(Bloomberg) -- Everyone involved agrees on the basic facts about March 8, 2022 — a venture capitalist and a startup co-founder spent a big night on the sidelines of a Miami conference. There, agreement ends. Cailin Hardell says the middle-aged VC investor and another CEO backed by his firm got her drunk and sexually assaulted her. They maintain the encounter was consensual.
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After Hardell reported the incident to the head of Blumberg Capital LLC, she claims in a lawsuit, the firm refused to provide more funding for her company, Segmed, unless she agreed to keep quiet about her complaint, and when she refused, Blumberg Capital sought to kill the startup. The firm said it fired the investor involved and denies the retaliation allegations.
The civil suit, which has escaped major media attention, is now in pretrial fact finding in state court in San Francisco. It has become the first significant test of a measure approved by California lawmakers in 2018 to fight investor harassment of entrepreneurs, who don’t fit into the traditional framework of laws covering employees and weren’t explicitly protected.
However it unfolds, the case shows that the tech industry is still grappling with issues around gender power dynamics and appropriate behavior seven years after the #MeToo movement shined a light on widespread sexual misconduct.
“It doesn’t feel like anything has changed,” Hardell told Bloomberg News. She says she hopes that pursuing her lawsuit encourages more accountability in the industry.
The gender divide persists in the VC ecosystem, with women holding just over 17% of general partner positions at venture firms and three-quarters of all funds raised for startups going to all-male founding teams, according to data compiled by J. Thelander Consulting and PitchBook.
Long after hundreds of venture capitalists signed LinkedIn co-founder Reid Hoffman’s so-called Decency Pledge, a 2023 survey by the nonprofit Women Who Tech found that almost 60% of female founders experienced discrimination in the previous 12 months. About 40% of those founders said they’d been harassed, only a slight decline since #MeToo’s heyday. Historically, when women in tech have turned to the legal system, it has delivered mixed results. Class-action gender discrimination suits against Microsoft Corp. and Twitter over pay disparities were rejected by judges. Similar cases against Alphabet Inc. and Oracle Corp. brought on behalf of thousands of women settled for $118 million and $25 million, respectively — pocket change for the giant companies.Shareholder complaints involving women being mistreated in the workplace led to a $310 million settlement by Google in 2020 and a $50 million accord with Pinterest in 2021 — on top of a $22.5 million payout to the social networking site’s former chief operating officer who had alleged sexism and retaliation. Neither company admitted wrongdoing in those out-of-court settlements.But Silicon Valley hasn’t seen a high-profile gender dispute go to a jury trial since Ellen Pao lost her discrimination and retaliation suit against venture firm Kleiner Perkins Caufield & Byers in 2015. The vast majority of such complaints against companies and individuals are resolved privately with no public record of what accused wrongdoers paid or didn’t pay.
“I hear from female CEOs a couple of times a month who have had horrible experiences where investors and board members have discriminated against or harassed them,” Pao said in an interview. She said it’s disappointing that the behavior continues in an era when workplaces regularly conduct anti-harassment training, and all levels of employees are deeply aware of the issue. “Board members need to hold their peers accountable, because it won’t stop until they decide to use their power to make it stop,” she added.
Prior to founding Segmed, Hardell was a contractor for Alphabet’s Verily Life Sciences and earned a master’s degree in bioengineering from Stanford. Her startup, which collected large datasets of medical images for use by researchers and others, launched just as powerful AI algorithms that can build on that type of data were becoming prevalent. While other companies have since caught up to Segmed in many ways, at the time it was ahead.
When Hardell went to Miami in 2022, part of her agenda was to raise the profile of her rapidly growing company. Once there, she joined Blumberg Capital senior director Adrian Vanzyl for dinner, along with Waleed Mohsen, who was the chief executive officer of MyNurse.ai, another health startup in Blumberg’s portfolio.
As the night went on, the group moved from wine to vodka, and Hardell was pressured to imbibe, according to the suit. Afterward, the men took her to the beach and assaulted her — despite her efforts to resist, according to the complaint. Then, she claims, they took to a her to bar and pushed her to drink shots of tequila before they took her to a hotel room and continued to assault her.
David Blumberg, founder and managing partner of Blumberg Capital, told Bloomberg News the firm took Hardell’s complaint about the Miami incident “very seriously and immediately launched an investigation led by a former federal prosecutor.” In a court filing, his firm “generally denies each and every allegation.”
Vanzyl called the incident “entirely consensual” in a court filing. Vanzyl also claims he shouldn’t have been sued in California because he lived in Florida. "While I do not intend to litigate this matter in the media, I vehemently deny Ms. Hardell’s unsubstantiated allegations,’’ Vanzyl said in a statement issued by his lawyer, Brian Sinclair.
