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The high-profile exit of 500 Startups founder Dave McClure, pictured, over the Silicon Valley venture capitalist’s “inappropriate” interactions with women left the fate of its Canadian operation in limbo Tuesday, as managers here scrambled to convince institutional investors set to back its first Canadian fund to stay committed.

Justin Chin/Bloomberg

The high-profile exit of 500 Startups founder Dave McClure over the Silicon Valley venture capitalist's "inappropriate" interactions with women left the fate of its Canadian operation in limbo Tuesday, as managers here scrambled to convince institutional investors set to back its first Canadian fund to stay committed.

"The management of 500 Startups Canada is severely disappointed in the conduct of Dave McClure revealed last week," said Sanjay Singhal, managing partner of 500 Startups Canada.

"The Canadian partners all remain dedicated to the fund and to the global 500 family, and our priority is communicating with our investors and founders, none of whom to date have expressed any-thing but confidence in us," he added.

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The Canadian unit has raised $25-million to date for its first Canadian fund, led by a team in Canada including Mr. Singhal, an entrepreneur and co-founder of Audiobooks.com, and is in advanced talks with institutions, including Business Development Bank of Canada, to raise another $25-million.

"We're reaching out to those institutions now to reassure them that the Canada fund continues to be true to our global mission to expand diversity in tech and in venture capital with more female founders and more female partners," Mr. Singhal said.

A BDC spokesman said the federal Crown corporation "does not condone the inappropriate behaviour" of Mr. McClure, adding "we will work closely with the principals of 500 Startups Canada to make sure the culture they are instilling in their organization actively rejects the kind of behaviour alleged" against the founder. He noted BDC hadn't yet decided whether to invest, adding "this recent news will be taken into account prior to any final decisions being made."

Former Wind Mobile chief executive officer Anthony Lacavera, who has invested in the 500 Startups Canada fund through his Globalive Capital investment firm, said he was "very concerned with developments at 500," adding if it doesn't undertake "a comprehensive review and audit across the entire organization" and subsequently offer a "full and transparent disclosure" of its findings or launch and execute a credible action plan to fix the problems, his support "will cease immediately and we will seek a return of capital."

The prominent seed financing and incubator firm has been in chaos since The New York Times last week revealed Mr. McClure had e-mailed a prospective female employee in 2014, telling her he was "confused" whether to hire or hit on her.

In a blog post Saturday entitled I'm a Creep. I'm Sorry., Mr. McClure admitted to and apologized for his advances toward "multiple women in work-related situations where it was clearly inappropriate," adding "I selfishly took advantage of those situations where I should have known better."

Then on Monday, 500 Startups partner Elizabeth Yin resigned over frustrations about the firm's "lack of transparency and several untruths" related to Mr. McClure's departure. Management had said a month earlier that Mr. McClure was stepping down as CEO, but Ms. Yin alleged staff weren't told the reason stemmed from his improprieties.

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On the same day, entrepreneur Cheryl Sew Hoy alleged in a blog that Mr. McClure sexually assaulted her in 2014 in her apartment. Mr. McClure resigned as general partner of the firm Monday, saying it was "in the best interest" of 500 Startups and "at request" of co-founder Christine Tsai.

After years of reports and allegations of systemic sexism, harassment and exclusion of women in Silicon Valley, the U.S. tech sector has been rocked lately by several high-profile departures. Investors forced Uber CEO Travis Kalanick to step down from the ride-sharing company after an investigation stemming from a damning blog post this year by former female engineering employee Susan Fowler found there were "deep seated management and culture issues" that resulted in bad workplace behaviour. Twenty other employees were also fired in June.

More recently, Justin Caldbeck and two fellow partners of San Francisco venture-capital firm Binary Capital resigned after investors threatened to pull their financing after seven women accused Mr. Caldbeck of making "unwanted and inappropriate advances."

"The events of 2017 in the tech ecosystem depict a sector gone deeply awry" thanks to "a culture that has been allowed to fester and to rot by enablers who refused to intervene when they witnessed inexcusable behaviour or went to great lengths to avoid seeing it," 500 Startups backers Freada Kapor Klein and Mitch Kapor said in a blog post Monday.

The company had been regarded as one of the more progressive and inclusive venture capital firms, as Ms. Sew Hoy acknowledged in her posting. Melinda Byerley, founder of San Francisco firm Timeshare CMO, tweeted on Monday it was "irony" that 500 Startups "is going to survive the loss of Dave McClure because he built a strong diverse team led by a kickass woman," Ms. Tsai.

With $300-million (U.S.) under management, 500 Startups has launched 10 micro funds around the world, including the one in Canada.

The Globe chats with entrepreneurs Ben Zifkin, Sharn Kandola and Ben Zlotnick to get tips on raising venture capital. Produced by Sean Liliani. Globe and Mail Update
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