Denham Sadler
August 3, 2017

Pressure grows as 500 Canada shuts

StartupLand

Pressure grows as 500 Canada shuts

500 scandal: Investors in Canada have drawn a line against sexual harrassment

Pressure is mounting on the Victorian government to pull its funding support for 500 Startups as the global ramifications of a sexual harassment scandal continue to hit the trouble-plagued organisation.

It comes as the 500 Canada startup investment fund announced it will shut following revelations of 500 Startups founder Dave McClure’s inappropriate behavior towards multiple women.

In partnership with 500 Startups, 500 Canada was launched early last year and had already raised about $15 million and invested in 38 companies. According to BetaKit, it was in the process of securing a further $25 million when the allegations against Mr McClure surfaced.

500 Canada investors stated they would not invest in the fund if Mr McClure would receive any of the profits, and when an agreement on independence with 500 Startups could not be reached, the fund was axed.

It’s another big blow for the once esteemed global startup accelerator and investment fund, and demonstrates the dangers of having a public image so reliant on one person.

Although 500 Canada was a VC fund and 500 Melbourne was planned to be an accelerator program heavily funded by a Victorian government grant, the drastic action taken as a result of Mr McClure’s actions has put further pressure on LaunchVic to reassess its $3 million commitment to the organisation.

Several members of the local startup and tech communities have questioned the state government’s continued funding of the trouble-plagued organisation.

Schedugram founder Hugh Stephens said the revelations regarding Mr McClure have irrevocably damaged 500 Startups’ reputation.

“That 500 Startups’ Canadian program had to be shut down is a case in point for why LaunchVic should abandon the partnership,” Mr Stephens told InnovationAus.com.

“[It] shows that after recent events, the likelihood of 500 Melbourne raising a fund that will be able to support the local ecosystem is pretty remote.”

The $3 million in taxpayer funding would be better use going directly to local startups, rather than an international accelerator program, Mr Stephens said.

“There are a lot of ways that we can and should improve the way that we connect local startups with the global marketplace.

“But the 500 brand that LaunchVic was hoping to access is no longer valued in the market, so let’s go back to the drawing board and use the money that was allocated to directly support local startups using local approaches, rather than just temporarily importing knowledge,” he said.

“There are many fantastic people in the local Victorian ecosystem who can, and already do, provide a lot of guidance and knowledge to the local ecosystem, so let’s focus on how we unlock and accelerate that rather than sponsoring administrative costs for people to fly in and fly out for a brief program.”

Local startup consultant Samuel Pavin agreed, saying that some of the funding going towards 500 Melbourne should be redirected.

“They should definitely review the agreement and the amount of money put in just 500 Melbourne is ridiculous considering their potential impact versus how many other initiatives it could help. But you cannot discard everything,” Mr Pavin told InnovationAus.com.

“It would be good to see some of the funding reviewed or recovered and potentially the actual terms agreed to. There are certainly talks happening in the background but it would be good to have full transparency.”

In a statement, a LaunchVic spokesperson said the 500 Melbourne program is on hold until it has regained the support of the local community.

“The start of the 500 Melbourne program is postponed until we are confident that 500 Startups can rebuild the trust of the Australian startup community. 500 Startups is required to deliver a remedial plan, and we will have more to say on this when we are able,” the spokesperson told InnovationAus.com.

500 Startups received a commitment for more than $2.5 million from the Victorian government through the $60 million innovation fund LaunchVic in March to run a local, shortened version of its renowned program in Melbourne.

Mr McClure had travelled to Melbourne as a guest of the state government for the launch of program, months after the harassment claims had already been made against him and he had stood down from the day-to-day operations of 500 Startups.

The Victorian government and LaunchVic were only made aware of the accusations and internal investigation when it was published in the media.

This led to 500 Melbourne being “put on notice” by LaunchVic and the local program eventually being paused until a new program and set of KPIs were drawn up.

But there has been little indication from the state government or LaunchVic that 500 Melbourne’s funding is actually at risk, with LaunchVic CEO Kate Cornick stating that public funds are “not at risk”. The 500 Melbourne website still states that the local program will be starting in October or November this year.

500 Melbourne will be led by former Eventbrite Australia managing director Rachael Neumann, who addressed the issue in depth for the first time on the Startup Playbook podcast last month, saying it “blindsided” her.

“It was a terrible way for major stakeholders and a new employee to find out about this. I felt shocked, appalled, betrayed and confused. I nearly resigned a number of times just over the last week,” Ms Neumann said on the podcast.

According to Ms Neumann, the local team and Victorian government weren’t informed of the accusations against Mr McClure and the ongoing investigation due to privacy reasons.

“I believe that the team’s decision to send Dave to Australia was wrong, but I understand why they weren’t at a liberty to give details to external partners. It was an unbelievably tough situation and while I would like to believe I would have made different decisions, we all have the luxury of judging from the sidelines,” she said.

And the decision to postpone the 500 Melbourne program was a mutual one between the local team, LaunchVic and the Victorian government, she said.

“The postponement recognises that the 500 Program is still outstanding and world-class and we still think it has a place in Australia, but that it can’t exist without the community embracing and supporting it.

"Postponement for us is the best possible outcome for all parties involved. It gives us the time we need to do the things we need to do to rebuild trust in the community,” Ms Neumann said.

The program is now on hold until the organisation regains the support of the local community, and rejigs its own KPIs to meet diversity and inclusivity goals. A part of this is conveying the work that 500 Startups already does, Ms Neumann said.

“If the community doesn’t feel like we’re the right partner then we don’t have the right to be here. We’ll be reorienting the program to be more overtly communicating the work that is already happening around diversity and inclusion.

She said the new program and revised KPIs will be publicly released in the coming weeks.

The Victorian government declined to comment.

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