Co-authored by Lorenzo Thione
Driving diversity and representation in venture capital
Gaingels is an LGBTQIA+/Allies private investment syndicate, and one of the largest and most active private investors dedicated to supporting diversity and inclusion in venture capital. They have a membership of 2,700, and an incredible $600 million has been invested in the three years to January 2022. We asked New York based Managing Director Lorenzo Thione what drives them, and him, forward.
How did Gaingels happen, was there a big idea to begin with?
It really started after I exited the first company I started, called Powerset, which we sold to Microsoft in 2008. I found myself discussing with other LGBTQ founders how there was no way for us to support each other in the way that affinity groups existed for women or ethnic minorities in entrepreneurship. Because of that, we also felt there was a good chance that people were afraid to come out as founders to their investors.
There was no way for us to support each other in the way that affinity groups existed for women or ethnic minorities in entrepreneurship.
In 2008 we founded a non-profit called Start Out, which has over 10,000 members around the country, and is the only network and organization that is really focused on supporting LGBTQ founders and entrepreneurs.
I met David Beatty and Paul Grossinger through that network, and we started talking about how to leverage the resources of the LGBTQ community to invest in the next generation of LGBTQ founders and entrepreneurs. As a non-profit, Start Out wasn't going to do that, so David and Paul set up an angel group called Gaingels that was really supportive and dedicated to the LGBTQ community.
For a few years, it really just amounted to a side project for me – I was mainly focused on developing a Broadway musical. It wasn't really a primary focus for David and Paul either, it was a loose group of angel investors who would see a few opportunities a year, investing exclusively in LGBTQ founders.
So how did you achieve the success with Gaingels that we see today?
The big transition and light bulb went off in 2018. We realized that what we had built with Gaingels was important and interesting to entrepreneurs at later stages, who didn't necessarily need the funding but wanted Gaingels involved because of what it represented.
We can become a partner for diversity in all companies – helping every company we invest in realize that building a diverse and inclusive organization is first and foremost good for business.
We basically said, we can become a partner for diversity in all companies – helping every company we invest in realize that building a diverse and inclusive organization is first and foremost good for business. Also, we could be effectively helpful in bringing talent, in bringing leadership, in bringing board of director leadership, and in bringing capital from diverse capital sources, bringing that diversity on to the capitalization table structure.
That's when our growth really started. We realized that together we can play a meaningful role as investors and partners, being a sounding board for ideas, and a helpful guide when it comes to policies for equal recognition or equality policies and non-discrimination, or DEI in general.
What do you see as major opportunities or challenges going forward?
There are exogenous challenges driven by the macro-economic climate. We need to look at the frothiness and the excitement that has really marked venture in the last year or so. You're going to see a lot of companies that didn't raise enough money at a low enough valuation and they are needing to prove themselves way beyond where they are in the market.
Another issue to face is that inflation and the overall economy might drive down consumption, so you might actually have a cycle of recession where businesses that were actually doing really great are not as strong and are now trying to prove themselves into valuation because they can't grow their revenue as fast, or at all. That will create a lot of issues within venture, and we're starting to see indicators in the public markets of what is going to happen in the private market.
That is also going to create a lot of opportunities for investors that are disciplined to come in at much more reasonable valuations and build value from a head-start position, but from our point of view, it's certainly going to be a challenge to continue to grow in a market that is definitely less excited than it was in the last couple of years.
Internally, we are making sure that we can continue to deliver on that premise of being a really valuable partner to each one of our portfolio companies, current or future, even as we increase the size of our portfolio.
Given the macro-economic environment, do you think having a specific focus on D&I in venture has become more challenging?
In order to succeed, any organization needs to know what it stands for, and you need to really be able to communicate to your stakeholders why they should work with you.
We always have been very focused that our mission was to bring about social change and create more equality and access for all people. Now there is an increase in understanding why having more diverse and inclusive leadership structures and organizations and capital structures is good for business. There's more data on it, and people are paying attention. I think that timing has been on our side and we have been given access to an opportunity.
We also felt there was a good chance that people were afraid to come out as founders to their investors.
Growing in a down market is always challenging, but there has never been a better time to deliver value to our portfolio as investors focused on diversity and inclusion. ESG mandates are everywhere, and we have the execution to back our mission, we're not just paying lip service to it.
A key point is that the model that we've chosen tries to not be competitive with other investors and really be additive, and so we are follow-on only, as investors, and we seek to be flexible within our structure. Sometimes we are a small piece of a very large funding round and that's OK, because we still get to build that relationship and make an impact on that organization.
That makes us less threatening, and therefore much more likely to build a collaborative environment with a much broader ecosystem where people are really smart and have been doing this for a very long time.
In terms of the LGBTQ+ successes that you've had, what makes you feel particularly proud?
There's a lot! I remember many years ago thinking,
"I wish the work that we're doing might lead
to LGBT founders taking their company public and being
publicly listed CEOs and leaders of organizations getting wide
exposure and recognition". And that is happening.
We're funding companies from very, very early on with diverse founders that go on to build massively valuable businesses. Companies that recognise there is more to diversity than hiring a chief diversity officer and making sure that their staff is multi-coloured enough, and instead working to create a culture of inclusivity where voices are listened to, and every decision that company has made is in the broader context of who did they speak to and who is going to listen and who is going to read their words or their message and so on. We are seeing that happen.
There is a growing number of companies who recognize and value this. It's obviously not Gaingels' sole credit, but it's really working in concert with so many other things happening at a macro-level and the fact that people want to partner with us, that they value what we do and stand for, that is certainly a source of great pride.
The last thing, especially in the last year or so, we started realising that Gaingels has a reputation for being a very valuable investor. I'm just really glad every time someone says, "I've heard so many great things about the organization and working with you".
This interview will go out during Pride month, and I wondered what Pride means to you?
I feel like Pride is a moment to celebrate representation, because there is no more powerful force for change than representation. When people see themselves reflected in the kind of future they want to build for themselves, through the eyes of someone that looks like them, or comes from the same neighbourhood, or has had the same life experiences, that's when they know it's possible and that leads them to actively work to make their aspirations come true. Until they know that it is possible, things don't happen.
One of the most recent projects that we've launched is called 'Gaingels 100', a book and an online directory of 100 amazing LGBTQ venture-backed founders who are an incredibly impressive and diverse group of people. The idea is to elevate their stories in a way that makes everybody who recognises themselves in those experiences, in that background, in those ideas, to feel like they too can dream to do the same. We are so proud of this project, and of the pride it in turns instils in the people it will reach.
When people see themselves reflected in the kind of future they want to build for themselves, through the eyes of someone that looks like them, or comes from the same neighbourhood, or has had the same life experiences, that's when they know it's possible.
What gets you out of bed in the morning?
That also changes over time but generally speaking, if I have made a commitment to something I have an inner sense of needing to not only see it through but to really give the best I can to it.
I also have a real need to learn, and to interact with people. So many of the things that I have done are about me going into something I have never done before because it is an opportunity to work with new people and learn from them about new constraints and a new industry and I think that that will probably always be the case for me. I can't imagine that I would just stick to the same thing for decades.
It is so much more about the process and the journey than it is about the destination and the outcome.
Do you have a guiding principle that you live by?
At the risk of sounding schmaltzy, I think it's important to choose to do what generates happiness in you at any given point in time, if you can. If something gives you joy regardless of what other people say about it or whether they think it is a smart way of spending your money or your time or your effort, I just throw myself in it, and don't worry too much about what might come from it because it is so much more about the process and the journey than it is about the destination and the outcome.
Visit the Gaingels website.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.