LGBTQ Led Food And Beverage Companies Are Still Grossly Underfunded Even As Diversity Discussion Heats Up

The difficulty of seeking capital as women and entrepreneurs of color is well documented: 17% of venture money went to companies with at least one female founder and only around 3% went to Black and Latinx founders, recent PitchBook data showed. Venture capitalists are taking note, pledging to increase diversity more proactively not only within their workforce, but investments they’re making as well.

But even as diversity investing accelerates overtime, the LGBTQ+ sector is still grossly missing out from the conversation — many blame a hyper-masculine VC environment where founders are not comfortable disclosing their identities, fearing their leadership skills and credibility could be questioned, hence further causing a shortage of market data.

Backstage Capital estimated LGBTQ+ startup founders received less than 1% of VC funding, and more than a third chose to hide their sexual orientation during fundraising, according to a survey from nonprofit Start Out.

This scenario is all too familiar with Nick Naclerio, founder of functional cookie company Mmmly, who noted how, as a gay man, he often had to “lower the volume” on parts his personality traits, and intentionally conform to largely older straight men’s communication methods and their professional business archetype when raising capital.

“I focused on being gender neutral in terms of expression and tonality. At the core of this was self-protection,” Naclerio said. “I definitely didn’t feel comfortable being myself with a large portion of investors I interacted with… If I was myself with 80% of these groups and individuals, I doubt I’d be where I am right now in terms of progress and funds raised. I’m not very feminine, but when unfiltered, I’m pretty animated.”

So what’s the fundamental issue here that has made fundraising an arduous task for sexual minorities? How do the nuances of sexual orientation-based discrimination play out during fundraising? 

Too Niche To Invest? Think Again

“Most of the pushback I hear from investors around LGBTQ founders or markets, especially those looking at companies at the pre-seed and seed stage, is that the total addressable market is too small,” Arlan Hamilton, founder and managing partner of Backstage Capital, recently told me. 

This type of feedback, however, shows a lack of research and is oftentimes an excuse to “remain blissfully ignorant,” Hamilton explained, noting how 10% of their portfolio is currently led by openly identified LGBTQ founders.

Indeed, many LGBTQ food and beverage founders are frustrated that queer culture-focused products are either viewed as once-a-year thing for the Pride Month, or designed only towards their community. “I see so many products come across my desk each year with a rainbow slapped across the label and it just feels so disingenuous,” said Tim Chan, who cofounded So Gay Rosé with Josh Campbell. 

Gefen Skolnick, founder of Couplet Coffee, also argued that LGBTQ culture-focused brands are actually more inclusive by nature, which “fosters more community amongst those who are our allies and those who love funky, colorful branding.” 

That has helped her business, one of the Backstage Capital’s portfolio companies, widen its audience reach significantly, Skolnick said.

“We want people to know that there is actually a gay founder behind So Gay Rosé and we’re not here to rainbow wash or make a quick buck from the community, but rather to empower and give back,” Chan added. Bootstrapping with $10,000, the duo has raised $2.5 million from mostly white male investors, but quickly attracted interest from LGBTQ investors too after setting up their DTC sales channel.

“Our initial investors include Jonathan Mildenhall, a former CMO of Airbnb and SVP at Coca-Cola
KO
, along with his husband Mirco Gros; Gayle Troberman, the CMO of iHeartMedia and her wife Sue Turner; and a group of investors from the Gaingels, an LGBTQ investment syndicate,” said Chan.

“It was important for us to raise our initial round of funding from the LGBTQ community, and we’re proud to say that we are one of the only brands to have done so.”

Pervasive Misogyny And Intersectionality 

For CPG entrepreneurs who are both female and LGBTQ, raising capital could be more daunting, as Hamilton explained: “I think like many things, discrimination or overlooking LGBTQ entrepreneurs starts with misogyny which is pervasive throughout VC in general.”

Suzie Yorke, founder of Love Good Fats who describes herself as an “out and proud lesbian” working in CPG as a marketing executive for over two decades, said she has always been the only LGBTQ woman at the table to raise money for her keto-friendly snack company.

“With fundraising,” Yorke said, “from what the incubators and mentors have shared — it’s about building trust in the idea, the brand and the CEO — and with intersectionality, mostly white men on the other side of the table cutting the checks, it’s just a tougher dynamic.”

That’s because, she explained: “If you’re different than the predominant white privileged successful career men — either because of your age, sex, sexuality, culture or other biases — it’s a bit harder for them to relate, to understand, to be understood, and build the connection needed to get the support to raise funds.”

Other risks for queer women founders are that they’re more likely to experience rejection and questioned social norms, Coolhaus’s founder Natasha Case believes, although these could sometimes serve as an advantage for entrepreneurship.

“Straight women are more likely to be marginalized because for gay women, there is often a non-threatening relationship with men, so there’s more access [to resources],” Case said.

The key takeaway from positioning as a minority-owned brand is to have a unique story and an edge for disruption, Case believes. “I think there has been a shift towards focus on underrepresented founders, which is fantastic, and it’s undeniable that capitalism drives a lot of it,” she said.

“I think folks have come to believe that there is a business value in diverse-founded companies, so there is money there to put toward it. This will definitely change the landscape of companies, and we can build better businesses with this thesis.”