So it is entirely possible that merely being a member of the LGBT community may impact the performance of one’s entrepreneurial venture.
Location and migration
It is clear from the research that being LGBT also impacts where entrepreneurs choose to start their companies. There is a distinct migration away from intolerant locales toward states and cities with prodiversity policies and cultures. In our sample, states such as Arizona, Florida, Georgia, Missouri, New Mexico, Pennsylvania, South Carolina, and Tennessee lost most or all of their LGBT then-would-be entrepreneurs before these people established their companies.
In general, entrepreneurs are 12 times more likely than the average American to relocate to Washington, DC; for LGBT entrepreneurs, it’s double that. This pattern repeats across many states that are more progressive, despite the higher costs and often-stricter business regulations found there. LGBT entrepreneurs are almost four times as likely to move to California. They are 260 percent more likely to go to Massachusetts, 230 percent more likely to go to New York, and 221 percent more likely to go to Colorado.
This is definitely a diversity issue, not an entrepreneurship one. Fast Company’s research ranked the top five states for innovation, factoring in the number of start-ups per capita, the health of young firms, and the number of jobs created, among other things. Florida, Texas, Maryland, Arizona, and Alaska lead the list.
California comes in sixth. From sheer volume perspective, the top five states for new company launches in 2015 were California, Florida, Texas, New York, and Pennsylvania. LGBT entrepreneurs are not leaving because of a lack of entrepreneurial activity in their states.
What about funding potential?
When we compare the amount of angel and venture funding to where businesses in our sample are headquartered, we see that the LGBT entrepreneurs are not chasing capital. A disproportionate number of them are in New York, which sees much lower venture-capital and angel investment, relatively speaking.
This indicates that diversity and tolerance seem to motivate the entrepreneur’s location. However, for the 10 percent of entrepreneurs in our sample who moved their headquarters to a different state, LGBT friendliness is rarely the stated driver. While 78 percent of these entrepreneurs chose to move to California, New York, or Illinois, the most frequently cited reasons for making the move were economic drivers—although it is hard to imagine someone moving to California or New York to be in a cheaper location!
Nevertheless, 84 percent of the companies represented in our survey were located in cities that receive a perfect score on the Human Rights Campaign’s Municipal Equality Index, which factors in nondiscrimination laws, equality of employee benefits, and community relationships with the LGBT community.
Someone can choose an LGBT-friendly location to start a venture without necessarily publicly identifying with the LGBT community. But our report revealed two critical dimensions on which being out is relevant: the investor relationship and diversity benefits.