LaunchVic is in a 500 Startups pickle

James Riley
Editorial Director

Of course LaunchVic should pull its $2.5 million funding of 500 Startups’ plan to set up an accelerator in Melbourne. This is a no-brainer. And it’s not because Dave McClure is suddenly the pin-up bro for sexual harassment.

As soon as 500 Startups CEO Christine Tsai revealed last Saturday that her co-founder Dave McClure had been stood down from 500’s day-to-day operations for sexual harassment issues “several months ago” – and withheld that information from the Victorian Government – the funding was doomed.

The reality is that an organisation can get away with a very public sexual harassment scandal involving its founder and chief spruiker – amazingly in this day and age – and still keep its funding. We know this because despite the beige statement from LaunchVic this week saying 500 Startups was ‘on notice’, it still apparently believes the company can deliver against its contract.

Philip Dalidakis: Should rightly feel cranky at 500 Startups’ treatment of his support

But surely an organisation can’t get away with misleading its government partner about a scandal of this nature – making a fool of the responsible Minister in the process – and expect to keep its support and dollars.

Governments cannot reward that kind of bad behaviour, whether it be sexual harassment by one of its leadership team or the organisation’s efforts to hide it. Rewarding that behaviour would be quite ludicrous.

If Philip Dalidakis were not overseas this week, the 500 Startups relationship would already have been dealt with appropriately. This seems plain.

Even without the 500 Startups deception, it is hard to see how Mr Dalidakis could maintain a relationship with the organisation. The revelations about Dave McClure in the New York Times article would undoubtedly have made him see red.

The Minister had been hamming it up with Mr McClure for the cameras of national media just a couple of weeks ago. Can you imagine? That must leave an incredibly bitter taste.

Here’s a newsflash: Philip Dalidakis has been a true champion – a sleeves-rolled-up, shoulder-to-the-wheel kind of champion – of ecosystem diversity generally as a competitive advantage for Victoria, and of gender diversity specifically.

He has pushed this hard, front-ending diversity as a core issue at the heart of Victorian innovation policy.

Going ahead with the 500 Startups accelerator in Melbourne now would send a terrible, terrible message that is completely at odds with everything the minister has tried to achieve in relation to branding Victoria as the diversity ecosystem.

As of right now, 500’s funding remains in place. LaunchVic late on Wednesday issued another statement on the controversy, this time as a response to blowback from the ecosystem widely published across media calling for the funding to be cut.

This presumably means LaunchVic is still seeking information from 500 Startups, and that the threat to pull its funding – being ‘on notice’ – still stands.

So here’s another thing about the 500 Startups mess in Victoria. There was already some frustration that the company had been awarded LaunchVic’s largest single tranche of funding in the first place (500 Startups hoovered up in commitments nearly 5 per cent of LaunchVic’s $60 million budget over four years.)

500 Startups’ Head of Australia Rachael Neumann was on the board of LaunchVic when the agency announced the multi-million dollar funding arrangement in mid-March.

She announced her intention to resign from the Board on 14 April in order to explore job opportunities in the startup ecosystem without conflict.

The board resignation came into effect on May 5.

Ms Neumann then turned up as the 500 Startups’ chief not long after that, following a robust and competitive recruitment process undertaken by 500 Startups.

This is not a commentary on Rachael Neumann and is not suggesting any wrong-doing or even a conflict of interest. And for the record, LaunchVic is comfortable that no conflicts existed, saying in a statement that Ms Neumann did not step down from the board to take up the position – she had already left the board before the recruitment began.

But the optics here are just dreadful, and they have been brought into sharp focus by the 500 Startups Dave McClure situation.

When LaunchVic says in a statement this week that “Rachael is well known to LaunchVic” it probably should have added a line that acknowledged that she had been on the board of the organisation just a couple months ago, when funding commitments were made to 500 Startups.

If the 500 Startups/Dave McClure sexual harassment issue had not surfaced, this would have gone un-remarked on. Maybe it would arch an eyebrow here or there, as just another illustration of how tiny the Australian market is – and how smart, capable people find themselves wearing different high-profile hats.

The fact that LaunchVic finds itself blindsided by the organisation that Ms Neumann now runs in this country must be extraordinarily disappointing, however.

That Christine Tsai did not share the fact that Dave McClure had been removed from the day-to-day operations of 500 Startups with LaunchVic is one thing. But you really have to wonder out loud whether this important change in leadership at 500 was shared with its Head of Australia Ms Neumann … because if it was, she would surely have warned her former colleagues of a potential disaster!

Of course there are always silver linings to be found in these situations. This one is no different, and there are several silver lining attached here.

First, and most importantly, a bright light is now on sexual harassment specifically and gender equity and diversity issues in this industry. Sunlight is the best disinfectant, and the New York Times article has had a stunning effect.

The timing of the article, and the fact that Dave McClure and 500 Startups were being lionised in Australia just days before the revelations, put the issue under intense scrutiny in this country.

It unleashed pent-up anger about the behaviours it exposed, which surfaced horror stories from within the Australian sector.

That spotlight on the issue should enable a generational shift in attitudes and practices in relation to harassment, gender discrimination and diversity more generally. This is a good thing for the sector, and ultimately for Australians.

The 500 Startups situation has also highlighted some frustrations with the way these kinds of funding arrangements are made. It is not clear whether there was a competitive process behind LaunchVic awarding its largest ever funding commitment to 500 Startups, or how it decided on that level of funding.

It is one reason why so many Australian startup founders and funders have reacted so quickly to call for the funding to be cut: The sexual harassment and the deception are one thing, but there was already pent-up anger about the funding in the first place.

Incidentally, there is a fair chance that 500 Startups may have come to Australia anyway, LaunchVic or no LaunchVic. That’s not me saying that, but others who would know.

Finally, if the government walks away from 500 Startups as I believe it must, the $2.5 million will have been liberated for redeployment in support of the ecosystem. It’s not like the money gets tipped back into general revenue.

It can be spent elsewhere, where it can do the most good. It should not be used to reward bad behaviour.

Philip Dalidakis has every reason to be cranky.

Do you know more? Contact James Riley via Email.

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