LGBTQ+ founders have raised less than 1 percent of venture capital funding in the US, according to research by LGBTQ+ entrepreneurs’ non-profit StartOut. Yet LGBT individuals make up 5.6 percent of the US population, according to 2021 data by Gallup. That is why, as the world celebrates Pride Month, two sustainable finance specialists have launched a venture capital fund for LGBTQ+ founders.
“The entire venture capital industry is led by White cisgender males,” said William Burckart, co-founder of Colorful Capital. “Because of that, there is an implicit bias. LGBTQ+ founders are routinely overlooked and undervalued.”
Launched to coincide with Pride Month, Colorful Capital’s debut fund will make seed and pre-seed investments of up $1 million in companies founded by individuals identifying as LGBTQ+. The firm did not disclose the target fund size. The firm was founded earlier this year by Megan Kashner, professor of sustainability and social impact at Northwestern University’s Kellogg School of Management, and Burckart, chief executive of sustainable finance consultancy The Investment Integration Project.
“We realised we had this incredible network of people in the industry identifying as LGBTQ+,” Burckart told New Private Markets. “This network has incredible access to capital, perspective and experience. We’re seeing where those untapped opportunities exist. We can point to rock star examples of LGBTQ+ founders that have established thriving enterprises.”
Burckart and Kashner wanted to go beyond “being more supportive to the LGBTQ+ community in sustainable finance”, Burckart added. “We asked, ‘What do we owe to the broader LGBTQ+ community that is suffering all sorts of barriers and exclusions to accessing capital?’”
Founders in the US have raised $1.8 trillion in venture capital, of which $13 billion (0.7 percent) has gone to LGBTQ+ founders, StartOut’s Pride Economic Impact Index shows. Burckart says many VC investors have an implicit bias against members of the LGBTQ+ community, who often have different family lives and present differently to non-LGBTQ people.
Kashner added that LGBTQ+ founders are often excluded from the social and professional networks of non-LGBTQ+ investors who dominate venture capital. “There are many VC funds that will not take inbound inquiries, for example – who will only accept inbound referrals from within their own network.”
How will Colorful Capital find LGBTQ+ founders? Kashner says: “We can’t just go by our own networks, because then we have a similar or corollary problem to traditional VC, which is that you only recognise talent that is in proximity to you.” Instead, Colorful Capital is engaging with LGBTQ+ networks and associations across the US to find deals.
“I have no desire to verify whether someone is an LGBTQ+ founder,” she adds. “Am I worried that there will be some LGBTQ+-washing? Not yet.” That is partly because Colorful Capital is targeting small, early-stage companies that do not have capacity for token LGBTQ+ hires that don’t pull their weight. Moreover, “when we get to a place where people think having an LGBTQ+ person in your team, on your board, in your capital stack, is an asset – because that diversity, range and richness of perspective is a benefit to all – that’s where we want to get.”
Closing the wealth gap
Colorful Capital will also play a catalytic role in funding LGBTQ+-founded enterprises, said Kashner. “I have a friend from a much more traditional background who said to me, ‘At my VC firm, we are really excited to see your dealflow because you’re going to do a better job at finding and assessing that talent and opportunity, and we’re really excited to be able to invest alongside you when appropriate.’
“We hope to contribute to the wealth creation for LGBTQ+ founders, their teams and their investors, and to address some of those wealth gaps that exist for the LGBT+ community. Increased economic standing of the LGBTQ+ community helps elevate who we are, how we can live and how we can support one another.”