Mohsen also denied wrongdoing and his lawyer said in a court filing that he was “of the highest character and someone who has a track record of empowering women.” Hardell dropped him from her suit in March, but her court filing didn’t specify whether there was a settlement. “Mr. Mohsen and Ms. Hardell have privately and amicably resolved the matter,’’ his lawyer, Steven Friedlander, said in a statement.
If the case goes to trial, it poses risks for both sides.
Proving in court that drunken sex was nonconsensual is notoriously difficult. Juries may find that a woman put herself in danger because of her behavior unless she can show she was coerced into drinking so much alcohol she couldn’t give reasonable consent.
“Context really matters,” said Cliff Palefsky, an employment lawyer in San Francisco not involved in the case.
Hardell cited one piece of physical evidence in her complaint: A medical examination that took place after she called a rape hotline showed she had vaginal tearing and cervical trauma.
But apart from that, public court filings don’t reveal whether anyone besides Hardell, Vanzyl or Mohsen witnessed any of their after-dinner interactions on the night in question. Nor do the filings hint at any written or recorded communications, like texts, emails or voicemail messages, that might bolster or undermine her allegations.
A representative for the Miami Beach Police Department confirmed that it opened an investigation into a complaint filed by Hardell, but declined to comment.
If Hardell faces a challenge establishing that she was assaulted, she may nonetheless be able to pursue her claim that Blumberg Capital retaliated against her and ruined her career — which could expose the VC firm to extensive monetary damages even though it wasn’t her employer.
“You can win on retaliation even if the underlying claim was not valid as long as the complaint was made in good faith,” Palefsky said. “It is often easier to prove.”
Palefsky said no one would come out ahead if the case goes to trial because of the impacts on everyone’s reputations and businesses. But he said it would be important as a legal precedent if Hardell’s attempt to hold non-employers liable succeeds.
In the aftermath of the incident, Blumberg Capital said that at Hardell’s request and at the firm’s discretion, it removed Vanzyl from the Segmed board and terminated his employment. Hardell, who was emotionally distraught, left her role as CEO of Segmed and later stepped down from the board. She claims in the suit that Blumberg Capital insisted she not be rehired as retaliation for her speaking out. The firm denies this.
There’s also a dispute about whether Blumberg Capital cut Segmed off from more funding because Hardell refused to sign a severance agreement with the startup that included a provision that she not say anything negative about Vanzyl or the VC firm.
Such provisions are another hot-button legal issue in tech. Under a California law known as the “Silenced No More Act” that went into effect weeks before the alleged assault, non-disparagement agreements attached to terminations are illegal if they deny the right to disclose information about illegal acts such as harassment.
A spokesperson for Blumberg Capital said in a statement that it repeatedly offered to reinvest in Segmed in 2022 after the Miami incident with no requirement that Hardell sign any non-disparagement or confidentiality provisions.The 2018 amendment to the workplace harassment law at the heart of Hardell’s case was inspired partly by revelations about sexual misconduct in Silicon Valley. The revision recognized that VCs and private equity financiers wield tremendous power over tech entrepreneurs, even though they do not have traditional manager-employee relationships.
Blumberg Capital’s first effort to get the case thrown out failed. San Francisco Superior Court Judge Richard Ulmer ruled that Hardell adequately alleged that Blumberg Capital “aided” acts of retaliation, rejecting the firm’s argument that she couldn’t pursue the claim because it was never her employer.
Ulmer also dismissed the California-founded firm’s contention that it couldn’t be sued in the state for an incident that took place in Florida. Without addressing the merits of Hardell’s claims, the judge said she could seek to hold Blumberg Capital liable for her trauma, finding that she sufficiently alleged “outrageous conduct.”The men who Hardell blames for her ordeal have moved on. Vanzyl now has a new stealth startup, according to his LinkedIn profile, and Mohsen is still a CEO. For its part, Segmed completed a $5.2 million funding round with new VC firms months after Hardell left — and Blumberg Capital participated in the startup’s latest round in April.
Meanwhile, Hardell said, she’s been diagnosed with dissociative post-traumatic stress disorder, and is taking daily medication to control panic attacks and anxiety. She is “no longer the 20-something CEO of a likely unicorn startup,” according to her suit.
“I’ve been forced to take a path that was a bit diminished,” she said in an interview, noting that she’s now the chief operating officer of a wellness startup. “My environment, impact, reach that I have, all of these things are quite a bit smaller.”
(Updates with context in chart.)
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