The Candor Clause is an open-source legal disclosure for inclusion in fundraising documents to foster conversations between founders and investors about gender equality.
About the Candor Clause
Only 2% of companies backed by venture capital this year will be female founded. Inherently, this creates a power vacuum. When abused, it puts female founders at a disadvantage. Far too many female founders, including our own, have personal experiences with sexual harassment, assault and discrimination.
A business relationship, such as an investment, can be difficult to untangle should an unfortunate situation like this occur. It’s time to move past tweets and think pieces and move towards action.
WITH THE CANDOR CLAUSE, WE SEEK TO DO 2 THINGS:
1. Create Radical Conversations Between Founders and Investors: With this disclosure requirement, we are able to have open, candid dialogue as founders and investors about how we want to do business at the very earliest stage of the relationship. In introducing the clause to our lead investors, we were able to share very clearly what we value as founders and our shared expectations about diversity, equality and general fairness. It also provides a clear opportunity to create advocates and champions of investors, the vast majority of whom are men. Each of these conversations is an invitation to do better, be better and treat each other better.
2. Make it Clear to Bad Actors that there will be Consequences: When someone is a victim in these types of situations, the onus is often on the victim to take on the legal, financial and personal strain of resolving it. By requiring a disclosure at the very earliest part of a business relationship, we are creating a clear standard. This is critical for removing barriers to a resolution in the future. By including the Candor Clause, it also sets a tone for how we will approach for any future issues.
HOW TO USE THE CANDOR CLAUSE:
We encourage founders of all types, men and women, to include the Candor Clause in their fundraising documents. We have found that the inclusion of this language allowed us to have important conversations early in our fundraising. Our lead investors were not only supporters but champions of the Candor Clause.
It is important to note that we are not your legal advisors. You should consult with your own attorneys as you formulate your terms, but here’s how we used the Candor Clause:
- We had a conversation with our lead and our major investors BEFORE a Term Sheet was sent about our desire to include the Clause in our investment agreements.
- We discussed the WHY – and stated clearly that our intention was to create a gender-equitable culture from the beginning – at all levels of the company.
- We ASKED our lead investor to champion the Clause and agree to its inclusion.
- In creating our Investment Agreement, we included the Candor Clause in the REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS in our fundraising documents.
- Any investor who raised a question about the Candor Clause was informed that we would be happy to have a RADICALLY CANDID conversation with them about the clause, but that it would not be removed or altered.
How you choose to use the Candor Clause in your company is up to you. This is an open-source Clause that you SHOULD share with your legal counsel. We seek to share it so that through widespread adoption, we can fundamentally change the culture and conversation around gender equity in entrepreneurship.
in the news
National Public Radio: Investor’s Naked Selfies Ignite #MeToo Moment: Female Founder Fights Back
The experience of raising money last year bewildered Elizabeth Giorgi at first. Almost always, she pitched her startup company, soona, to an all-male audience of investors.
Wall Street Journal: This Female Founder is Fighting Back
Elizabeth Giorgi was used to pitching her company to all-male teams of venture capitalists. Her Denver, Colo.-based company, soona, specializes in shooting photographs and video, and delivering the results the same day. She recently landed funding from a male VC.
Working Woman Report: Startup Puts Bad Behavior Out in the Open
When Liz Giorgi got creeped out by how she was treated by potential investors for her startup, she turned to her lawyer for help. Instead of politely asking investors if they treat women well, she wanted to contractually obligate investors to describe how they plan to treat partners. The result is what they call the “candor clause.”
Colorado Sun: A Denver Startup Asks Every Potential Investor this Question
soona’s “Candor Clause” doesn’t dance around VCs behaving badly. It’s part of a movement to fix a toxic industry where female founders struggle to raise capital.
Bitterroot Mag: Outside of Silicon Valley, A More Equitable Startup Culture is Taking Hold
Entrepreneurs and startup investors in places like Denver and Portland are adopting what they see as more equitable practices than those common in Silicon Valley.
Star Tribune: Startup Aims to Take Down Sexual Harassment
Unlike the Silicon Valley types who claim with little evidence to be making the world a better place, Minneapolis entrepreneur Liz Giorgi seems to have a good shot at actually doing that.
Twin Cities Business Magazine: Startup Takes Aim at VC Gender Bias
Starting two businesses taught entrepreneur Elizabeth Giorgi that asking for venture capital often means becoming vulnerable with men.
Special thanks to 2048 Ventures and KO Law Firm in Denver, Colo., for their support and efforts to make this Clause open-source and more widely available to founders everywhere.
