Venture Capitalists Backing LGBTQ+ Founders: Changing the Game

Ever wonder why LGBTQ+ founders struggle to get startup funding?

You’re not alone.

It’s a huge issue and many venture capitalists are finally taking notice.

The LGBTQ+ Funding Gap

Here’s the kicker:

Only 0.5% of the $2.1 trillion in startup funding from 2000 to 2022 went to LGBTQ+ founders.

Crazy, right?

Especially since 7.2% of the U.S. population identifies as LGBTQ+, according to a 2022 Gallup survey.

So, what’s the problem?

Raising capital remains a massive obstacle for LGBTQ+ entrepreneurs. Many venture capitalists are now stepping in to level the playing field, backing minority founders to help them scale their companies and create jobs within their communities.

StartOut’s Eye-Opening Report

StartOut, an LGBTQ+ entrepreneurship nonprofit, dropped some bombshells in their State of LGBTQ+ Entrepreneurship Report. They found that 85% of funding goes to just five metro areas: San Francisco, New York, Los Angeles, Denver, and Austin.

And get this: major cities like Orlando, Charlotte, and Birmingham have zero LGBTQ+ founders.

Why It Matters

Brian Richardson, CEO of StartOut, pointed out that cities with comprehensive nondiscrimination policies protecting LGBTQ+ people tend to have more successful queer entrepreneurs.

“What we’ve found is that cities and states with anti-LGBTQ+ policies are losing out big time,” Richardson said.

StartOut’s research suggests that implementing LGBTQ+-affirming policies could massively boost job creation and funding.

For example:

• State employee benefits coverage for transition-related care in Texas could create over 121,000 jobs.
• Hate crime laws for gender identity in North Carolina could attract 17,000 founders.
• Repealing “Don’t Say Gay or Trans” laws in Alabama could add $10 billion in funding.

Chasing Rainbows: A Beacon of Hope

One group making waves is Chasing Rainbows, a venture capital fund founded by Ben Stokes in 2021. They’re already invested in around 15 early-stage companies.

“We usually write the first checks for many companies,” Stokes said. “We’re open to conversations even if someone doesn’t have revenue yet. It’s all about the pathway they have to get there.”

Chasing Rainbows focuses on four key areas:

• Sustainability
• Health care
• Education
• Financial equity and inclusion

Stokes believes that LGBTQ+ founders, having faced discrimination themselves, often come up with creative and financially savvy solutions.

Real Impact, Real Numbers

Despite operating on 16% less funding than the industry average, LGBTQ+ founders have created:

• 36% more jobs
• 114% more patents
• 44% more exits between 2000 and 2022

Impressive, right?

Advocating for Change

Stokes and Richardson are pushing for more resources and policy changes. State-level initiatives in Massachusetts and New York are starting to require VCs to consider sexual orientation in capital allocation.

In California, Senate Bill No. 54 will require venture firms to report diversity statistics within their portfolios, starting March 1, 2025. This includes race, ethnicity, gender identity, veteran status, disability status, and whether any founding team member identifies as LGBTQ+.

Breaking Down Barriers

Unfortunately, 75% of LGBTQ+ founders go back “into the closet” while fundraising, fearing discrimination. They scrub their social media profiles and LinkedIn, not being their authentic selves.

“Some general partners openly discriminate based on sexuality,” Stokes said. “So founders end up code-switching, adopting more heteronormative language and behaviors.”

The Road Ahead

Both Stokes and Richardson were recently invited to the White House to discuss these challenges.

“The biggest challenge is access to capital,” Stokes said. “But we’re looking at ways to partner with the government, especially around grants and non-dilutive capital.”

Richardson hopes this attention will lead to broader support and more funding for data and research, ultimately expanding economic opportunities for underrepresented innovators.

Final Thoughts

LGBTQ+ founders face steep barriers, but with the support of venture capitalists like those at Chasing Rainbows, there’s hope for a brighter future. By breaking down these barriers, we can unlock immense potential and drive significant economic growth.