- In an effort to help them scale up their businesses and create jobs, a growing number of venture investors are backing LGBTQ+ entrepreneurs.
- According to the LGBTQ+ entrepreneurship non-profit StartOut, only 0.5% of $2.1 trillion in startup financing was raised by LGBTQ+ entrepreneurs between 2000 and 2022.
- Ben Stokes founded Chasing Rainbows in 2021. The fund is currently invested in 15 startups.
Raising capital is a major obstacle for LGBTQ+ business owners. Some venture capitalists try to change the equation by backing minority founders in order to help them scale up their businesses and create jobs within their community.
According to the LGBTQ+ entrepreneurship non-profit StartOut, only 0.5% ($2.1 trillion) of the $2.1 trillion raised in startup funding from 2020 to 2022 came from LGBTQ+ founders. Yet, 7.2% of Americans identify as members of the LGBTQ+ community, according a Gallup survey conducted in 2022.
StartOut’s Report on LGBTQ+ Entrepreneurship, which aggregates information from sources such as Crunchbase and Pitchbook and internal research, found that 85% funding was accumulated only in five metro areas, namely San Francisco, New York City, Los Angeles and Austin, Texas. Orlando, Florida, Charlotte, North Carolina, and Birmingham, Alabama are the three largest cities without any LGBTQ+ founders.
StartOut CEO Brian Richardson said to CNBC that cities with non-discrimination laws that protect LGBTQ+ people have more queer entrepreneurs.
Richardson said, “We’ve been looking at and calculating how much cities or even states lose out financially and in terms of employment because they have anti LGBT+ policies in place.”
Researchers at StartOut have compared states that passed or did not pass policies affirming LGBTQ+ between 2010 and 2020. They compared the economic impacts of public policies on entrepreneurial outcomes. They found that in Texas, implementing state employee benefit coverage for transition-related childcare could create 121,000 jobs. In North Carolina, the implementation of hate crime laws for gender identification could attract up to 17,000 entrepreneurs, while in Alabama, repealing so-called “Don’t Say Gay or Trans”, laws could bring in $10 billion.
Richardson said, “These numbers are just the first step in a much longer and more comprehensive process to identify challenges and find the best, most comprehensive solutions that are most effective.”
Chasing Rainbows is one organization that has tried to find solutions. It’s a venture capital firm that connects LGBTQ+ founders with capital. The fund invests in 15 early-stage businesses.
Ben Stokes is the founding partner of Chasing Rainbows and told CNBC that “we usually write [the] initial checks for many companies, especially from an institutional standpoint.” “We are open to talking to someone who doesn’t yet have revenue. It’s just a matter of understanding how they can get there.”
Chasing Rainbows is sector-agnostic, but focuses on the four opportunity zones that startups should consider: sustainability, health, education, financial equity, and inclusion. Stokes said that historically, the LGBTQ+ community has faced discrimination when attempting to access these services.
Stokes said that founders who have experienced a problem first-hand often know how to solve it. “They have creative solutions, which are often done with a very financial savvy approach.”
StartOut’s report found that LGBTQ+ founders, despite operating with 16% less funding than the industry average, created 36% more jobs and 114% more patents between 2000 and 2022.
Stokes said, “We work together in order to ensure that we invest in new companies that we believe will not only attract venture capitalists but also offer and deliver outsized return for our investors.”
Stokes said Chasing Rainbows advocates that resource allocations are made to take into account founder diversity when making investments. Massachusetts and New York have already launched state-level initiatives that require VCs consider sexual orientation when allocating capital.
Senate Bill No. 54 in California will require venture firms to report diversity statistics within their portfolios. The California Senate Bill No. This includes race, ethnicity and gender identity as well as veteran status, disability status, and whether any founding team member identifies themselves as LGBTQ+. The bill is set to take effect on March 1, 2020.
Stokes said that this would be a great wake-up call to the industry, and especially for limited partners who are investing on the assumption that the lead investors will invest in diverse teams. Is it true?”
Stokes, an angel investor himself founded Chasing Rainbows 2021 after realizing that underrepresented founders were seen as riskier investments. He credited the advice he received from his law professor at University of California at Berkeley that led him to create his fund.
Stokes said that Stokes told him to “be unique and special in the industry, because that is the only thing that will make you successful.”
Stokes stated that 75% of founders “go back into the closet” when fundraising, out of fear that being a part of the LGBTQ+ community will taint the brand.
He said that “general partners and other funds with different religious or political beliefs have openly discriminated” against someone because of their sexuality. “What this means for them is they’re often switching code,” referring to LGBTQ+ people who deviate to more heteronormative behavior and language.
Stokes said that “they will be cleaning up their LinkedIn and all of their social media accounts,” “basically going back to the closet and not being themselves.”
Both Stokes and Richardson have been invited to the White House to participate in a discussion roundtable on the challenges that entrepreneurs face.
Stokes said that some of the challenges were obvious. “Access to capital is by far the biggest challenge,” he said. “But we are looking for ways to partner with government, particularly around grants and nondilutive equity.”
Richardson hopes that the attention will lead a broader support of organizations like Chasing rainbows and that additional funding will lead to increased representation and economic opportunities for innovators who are underrepresented.
Richardson said, “We know queer people and entrepreneurs continue to face obstacles.” “But we also recognize that these barriers are particularly steep for certain members of our community.” We want to identify and quantify the steepness of the barriers and what each member of our community continues to face.