Startups founded by the lesbian, gay, bisexual and transgender (LGBT) entrepreneurship community are at risk for discrimination, affecting where they locate their businesses, their ability to raise capital and how they build trust with investors, according to a new study from StartOut, a national non-profit organization that supports, educates and connects LGBT entrepreneurs.
The study, “The State of LGBT Entrepreneurship in the U.S.,” by University of Chicago Booth School of Business Clinical Professor Waverly Deutsch, a member a StartOut; StartOut Vice Chair, Vivienne Ming; Chicago Booth Adjunct Professor of Marketing and StartOut board member, Mary Shea; and StartOut board member and Chair Emeritus, Chris Sinton.
This is the first study of its kind to shed light on the experiences of LGBT founders of high-growth companies.
Combining quantitative and qualitative research methods, the study analyzes a survey of 140 LGBT entrepreneurs, a big-data set of more than 100,000 straight and LGBT founders and extended interviews intended to capture the personal stories of LGBT founders.
Among the key findings:
Authenticity and trust are lacking in key relationships: 37 percent of LGBT entrepreneurs funded or seeking funding are not “out” to investors. When asked why, nearly half said it was not relevant, and 12 percent thought it would hurt them. All investors interviewed said good personal rapport was critical to strong business relationships.
Jobs are leaving “discriminatory” states: From 2005 to 2014 more than 1 million jobs created by LGBT entrepreneurs left discriminatory states in favor of inclusive states. Of those, 78 percent moved to California, New York and Illinois. States with policies unfriendly to the LGBT community lose many if not all of their nascent growth entrepreneurs.
Lesbian entrepreneurs are at a distinct disadvantage: 12 percent of companies owned by GBT men have revenues of more than $5 million compared to 3 percent of LBT women. Meanwhile, 70 percent of female LBT founders raised less than $750,000 in funding compared to 47 percent of male GBT founders who raised more than $2 million.
“It seems politically correct to say that whom one happens to love is not relevant in business, but our research shows otherwise,” said Booth’s Deutsch. “LGBT entrepreneurs specifically choose diversity-friendly states to start their companies; raise less capital than their straight counterparts and have to balance the risk of homophobia and discrimination with creating authentic relationships with investors, customers and partners.”
“By leveraging massive online datasets, we can clearly see the profoundly negative impact of discrimination on job creation, and the unintended boon it provides states like California and New York.” according to Ming, StartOut’s Vice Chair and Socos Co-founder.
StartOut’s groundbreaking inaugural study marks the first step in its ongoing research program aimed at painting a clearer picture of the state of LGBT entrepreneurship in the U.S. This initial study was sponsored by Credit Suisse with support from Booth’s Polsky Center for Entrepreneurship and Innovation.
“Economic equality is a critical step along the continuum of progress for LGBT people,” says StartOut’s Executive Director Andres Wydler. “Over the next few years, we will offer policy makers and business leaders the data and evidence they need to more fully understand the LGBT entrepreneurial experience.”
Founded in 2009 with chapters in New York City and San Francisco, StartOut is a national non-profit 501(c)(3) organization fostering and developing entrepreneurship in the lesbian, gay, bisexual and transgender (“LGBT”) community. StartOut helps aspiring LGBT entrepreneurs start new companies; supports current LGBT entrepreneurs as they grow and expand their existing businesses; and engages successful LGBT entrepreneurs as role models and mentors. StartOut’s goals are to support, educate, inspire and connect members of the LGBT community around entrepreneurship and business leadership.
About the Polsky Center
The Polsky Center for Entrepreneurship and Innovation at Chicago Booth provides immersive, experiential education and venture creation resources for UChicago students and alumni who are interested in entrepreneurship, private equity, venture capital, and taking their existing businesses to the next level. The Polsky Center’s premier start-up launch program, the Edward L. Kaplan, ’71, New Venture Challenge (NVC), is designed to help student teams turn their ideas into viable businesses. Launched in 1996, and currently in its 20th year, the NVC now includes four tracks: Traditional, Social, Global, and College, which offer tailored programming to meet the needs of UChicago’s diverse student body.