venture capital undermines human rights

The Influence of Venture Capital on Technological Advancement

A select group of venture capitalists significantly shapes the future of technology. Collectively, the world’s ten foremost venture capital firms have channeled over $150 billion into technology startups. These firms, through their investment choices, determine which nascent companies will pioneer the platforms and technologies that define our future.

A Concerning Lack of Diversity

A notable deficiency in diversity characterizes the venture capital landscape. Consequently, decisions impacting all of society are predominantly made by a limited cohort – largely comprised of white men. This homogeneity frequently results in the oversight of broader societal and human rights considerations when evaluating investment opportunities.

The Pervasive Impact of Venture Capital Funding

Venture capital profoundly influences the world we inhabit. As of 2019, approximately 81% of global venture capital funds were concentrated in a small number of nations, primarily the U.S., Europe, and China, thereby directing the trajectory of technological development. If you utilize services like Facebook, Twitter, Google, Uber, or Airbnb, you are directly experiencing the effects of venture capital investment.

Venture capital firms, which offer equity financing to startups in their early and growth phases, function as crucial gatekeepers, determining which emerging technologies and companies will secure funding.

The Responsibility to Respect Human Rights

All businesses, including those in the venture capital sector, bear a responsibility to uphold human rights. To guarantee that investments do not compromise these rights, it is essential for venture capital firms to implement thorough due diligence procedures prior to making any financial commitments.

Findings from Amnesty International’s Survey

A recent survey conducted by Amnesty International examined the largest venture capital firms and startup accelerators globally. The investigation revealed that none of the ten largest venture capital firms possessed a robust human rights due diligence process aligned with the standards outlined in the UN Guiding Principles on Business and Human Rights.

This deficiency extends throughout the broader venture capital industry. An analysis of 50 VC firms and three startup accelerators by Amnesty International indicated that nearly all lacked adequate human rights due diligence policies and procedures.

Failure to Uphold Human Rights Standards

This widespread failure to conduct sufficient due diligence signifies that a substantial majority of venture capital firms are not fulfilling their obligation to respect human rights.

The Consequences of Neglecting Human Rights

The near-total disregard for human rights among leading venture capital firms manifests in three key ways. Firstly, it leads to investments in companies implicated in human rights abuses, such as those supporting the Chinese government’s repressive actions against the Uyghur population in Xinjiang and throughout China.

Secondly, it perpetuates funding for companies with business models that negatively impact human rights, including privacy and labor rights. For example, prominent venture capital firms continue to back companies reliant on gig workers, who often endure exploitative conditions, and those employing “surveillance capitalism” practices that infringe upon our right to privacy.

Thirdly, the absence of human rights due diligence heightens the risk of funding new technologies without adequate safeguards.

Risks Associated with Emerging Technologies

The increasing application of artificial intelligence/machine learning (AI/ML) across various sectors carries the risk of amplifying existing societal biases and discrimination. Algorithms, despite appearing objective, can be skewed by biased training data or the unconscious biases of their developers.

This represents a significant oversight, particularly as VC-funded startups aim to disrupt critical areas like education, finance, and healthcare.

The Role of Diversity in Mitigating Risks

The negative consequences of inadequate human rights due diligence – particularly concerning algorithmic bias – are exacerbated by the lack of diversity within venture capital firms. Currently, women constitute only 23% of venture capital investment professionals.

Racial diversity is even more limited, with Latinx individuals representing just 4% and Black individuals only 4% of investment professionals in U.S. VC firms. Organizations like Blck VC, Diversity VC, and digitalundivided have consistently highlighted this issue, yet progress has been slow.

Diversity Among Founders Receiving Funding

This lack of diversity mirrors the gender and racial composition of startup founders who receive venture capital funding. In 2018, all-female founding teams secured only 2.2% of all U.S. venture funding. Black and Latinx founders received less than 2.3% of U.S. venture capital funding in 2019.

The Path Forward: Accountability and Change

With substantial influence comes significant responsibility. Venture capital firms must implement human rights due diligence processes that align with the UN Guiding Principles on Business and Human Rights.

Furthermore, they should support their portfolio companies in adhering to human rights standards. A public commitment to diversifying their teams, particularly in investment roles, is also crucial. Finally, they should pledge to fund a more diverse range of startup founders as an integral part of their core investment strategies.

VC firms have a fundamental responsibility to prevent their investments from causing harm – a responsibility they have largely neglected to date.