This is a largely ai-generated summary of Episode 57 featuring Megan Kashner and William Burckart of Colorful Capital. We are grateful to both of them for indulging this little science experiment. Even though we didn’t ask their permission first 😈
Our Big Questions
Why Isn’t More Venture Capital Funding Flowing Towards the LGBTQ+ Community?
William Burckart began the conversation by diving into a complex issue: why isn’t more capital flowing towards ventures led by the LGBTQ+ community?
As a systems thinker, Burckart seeks to understand the underlying beliefs that influence these decisions. His conclusion? It’s a deeply ingrained belief that a monoculture is the most efficient way to allocate assets. This belief, predominantly perpetuated by straight white men, has a severe impact on the experiences of members of the LGBTQ+ community, particularly when intersectionality comes into play.
“The venture capital world is traditionally run by straight white men…and so that’s where the money goes… to those that they see and understand.”
William Burckart on why the VC world is like this.
Burckart acknowledges that racism plays a significant role in this issue, but it’s not the only factor. The venture capital world, traditionally run by white men, tends to direct money towards those they see and understand – those within their own networks. The result is an uneven playing field for other communities, leading to some truly horrifying stories.
Megan Kashner adds another layer to the conversation. She emphasizes that every founder and every member of the LGBTQ+ community is unique. However, the barriers faced by these individuals are often similar and deeply ingrained: homophobia, misogyny, transphobia, hypersexualization, racism, ableism, and more. These biases create a hostile environment for diverse founders seeking investment, further perpetuating the funding gap in the venture capital industry.
“We’re looking at homophobia, we’re looking at misogyny, we’re looking at transphobia…We’ve got layers of racism, ableism, you name it, it’s playing in.”
Megan Kashner on the many factors that combine to starve the LGBTQ+ community of capital.
Both Burckart and Kashner believe a shift in mindset is urgently needed within the venture capital industry. By recognizing and addressing these systemic biases, we can move towards a more inclusive and equitable financial system.
How Has The Experience Been for LGBTQ+ Founders When They Interact with the Venture Capital Industry?
In a conversation about the experiences of LGBTQ+ founders, Megan Kashner shares some shocking stories. She recounts instances where the prejudice faced by these founders is blatant. For example, she mentions a trans woman being questioned about her gender by a gender lens fund, a degrading experience that was all too real for one founder.
However, Kashner points out that not all discrimination is so overt. Many LGBTQ+ founders grapple with more subtle forms of bias, internalizing negative messages and questioning the worthiness of their ventures. When the discrimination isn’t obvious, founders often struggle to understand why they can’t access capital like others can.
When a gender lens fund is talking to a trans woman, looks that woman dead in the face and says, “yeah, but are you a real woman?” That’s blatant. That’s overt… And that legit has happened to a founder that we know
Megan Kashner sharing one entrepreneur’s horrific experience.
William Burckart continues the conversation, highlighting how discrimination can intensify when there are multiple dimensions to an individual’s identity. He underscores the fact that personal characteristics – like someone’s hair, clothes, or sexual identification – have no bearing on their ability to build successful businesses. This is a point often overlooked in venture capital circles.
Burckart also notes the importance of creating safe spaces for founders. He shares his experiences of meetings where founders initially feel unsure about how they can present themselves. However, by the end of the meeting, they express their gratitude for the safe space provided and often recommend other founders to speak with him.
Kashner adds that many founders internalize the biases they encounter, which can lead to self-doubt. She mentions numerous conversations with founders who’ve seen others raise money based on less substantial ideas, leading them to question their own worth and potential. The conversation emphasizes the need for change in the venture capital industry, underscoring the importance of ethical values in investment decisions.
How Can A Venture Capital Firm Build An Inclusive Network to Originate Deals?
William Burckart highlighted the importance of collaborating with others in the community, mentioning Bob Dannhauser, a valuable connection who has introduced them to other significant figures like Sloane. They believe that these varied perspectives can help identify more opportunities by intentionally broadening their network..
The role of venture partners is also emphasized, as they source and vet numerous opportunities. Beyond relying on word of mouth and ensuring positive founder experiences, Burckart emphasizes the importance of connecting with other organizations in the LGBTQ+ community.
One such resource is Start Out, an organization that has been instrumental in providing opportunities and insights. Start Out is a significant platform for leaders looking to raise capital, providing a valuable service in an industry where dedicated investment strategies focusing on the LGBTQ+ community are scarce.
Despite the existence of a few dedicated funds like Chasing Rainbows and Pride Fund, Burckart expresses frustration at the limited number of such strategies. He emphasizes the need for more than just lip service and points out the disparity between the number of funds, the amount of assets they manage collectively, and the actual needs of the community.
How Can Being Intentionally Accessible Enable Truly Inclusive Venture Capital Funding?
