Some venture capitalists are working to increase the visibility of LGBTQ+ entrepreneurs.

• An increasing number of venture capitalists are supporting LGBTQ+ entrepreneurs in order to expand their businesses and generate employment opportunities.
• LGBTQ+ entrepreneurs received only 0.5% of the $2.1 trillion in startup funding between 2000 and 2022, according to StartOut, a nonprofit organization that supports LGBTQ+ entrepreneurs.
• In 2021, Ben Stokes established Chasing Rainbows, a fund that has invested in approximately 15 startups.

Venture capitalists are working to overcome the challenge of raising capital for LGBTQ+ entrepreneurs by investing in minority founders and supporting their growth.

Despite comprising 7.2% of the U.S. population, only 0.5% of the $2.1 trillion in startup funding between 2020 and 2022 was raised by LGBTQ+ founders, according to a 2022 Gallup survey.

According to StartOut's State of LGBTQ+ Entrepreneurship Report, which draws on internal research and external sources such as Crunchbase and Pitchbook, 85% of funding is concentrated in just five metropolitan areas: San Francisco, New York, Los Angeles, Denver, and Austin, Texas. The largest cities with no LGBTQ+ founders are Orlando, Florida; Charlotte, North Carolina; and Birmingham, Alabama.

CNBC reported that cities with comprehensive nondiscrimination policies for LGBTQ+ individuals have stronger queer entrepreneurial communities, according to StartOut CEO Brian Richardson.

Richardson stated that through the limited datasets available, they have been able to examine and quantify the financial and employment losses experienced by cities and states due to anti-LGBTQ+ policies.

The researchers at StartOut analyzed the economic effects of public policies on entrepreneurial outcomes by comparing states that passed and did not pass LGBTQ+-affirming policies between 2010 and 2020. They found that implementing state employee benefits coverage for transition-related care in Texas could create over 121,000 jobs. Additionally, implementing hate crime laws for gender identity in North Carolina could attract as many as 17,000 founders, while repealing "Don't Say Gay or Trans" laws in Alabama could add $10 billion in funding, they said.

Richardson stated that these numbers represent the initial stage of a more extensive procedure to determine obstacles and discover the most optimal, all-encompassing, and effective resolutions.

A venture capital fund called Chasing Rainbows connects LGBTQ+ founders with capital and currently invests in approximately 15 early-stage companies.

"Ben Stokes, founding partner of Chasing Rainbows, stated to CNBC that his company usually writes the first checks for many companies, especially from an institutional perspective. He emphasized that they are open to having conversations with companies that do not have revenue, and their focus is on understanding the pathway to achieving revenue."

Stokes stated that the LGBTQ+ community has historically faced discrimination when attempting to access services in the sectors of sustainability, health care, education, and financial equity and inclusion, which is why Chasing Rainbows takes a sector-agnostic approach but concentrates on these four opportunity zones.

"Stokes stated that founders who have faced problems themselves are typically skilled at resolving them and can implement cost-effective solutions."

Despite receiving 16% less funding than the industry average, LGBTQ+ founders created 36% more jobs, 114% more patents, and 44% more exits between 2000 to 2022, according to StartOut's report.

Stokes stated that we collaborate to invest in new companies that not only attract venture backers but also provide substantial returns for our investors.

Chasing Rainbows promotes the inclusion of founder diversity in resource allocation when making investment decisions. Massachusetts and New York have already implemented state-level initiatives that mandate VCs to consider sexual orientation when allocating capital.

In California, Senate Bill No. 54 mandates that venture firms disclose diversity statistics in their portfolios, including race, ethnicity, gender identity, veteran status, disability status, and whether any member of the founding team identifies as LGBTQ+. The bill will take effect on March 1, 2025.

"Stokes questioned whether limited partners' belief in diverse teams is justified, stating that the industry's wake-up call would be particularly significant for them."

Stokes founded Chasing Rainbows in 2021 as an angel investor, recognizing that underrepresented founders are often viewed as riskier investments. He attributed his fund's approach to advice from his law professor at the University of California at Berkeley.

Stokes said, "Instead of being just another funder investing in underrepresented founders, be unique and stand out in the industry to achieve success."

Stokes stated that 75% of founders return to the closet while fundraising due to fear that their association with the LGBTQ+ community would harm their brand, despite the limited funding available for LGBTQ+ innovators.

Unfortunately, evidence shows that general partners and other funds who hold different religious or political views have openly discriminated against someone based on their sexuality. This means that they often engage in code switching, which involves LGBTQ+ individuals adapting to more heteronormative language and behaviors.

"Stokes stated that they would be cleaning their LinkedIn and social media profiles, effectively hiding their true identities and going back into the closet."

This week, both Stokes and Richardson were invited to the White House to take part in a roundtable discussion on the challenges entrepreneurs encounter.

"Stokes stated that some challenges are evident, with access to capital being the most significant one. However, the company is exploring ways to collaborate with the government, specifically regarding grants and non-dilutive capital."

Richardson hopes that increased attention will result in broader support for organizations like Chasing Rainbows and that additional funding for data and research will lead to greater representation and economic opportunities for underrepresented innovators.

"Richardson stated that while queer people and queer entrepreneurs encounter obstacles, the barriers are particularly high for certain individuals in our community. The goal is to determine the extent of these barriers and the specific challenges faced by individual members of our community."