Startups founded by lesbian, gay, bisexual and transgender (LGBT) entrepreneurs are at risk for discrimination — affecting how they build trust with investors, where they locate their businesses and their ability to raise capital — according to a study from StartOut, a national non-profit organization that supports, educates and connects the LGBT entrepreneurship community.
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.
“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 Vivienne Ming, StartOut’s Vice Chair and Socos Co-founder.
According to the study, Texas lost half of its future entrepreneurs with only one returning to operate his business in Austin, Texas. Texas represented the third largest sample of entrepreneurs in the study, with 8%, behind California (31%) and New York (29%). Seven of the eleven companies in the study’s sample from Texas, or 64%, are located in Austin.
Authenticity and Trust is 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 University of Chicago Booth School of Business Clinical Professor Waverly 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.”
The study was conducted by University of Chicago Booth School of Business Clinical Professor Waverly Deutsch, a member of 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. It marks StartOut’s 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.”