Addressing the Reality of Funding Discrimination Against LGBTQ Entrepreneurs
There is still significant pushback against the normalization of the LGBTQ community.
Conventional wisdom suggests that serious business people look at investment opportunities based on their potential, not at the person behind the enterprise. The goal should be profit or financial gain, so gender preference or identity should be the least of an investor's concerns, right?
Alas, this does not seem to be the case in real life. There are verified stories of LGBTQ people who say they have been ignored, avoided and singled out by potential investors because of their gender identity or the way they dress. Their lifestyles and relationships are frowned upon by hardcore conservatives.
Should this be an issue?
Some will be quick to argue that gender identity should not be a cause for concern when it comes to business funding. It is not compulsory for startup founders or business owners to reveal this whenever they engage in fundraising activities.
As technology entrepreneur Bobbie Racette shared, one investor strongly suggested that her sexuality is irrelevant. "You don't need to tell us that you're LGBTQ. We can just leave that out of your pitch deck," she recalls one investor telling her.
However, some instinctively feel the need to avoid confronting the issue. They fear that their identity can become a setback in their plans and expectations. They worry that they will disappoint the people who count on them to pursue a viable entrepreneurial venture because of the lack of investor interest that may be linked to their being homosexual or trans, as an example.
Kristina Flynn, the co-founder of nonprofit data collection and management firm jiiWA, says that LGBTQ entrepreneurs tend to hide their identities in a competitive field. "We have to think about how we're going to present ourselves. I almost have to do a cost-benefit analysis," Flynn explains.
This is not uncommon. When startups compete for funding, they try to avoid having any flaw that can be used against their brand or business. They may not be fond of conservative institutional or individual investors, but they know they can be sources of possible funding. In a way, they are willing to sacrifice their pride in being who they are for the sake of their business and the people in it.
Yes, nobody is forcing them to have that dilemma, but it is inevitable for anyone who understands the reality of modern society. There is still significant pushback against the normalization of the LGBTQ community.
What the opposing views claim
Those who believe that investors do not discriminate against LGBTQ entrepreneurs will most likely say that there have been no studies that specifically explore the possible discrimination. As such, it would be unfair to say that certain startups failed to attract funding because their founders openly identify themselves as gay, lesbian, transgender, bisexual or queer.
Noted New Yorker tech entrepreneur and startup advisor Arie Abecassis identifies several factors investors examine before investing, and none are related to the gender identity of the business owner or startup founder. Abecassis says that investors look at the market opportunity, execution capability, commercial traction, investor relevance and x-factor. It would be difficult to find a pundit who would assert that investors consider gender preference as a primary deciding factor when investing.
Some may say that the LGBTQ factor is part of the x-factor, but it would be quite farfetched. As Abecassis explains, "there's always a clicking moment that happens between an investor and a founder that plays into the investment decision." This can be an affinity stemming from shared backgrounds or interests between the investors and startup founders.
In other words, the x-factor is mostly evaluated only in the positive context. LGBTQ investors, for example, will likely support a startup led by someone who comes from their shared community. It's not that investors specifically inquire about the sexuality of a startup business owner so they can avoid investing if the business owner is homosexual or queer.
Investment data would show that indeed LGBTQ entrepreneurs do not receive that much funding. More than $1.5 trillion was invested by VC firms globally from 2010 to 2019, but less than 1% of funding deals go to LGBTQ entrepreneurs. Naysayers, though, would point out the statistical irrelevance of these numbers. The argument: Maybe only 1% were identified to have gone to LGBTQ startup founders because only a few identify themselves as LGBTQ. "There's no way to know exactly how many small businesses in the U.S. are owned or operated by LGBTQ+ individuals," an Entrepreneur feature story notes.
No study has specifically observed the decisions of investors when they were clearly served the facts about the sexuality of the founders of the startups they were interested in. There are no scientific figures that can provide apples-to-apples comparisons in investor sentiments when they deal with LGBTQ and non-LGBTQ entrepreneurs.
What the LGBTQ advocates say
Venture Out, an organization created to connect LGBTQ tech professionals and entrepreneurs, highlights the lack of LGBTQ representation in venture capital firms. "For a long time, venture capital has been a very specific type of demographic," says Danielle Graham, one of Venture Out's industry contacts. "When the decision-making is taking place without any kind of (LGBTQ+) representation, then the likelihood of them being able to relate to those individuals is very low," Graham adds.
Venture Out operates under the assumption that discrimination against LGBTQ entrepreneurs when it comes to funding support is real, given the many anecdotes shared by those who encountered the problem first hand. Because of this, the organization introduced the Founders Program, a six-week program that provides mentorship, education and liaisons with venture capitalists and angel investors.
Kristina Flynn, a Founders Program participant, is convinced of the existence of discrimination against LGBTQ entrepreneurs. As mentioned, she happens to be one of those who were at the receiving end of the discrimination. While she does not have concrete statistics and facts, Flynn cites the use of pattern matching by investors.
This pattern matching, according to Flynn, makes investors place their bets on mostly "straight white men." This is because they are often the ones who tend to become successful as established by previous patterns.
Moreover, Yangqi Xu, another participant of the Founders Program, surmises how it's like muscle memory for them to hide their true identity. This is particularly true whenever they have to communicate with investors from countries known for their rejection of the LGBTQ identity. They feel helpless as they try to avoid giving potential investors any reason to turn their backs or rethink their decisions.
If discrimination against LGBTQ entrepreneurs were unreal, it would have been unnecessary to have any research and discussion on alternative financing options for LGBTQ business owners. The arguments from opposing views make some sense, but they do not believe the reality that LGBTQ people inherently feel the pressure of submitting to established norms. The current paradigm in investing at startups still has opportunities to evolve — evolve into an era where individuals can become valued based on their values and visions.
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