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.