LGBTQ entrepreneurs are going back into the closet in front of investors

A new report shows that many LGBTQ+ entrepreneurs hide their identities during the fundraising process.

The LGBTQ+ community has come a long way in terms of gaining equal rights and acceptance, but we all know that inequity is still around us. One area where the community faces significant challenges in entrepreneurship. Many are aware of the barriers that LGBTQ+ individuals face in the workplace – but fewer know about the obstacles that LGBTQ+ entrepreneurs face. A new report from Proud Ventures is highlighting some of these barriers.

The LGBTQ+ Founder Report is the first comprehensive data set on LGBTQ+ founders and venture capitalists of its kind. The results paint a clear picture of the work that needs to be done when it comes to inclusion in the startup ecosystem. 

LGTBQ+ entrepreneurs and investors feel like they need to hide their identity

The report highlighted that 75 per cent of LGBTQ+ founders and 79 per cent of LGBTQ+ investors hide their identity in some way from other investors. Over a quarter of founders don’t feel comfortable sharing their sexuality, and 18 per cent said that sharing that part of themselves could harm them during the fundraising process. Women, non-binary and trans founders are less likely to be out in front of investors with 57 per cent saying that they would never disclose their identity. 

For those that do get funding, there is a frustrating discrepancy between the amounts secured between gender identities. The report noted that gay founders raised an average of 2.5 times more than bisexual founders and 22 times more than lesbian founders. 

Proud Ventures report also notes the impacts on the mental health of LGBTQ+ founders who conceal their identities. For Sam White, founder and CEO of Stella Insurance, not being able to be her true self took a toll on her mental health. “I was having five panic attacks a day and suffering from anxiety in my early years as an entrepreneur which I believe was partly due to not being able to be my full authentic self while trying to carve a path for myself in a traditionally male-dominated industry. 

“It wasn’t until I came out as gay at 30 and was fully open about my sexuality that I saw my panic attacks disappear.”

Why are investors ignoring LGBTQ+ founders?

Proud Venture’s report noted that while investors are supporting ‘diverse’ founders, few of those are supporting LGBTQ+ founders. 80 per cent of investors said that they are actively taking steps to be more inclusive to diverse founders, but only 26 per cent are taking specific action to fund LGBTQ+ founders. It seems that for UK investors, LGBTQ+ entrepreneurs are not seen as a core part of the underrepresented founders.

On a positive note, many investors do have an interest in supporting LGBTQ+ founders but don’t know where to start. One easy way is for investors to voice support for LGBTQ+ founders they already know to attract more diverse founders. The report noted that there is a lack of voices in venture capital sharing their support for LGBTQ+ founders, which is a big reason why so many founders hide their identities. Venture capital firms need to make sure that they have a diverse group of employees that make up the investment teams. Research from Harvard Business School showed that diverse investment teams generate higher returns and more diverse talent.

What can young LGBTQ+ founders do?

Ultimately, the decision to be out in front of potential investors is up to the entrepreneur. Until the startup ecosystem is authentically inclusive, LGBTQ+ founders will always fear that their life could harm their entrepreneurial dreams. 

There are a few strategies LGBTQ+ founders can take on to prepare themselves to be authentic in front of their investors.

Build a strong network

A network of supporters, other LGBTQ+ entrepreneurs and allies can increase visibility. This is especially helpful when it comes to finding investors who are supportive of LGBTQ+ issues.

Research potential investors 

Before approaching investors, research their backgrounds and views on LGBTQ+ issues. This will identify investors who will be supportive and make discrimination less likely.

Be strategic about when to reveal your identity 

Know when the time is right. Consider factors like where the fundraising process is at and the safety of the relationships built with the investment teams.

While the report highlights the challenges facing LGBTQ+ entrepreneurs when fundraising, there are reasons to be hopeful. As more investment firms recognise the importance of a diverse portfolio, it will be easier for LGBTQ+ entrepreneurs to build out their own companies so the world can continue to innovate.