Will Britain Keep Investing in a Sex Offender’s Venture Fund?

London venture capitalist Stefan Glaenzer was convicted of sexual assault, but won British taxpayer funds for his firm anyway. Now, his bid for new investment is raising questions about the moral role of big investors in VC firms.

In 2012, police spotted London venture capitalist Stefan Glaenzer acting erratically on a subway platform. He was lurching around, high out of his mind, when he boarded a crowded train and rubbed his groin against a woman standing inside. After his arrest, Glaenzer, the multimillionaire former executive chairman of the online music service Ltd., apologized and pleaded guilty to sexual assault, which put him on the U.K.’s sex offender registry.

Photographer: Getty Images

Three years later, Glaenzer asked the taxpayer-funded British Business Bank Plc to invest in his venture firm, Passion Capital. The bank, which previously funded Glaenzer a year before his arrest, had been trying to nurture the country’s technology industry and decided that his successful business record outweighed the incident. With an investment of £17.5 million ($23.1 million today), the U.K. government became one of Passion’s biggest investors.

That was before a wave of resignations from other firms by prominent American VCs who were serial sexual harassers, none of whom were arrested. Passion is raising money for a new fund, say people familiar with the matter, and while Glaenzer hasn’t been accused of anything since 2012, his record is complicating those efforts. European firms such as Passion depend heavily on government investment, and members of the U.K. industry are calling for a ban on government funding for VCs with a record of sexual assault, harassment, or discrimination.

The government’s 2015 investment in Glaenzer’s firm sent a signal that it didn’t care about his crime, says a London VC who, like 10 other entrepreneurs and investors, spoke on condition of anonymity to protect against reprisals from the bank or the firm. The British Business Bank declined to say whether it would contribute to Passion’s new fund, but said in a statement that it “does not take the matter of sexual assault lightly, and the issue in question was considered extremely carefully.” Glaenzer and his firm declined to comment for this story.

Glaenzer’s case illustrates a broader debate about what role major backers of VC firms—the behind-the-scenes investors known as limited partners—should play in policing bad behavior. LinkedIn co-founder Reid Hoffman has urged investors to deepen their background checks, and a U.S. industry group, the Institutional Limited Partners Association, is drafting tougher guidelines. In the U.K., where funding is much tighter, investors such as Glaenzer have outsize influence and are tough for hungry startups to avoid.

“Asking for money from a small roomful of mostly male VCs can be an intimidating experience at the best of times,” Caroline Plumb, the founder of London business-software startup Fluidly, said in an email. Backing Glaenzer’s fund doesn’t reflect the British Business Bank’s stated priority of improving women’s access to capital, she adds. Toby Coppel, a former Yahoo! executive who co-founded Mosaic Ventures in London, says there are plenty of other promising funds the bank could invest in, including several started by women in the past two years.

Passion, however, enjoys a close relationship with U.K. policymakers. Two months after the British Business Bank invested, Eileen Burbidge, one of the other investing partners, became chair of Tech City UK, a government-backed effort to promote the nation’s tech industry. Burbidge, a fixture on the startup conference circuit who advocates for female entrepreneurship, declined to comment.

“It is always a dilemma to balance accountability with redemption,” says Jill Levenson, a professor of social work at Barry University in Miami who studies sex crimes. She says governments need to send clear messages that sexual assault won’t be tolerated but adds, “All people who engage in such an act are not the same.”

Glaenzer’s supporters, none of whom would speak on the record, say his arrest was an isolated, out-of-character incident for which he’s been duly punished and that he’s being unfairly associated with a separate debate about industry sexism. Those who’ve worked with Glaenzer say he’s never acted inappropriately in that context, unlike VCs such as Justin Caldbeck, who made unwanted advances toward women who asked him to invest in their companies. (In June, Caldbeck acknowledged the behavior and resigned from the firm he co-founded.)

The women speaking out about sexism and harassment in the tech world this year have driven those in Europe to push for greater accountability. Along with a ban on government funding for VCs convicted of sex crimes, some are calling for the government to make it easier to report sexist behavior to the agency that licenses investors. Vivi Friedgut, founder of online learning company Blackbullion, says a VC told her she’d have “more luck fundraising with a male co-founder.” Another woman who’s started two companies recalls being berated by a male VC for becoming pregnant after he invested. (The investor then met with her co-founder, seeking assurances that she wouldn’t get pregnant, too.)

Colette Ballou, the founder of a PR firm that works with tech companies in Europe, says she’s been harassed several times and has begun investing in venture firms as a way to push for change. “I have seen the abuse, and I’ve experienced sexual harassment,” she says. “I can’t change it any other way than become an LP and hold them accountable.” —With Kaye Wiggins and Giles Turner

    BOTTOM LINE - Glaenzer’s arrest appears to have been an isolated incident, but that may not make him easier for women to trust, or help his VC firm as it tries to raise money for a new fund.
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