Startups Suffer As 500 Startups Canada Ends Investment Fund Amidst Scandal
500 Startups Canada’s managing partners have announced a decision to end the fund’s investment period. The Canadian extension of the 500 Startups venture-capital firm was close to securing $25 million in commitments from Canadian LPs.
The termination comes amidst recent sexual harassment allegations against 500 Startups founder Dave McClure. He resigned in early July, but the reputation surrounding the firm had been heavily damaged to the point of no return.
In late June, women came forward to the New York Times and said that McClure had made unwanted advances and comments. This set into action a series of events that led to McClure admitting he was a “creep” towards some women in his professional circles. 500 Startups partner Elizabeth Yin also resigned amidst the fund’s poor transparency and handling of the situation.
According to information from 500 Startups Canada’s managing partners, LPs told the fund that they would not invest any money if McClure was still tied to the company at all, or even if he received any kind of money or profit.
Sources confirmed this by saying investments would continue to be held if “one dollar of profit still went to McClure.”
After McClure left, decisions on how to handle money and create independence for the Canadian arm of 500 Startups faltered, resulting in the decision to terminate it. This means 500 Startups Canada will not make any follow-on investments to the 38 companies it has already invested in or plans to. They still state that efforts for future fundraising will continue.
Many thought that McClure’s actions would hinder 500 Startups Canada, not end it entirely. It’s a tough day for the startups involved with 500 Startups Canada, and many more in general, as pre-seed capital in Canada can be very hard to come by.
The shuttering of the 500 Startups Canada fund does not mean that the $25 million in imminent funding is necessarily gone, but there’s no word as to how or if it will be distributed now. There is hope that venture capitalists will see the work that was being done by these startups with 500 Startups Canada and try to meet with them independently to arrange some kind of funding or cash influx.
500 Canada will stop investing at the end of September this year. Eight staff will be laid off and management fees for the committed funds will be slashed.