It’s intriguing to note that if you were to peruse platforms like Crunchbase or PitchBook, which index startups, you’d be able to filter for female founders or companies based in the Midwest. However, it becomes a challenge when trying to sort for LGBTQ identity. An exception worth noting is Crunchbase, who now permits users to self-identify their LGBTQ status.
Yet, even with this option, there are legitimate reasons why some of us, whether founders or investors, might choose not to disclose our LGBTQ status. It’s vital to acknowledge these concerns and respect the personal choices each individual makes.
“But even when we can identify ourselves, there are reasons, true, valid reasons, why we might, as founders, as investors, whomever, we might choose not to check that box.”
Megan Kashner on a central reason why LGBTQ+ Founders are inherently hard to identify.
Contrary to the conventional venture capital (VC) operation, we’ve made it possible for people to reach out directly to us. Our website features a ‘Contact Us’ form and a dedicated email address. This approach is indeed a departure from the norm, where most VC interactions hinge on referrals or connections. But why should we let convention dictate how we connect?
In the typical scenario, when a VC firm attends an event, they will indicate the types of founders they are interested in meeting. The event organizers then facilitate these meetings. Megan Kashner describes a refreshing change at a recent event where founders could reach out directly to her. They could self-identify as a trans founder or a lesbian woman and express their interest in meeting her.
This shift, turning the tables on the traditional power dynamic in capital provision, is revolutionary. Instead of the capital provider controlling access, ventures and founders can self-identify and initiate contact. This transformative approach could revolutionize how matchmaking events operate, and we encourage more of these services to embrace this method.
Are Service Providers Available to Support Inclusive Venture Capital Firms?
Megan Kashner observed that there are significant limits on what she can say because of regulations, but went on to note that establishing a firm, arranging its legal structure, and securing back-office support and vendors have been easier than anticipated. Additionally, attracting interest and fostering collaboration has been relatively straightforward.
“Standing up a firm, getting the legal structure, and getting the right back office and contractor support is actually probably easier than it’s ever been for starting a new VC fund.”
Megan Kashner on how the ecosystem of service providers has enabled new venture capital firms to form.
However, capital access remains a significant hurdle for the entire VC community, with Silicon Valley Bank’s situation having a noticeable impact. Yet, Kashner is optimistic about the future, predicting a windfall for first-time fund managers like Colorful Capital with an explicit commitment to inclusion..
William Burckart reflects on his career advising institutional investors on building strategies centered around impact investment or sustainable finance. He acknowledges the importance of adequately equipping and supporting founders, as their success ultimately benefits the firm. This reciprocal relationship was an aspect he hadn’t fully anticipated.
Burckart alludes to various ways they have had to adapt and show up differently to meet the needs of founders. However, due to certain restrictions, he refrains from sharing specific anecdotes, hinting at the complexities and nuances of operating within the VC space.
What Kind of Outcomes can one Reasonably Expect from Inclusive Venture Capital Firms?
Megan began by underscoring the limitations of venture capital (VC) as a standalone strategy, arguing that while VC is a powerful tool for driving growth, it always ought to be considered as part of a broader, diversified portfolio strategy. She continued by noting that the particular function of Venture Capital is providing access to capital, facilitating growth, and scaling early-stage companies.
By implication, one imagines access to such a resource could be especially significant for LGBTQ individuals who often face structural economic disadvantages.
The intersectionality of identity further compounds these challenges. Kashner cited examples of households led by two women or someone who identifies as LGBTQ and Black. Though material obstacles exists, she points out that owning a business can be a powerful path towards economic mobility.
So if the structural barriers to capital access for these individual can be overcome, the benefits extend beyond individual prosperity. Increased wealth and economic stability for LGBTQ individuals positively impact their employees, communities they operate in, and places where they spend their money, embodying the concept of a ‘rising tide’.
Adding to the discussion, William Burckart introduced the idea of the spectrum of capital. He suggests that different types of capital can drive change in different ways. For instance, public equities can encourage incremental changes in large companies, while venture capital and private equity can instigate revolutionary transformation.
Burckart underscores the importance of recognizing and valuing communities that have been habitually overlooked, such as those that serve the LGBTQ community. He argues that not doing so creates gaps in the economy, leading to missed opportunities. Therefore, from a systems perspective, investors should understand that benefits don’t just come in the form of alpha but also on building the health of the broader economy.
What Additional Resources Can Readers Refer To?
- The Universal Owner’s Role in Sustainable Economic Development” by Jim Hawley and Andrew Williams. This book is mentioned by William Burckart in the conversation.
- The Bridges Fund Management Spectrum of Impact Capital. Megan refers to this as a valuable resource for understanding the range of impact investment strategies.
- Barriers and Exclusion: A Baseline Study of the LGBTQ+ Experience in Venture Funding. Available from the Colorful Capital website.