Investor: LGBTQ+ Startup Founders Need More VC Support

Source: PitchBook, Leah Hodgson
Photo: Tim Bieler on Unsplash

Most UK startup founders who identify as LGBTQ+ feel the need to hide their sexual orientation or gender identity from venture investors, a recent survey found.

The survey from Proud Ventures—a network of LGBTQ+ VCs, exited founders and angel investors—found that 75% of LGBTQ+ founders and 79% of investors are to some degree uncomfortable sharing their identity with others in the ecosystem.

The report, co-authored by Proud Ventures members Edward Kandel and Francisco Fidalgo, is the first of its kind in the UK, showcasing data on how this community experiences the venture ecosystem.

We spoke to Kandel, who is also an investor at Founders Factory, which backed the report alongside Investec Wealth, about the challenges facing LGBTQ+ founders and how investors can support and work with them. The following interview has been lightly edited for clarity.

PitchBook: Why do LGBTQ+ founders feel uncomfortable sharing their identities with investors?

Kandel: There’s no single experience in the LGBT community. If you’re a privileged white gay man, then your problems will be different [from the problems of] people in the community who are from ethnic minorities or people who are gender minorities.

In the survey, 45% said [they concealed their identity] because it wasn’t relevant [to the situation], but there was a large chunk of people who thought that if they did share, it was going to negatively affect their chances of fundraising. If I were to hypothesize why, I think that in the LGBTQ+ community in the UK, there’s still this residual shame and fear. It wasn’t that long ago that being LGBTQ+ was completely criminalized. Though thankfully isolated, there is still blatant discrimination or homophobia, queerphobia and transphobia in VC today, and that’s important to be aware of.

Also, in the VC community, there’s very little or no discussion at all of LGBTQ+ founders or how to support them. There’s definitely a lack of vocal support from the VC industry, and that—combined with societal context—can make founders uncomfortable.

Why is it important for investors to provide LGBTQ+ founders with a safe space to share?

From an investor’s perspective, when you’re looking at backing a startup, you’re looking at the technology and the market, but also at the founder. Do they have the hustle and the grit to survive? That’s very subjective, so if you’re making a decision on the individual, and they aren’t comfortable [enough] to perform to their full potential or share important parts of themselves, then you’re not getting a true judgment of them.

There’s a cognitive load that a lot of LGBTQ+ founders carry, where they’re afraid or wary of what could happen if they shared their full selves with investors. There are the questions of “If I share, will I have a negative reaction?” or constantly checking that [they’re] saying the right thing so that investors don’t think the wrong thing.

Kiran Sharma, who is a founding partner of diversity-focused VC firm First Look, was saying on a panel that because the firm is very open about these topics, there is a real difference in the conversations they have with founders. Founders know it’s a safe space, so they don’t always have to be checking what they’re saying or worrying about how they’ll be perceived.

Do additional barriers exist for LGBTQ+ founders when raising capital?

In the report, the data did show that different groups from within the LGBTQ+ community raised more or less depending on their identity, also taking into account other factors like ethnicity and socioeconomic background. Our dataset showed that gay founders raised a median of 22x more than lesbian founders, and that cis-male founders raised a median of 10x more than transgender founders.

If you believe that talent is distributed equally, then the fact that gay or cisgender founders are raising more than lesbian or trans founders means that these barriers exist.

I think very few VCs are sitting there going, “Oh, this startup is going to return the fund, but the founder is LGBTQ+, so I’m not going to invest.” But everyone has preconceptions or unconscious biases, and that could be having an impact. Also, LGBTQ+ founders might not be included in the same networks and communities, and, as we all know, you’re more likely to raise funding if you get a warm introduction.

Are investors taking action to increase support for LGBTQ+ founders?

Around 80% of investors were saying that they were taking action currently to be more inclusive to diverse founders. When we asked a follow up specifically about LGBTQ+ founders, that dropped off to 26%. We did see a silver lining in investors not currently doing anything but wanting to increase support.

There are a lot of investors who want to support LGBTQ+ founders, but don’t know where to start or really understand what the problem is. People are afraid of saying the wrong thing or making a mistake. It’s fair, but if you take a step back, you have to ask, “Why don’t we have that issue around female founders?” for example—and to be clear, we’re not pushing any kind of competition with other minority groups. There’s still a part of LGBTQ+ that’s taboo, and there’s an education gap with investors.

What are some of the ways VCs can help LGBTQ+ founders?

There are a lot of simple ways for investors to show their support. For example, posting publicly around your support of LGBT founders—and not just during Pride Month. That was something highly identified by the founders that we surveyed as making a meaningful difference for them when it comes to reaching out to funds; it shows that the VC has a similar worldview and will make them feel comfortable.

There also needs to be internal education. The fact that investors are afraid of making mistakes shows that there’s an education gap. The way to solve it is by having awkward, honest conversations, internally led by senior leadership—whether that’s by bringing in external resources for unconscious bias training, or finding case studies to help illustrate mistakes. Also, use pronouns when you’re interacting with founders or investors.

How important is it for VCs to increase their support for LGBTQ+ founders?

Just from a moral perspective, it is the right thing to do. Taking venture capital as the gateway to the companies of the future, today they are overwhelmingly founded by white, privately educated, cisgendered males. So, you could therefore draw an assumption that most of the problems that are being solved are those understood by these same founders. We need as many diverse and different perspectives as possible to solve today’s problems.

[Regarding the benefit for investor returns,] LPs are really concerned about their funds seeing the most companies and having the widest view. If you want to maximize your vision of all the possible talent and founders, you need to be engaging—not just with the core, but the whole of the human population and the talent that’s available. By not engaging with minority groups, you’re missing out on an amazing amount of talent and companies that can generate outlier returns.

Featured image by Javier Zayas Photography/Shutterstock

https://pitchbook.com/news/articles/uk-startup-founders-lgbtq