Getting a startup off the ground is no easy feat, but a recent study shows that startups founded by lesbian, gay, bisexual and transgender (LGBT) entrepreneurs can face even greater odds. The study, conducted by StartOut—a national non-profit organization that supports, educates and connects LGBT entrepreneurs—found that entrepreneurs in the LGBT community are at risk for discrimination that can affect where they locate their businesses and their ability to raise capital and build trust with investors.
The study, “The State of LGBT Entrepreneurship in the U.S.,” was written by four StartOut members, two of whom work on the faculty of the University of Chicago Booth School of Business. The first study of its kind to shed light on the LGBT founders of high-growth companies, it was sponsored by Credit Suisse with support from Booth’s Polsky Center for Entrepreneurship and Innovation.
The study’s authors—Waverly Deutsch, a Chicago Booth clinical professor of entrepreneurship and StartOut member; Mary Shea, a Chicago Booth adjunct professor of marketing and StartOut board member, StartOut Vice Chair Vivienne Ming and StartOut Board Member and Chair Emeritus Chris Sinton—combined quantitative and qualitative research methods to arrive at a range of interesting key findings.
Specifically, they analyzed a survey of 140 LGBT entrepreneurs, a big-data set of more than 100,000 straight and LGBT founders and extended interviews capturing the personal stories of LGBT founders.
37 Percent of LGBT Entrepreneurs Are Not “Out” to Investors
One of the study’s most revealing findings was that more than one in three LGBT entrepreneurs funded or seeking funding chose not to disclose their sexual orientation to investors. Asked why, nearly half said it was not relevant, and 12 percent said they thought doing so would hurt them. All investors interviewed, meanwhile, cited good personal rapport as critical to strong business relationships, which suggests that for any LGBT entrepreneurs to not trust that they can be their authentic selves within these important relationships poses potential challenges.
The study also found that jobs are leaving “discriminatory” states, namely, states with policies unfriendly to the LGBT community. “From 2005 to 2014 more than 1 million jobs created by LGBT entrepreneurs left discriminatory states in favor of inclusive states,” read the survey findings. “Of those, 78 percent moved to California, New York and Illinois.”
“It seems politically correct to say that whom one happens to love is not relevant in business, but our research shows otherwise,” Booth’s Professor Deutsch said in a statement. “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.”
Lesbian Entrepreneurs at a Distinct Disadvantage
Another key finding of the study was that lesbian entrepreneurs are at a greater disadvantage than GBT men. Of the companies surveyed that are owned by GBT men, 12 percent report revenues of more than $5 million, as compared to just 3 percent of companies owned by LBT women. Fundraising, too, presents a greater challenge for lesbian entrepreneurs. Some 70 percent of female LBT founders raised less than $750,000 in funding. In contrast, 47 percent of male GBT founders raised more than $2 million.
This inaugural study from StartOut is the first step in a continuing research program the organization hopes will help shed light on the state of LGBT entrepreneurship in the United States. “Economic equality is a critical step along the continuum of progress for LGBT people,” StartOut Executive Director Andres Wydler said in a statement. “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.”
