silicon Valley venture capital firm raising yet another fund isn’t usually big news—it happens all the time. But as reported in Fortune‘s January feature, the $181 million fund recently closed by Palo Alto-based Aspect Ventures is a little different: It has attracted a couple of new, big-name limited partners (a.k.a. the investors in the investors), due in large part to the firm’s long-time focus on investing in a diverse pool of entrepreneurs. Among those new LPs—Melinda Gates, co-chair of the Bill & Melinda Gates Foundation.

The philanthropist and investor has a history of putting her money where her mouth is, and this particular investment is no exception. Indeed, she has a lot to say about why she put money into Aspect, a firm co-founded by veteran investors Theresia Gout and Jennifer Fonstad. Gates also has some thoughts for other LPs, many of whom are scrambling to figure out how to respond to the recent slew of sexual harassment problems in the tech world. Fortune caught up with Gates via email to ask more questions about all of the above.

Fortune: What are the reasons you decided to invest in Aspect’s fund? How does diversity and culture factor into your decision?

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Gates: Here’s what we know. The venture capital industry has long been dominated by white, male VCs, who—no surprise—tend to invest in white, male entrepreneurs. Only 7% of venture capital partners are women. Women founders receive just [over] 2% of VC funding; women of color get 0.2%. It’s abundantly clear that women and minority entrepreneurs face substantial barriers in the venture and startup ecosystem—including, in some cases, harassment and abuse. The damaging effects of this power imbalance extend far beyond Silicon Valley. When the only people giving and receiving venture funding belong to a small, homogenous group, society misses out on all kinds of breakthrough ideas and financial opportunities. Over the long term, our economic competitiveness begins to erode.

As talented investors, Theresia and Jennifer not only understand these problems; they view them as opportunities. Aspect Ventures doesn’t have an explicit mission to invest in female entrepreneurs. Like most VC firms, its goal is to make smart bets and earn strong returns—but that’s exactly why 40% of the portfolio companies in Aspect’s first fund were led by women. Theresia and Jennifer see massive potential in women entrepreneurs, and so do I. Which is why I decided to invest in Aspect.

I’m confident that when venture capital starts to look beyond the same small pool of founders, we’ll see more innovative ideas with the potential to improve the lives of more people. We’ll also see a new generation of business leaders that better reflects the market they’re trying to serve, and ultimately delivers higher financial returns for investors.

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Going forward, what are your criteria for investments in the tech area? Has the criteria changed in light of the sexual harassment problems in the sector?

The wave of sexual misconduct stories we saw in 2017 were outrageous, but ultimately, they shed light on problems that women in Silicon Valley have known about for a long time. In many ways, the venture and startup ecosystem is still a boys’ club—one that all too often excludes, disadvantages, and mistreats talented women who want to contribute to it.

The data tells us that’s harmful to society and bad for business, which is why I’ve spoken about the urgent need to invest in women in tech. The headlines may have heightened my resolve. But putting my money where my mouth is has always been the plan, which is why I’m going to continue to invest in women-led venture capital funds.

Do you think LPs are paying more attention to these scandals and the impact they can have on a VC firm and a startup? What can LPs do to make sure they are not making risky investments in funds/individuals that could be negatively impacted by these problems? What kind of new vetting processes or other measures do you think are needed?

LPs are the ultimate power brokers in venture capital, and we need them to step up. After the past year, ignorance is no longer a plausible excuse for inaction. And lip service is no longer an acceptable substitute for action.

There are a lot of concrete steps LPs can take here. They can actively look for bad behavior in the funds and general partners they’re investing in, and intervene immediately when they see it. They can track and measure diversity in their own portfolios. LPs can also increase their investment in emerging, diverse fund managers—not just because it’s the right thing to do, but because it’s a smart strategy. Research indicates that the new, smaller funds that women tend to raise and the female-founded companies that women GPs tend to back are outperforming the rest of the market.

One more way LPs can use their power for good: helping lead an honest dialogue about the industry’s diversity problems, and demonstrating a lasting commitment to fixing them.

Lastly, did you have any qualms about putting money into a younger investment firm vs. going with a more established, larger fund size VC firm?

No. I want to back the people best positioned to successfully invest in tomorrow’s groundbreaking ideas—and they’re not always the people who successfully invested in yesterday’s.

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