Berlin-based VC fund identity.vc has raised €15m of a target €50m fund to back LGBTQ+ entrepreneurs — a first fund of its kind in European tech.
The firm will write cheques of €250k- €1.5m into roughly 25 pre-seed to Series A companies. 50% of the fund is saved for follow-on investments.
An estimated 15% of startups in Europe have an LGBTQ+ founder, according to identity.vc — but accessing capital isn’t always straightforward. A report by Proud Ventures, a UK collective of LGBTQ+ investors, found that 35% of founders thought their ability to raise capital had been affected by their LGBTQ+ identity.
Til Klein, founding partner of identity.vc and a former fintech founder, says the problem isn’t that LGBTQ+ founders always struggle to raise funding; it’s the fact that 75% of founders don’t reveal their sexual orientation to investors.
“We think that’s a problem because they shouldn’t hide that,” he says. “It’s not good that you invest any energy into hiding something rather than being yourself and using your energy for your company.”
“It also kind of holds back the relationship between the investor and founder,” he adds.” It should be a trusted relationship. And if you hide part of your life then I have some doubts that that is a trusted relationship.”
It’s kind of this: make it more explicit, talk about it, so that maybe in 10 years, it’s not a topic anymore.
Identity.vc felt there was a need for an LGBTQ+ focused fund in Europe to encourage founders to be open about their identity. “It’s kind of this: make it more explicit, talk about it, so that maybe in 10 years, it’s not a topic anymore,” says Klein.
The investment thesis
Identity.vc invests in startups that have LGBTQ+ representation in the leadership team, as long as they have equity in the company.
It extended its criteria beyond founders, says Klein, as sometimes people join a startup later and become instrumental in its success, but they haven’t been on the original founding team.
Identity.vc focuses mainly on European startups, but it can make up to a third of its investments outside the continent.
The firm is sector-agnostic, but it focuses on key trends that are “shaping our future,” says Klein, such as AI, sustainability, demographic change and security.
It’s already made four investments out of the fund including Berlin-based AI solution Frontnow, which optimises pre-sales in e-commerce; Omni, which offers vegan dog food and cultivated cat food; and Paxton.AI, an AI legal assistant facilitating research and document drafting.
Identity.vc is not the only LGBTQ+ group out there; there’s US angel syndicate Gaingels, LGBTQ+ network Out Investors (also US-based, but it expanded to the DACH region last month) and i3 investing, a UK-based angel syndicate investing in LGBTQ+ and intersectional founders.
But not every LGBTQ+ initiative, especially in Europe, deploys capital, says Klein.
“We want to create an opportunity where you can put your money where your mouth is, and this is also the reason why we decided to raise, let’s say, a sizeable fund,” he says.
“It’s very important to have a lot of smaller initiatives,” he adds, “and we hope we can be a catalyst and give them a bit of a push.”
Fostering closer founder-investor relationships
VC firms could do more to build closer relationships with founders, so that LGBTQ+ entrepreneurs feel comfortable disclosing their identity, says Klein.
As it stands, conversations around the personal life of founders are not happening enough. Klein gives the example that fellow investors are willing to share deals with Identity.vc, but are often not certain whether the person is LGBTQ+.
“Which brings me to a very interesting discussion because I typically ask them, but do you know if a founder is married or has two children? And they say yes. So there obviously is a bias.”
As part of its investment process, Identity.vc organises a dinner with the leadership team to not only talk with founders about business, but about their hobbies and where they grew up in order for more personal conversations to arise naturally — and he encourages other VCs to do the same.
“It’s important,” says Klein, “because at the beginning of an investment relationship, you’re in the honeymoon phase, it’s easy, but there are some tougher phases coming and they’re coming for sure. And then it’s good that you have a trusted relationship.”
For identity.vc, generating returns for LPs will naturally be a measure of the fund’s success. But Klein says creating role models of successful LGBTQ+ entrepreneurs is important to inspire the next generation of founders.
Building more dedicated funds is important at this stage to encourage change in the industry, says Klein.
“We’re the first in Europe, but we hope there will be more (funds) coming.”
Read the orginal article: https://sifted.eu/articles/identity-vc-lgbtq/
