gaingels

On this episode of Office Hours, Spencer speaks with entrepreneur and venture investor David Beatty. Beatty is the managing partner and co-founder of Gaingels, an LGBTQIA+ investment syndicate aimed at fostering social change through their investment portfolios by creating a more diverse, inclusive and accessible venture capital ecosystem.

Their conversation was recorded at the Milken Institute Global Conference on May 2, 2022.

Beatty moved to the United States in 1990, where he started several successful businesses, including one involved in now-ancient fax and Telex technology. He retired in 2006, became an angel investor and eight years later, he decided to focus his investing efforts.

“In 2014, I started Gaingels with my co-founder, Paul [Grossinger], because there was nowhere for us as gay men to be able to invest in our own community,” he said.

The syndicate started out as “a group of mostly gay men, investing in mostly gay men,” Beatty said, adding that it has since expanded to include investors from a number of backgrounds, with the aim of promoting greater diversity to the startup and venture capital worlds.

Beatty argues that Gaingels' commitment to diversity, equity and inclusion goes beyond the obvious moral considerations — it’s sound business.

“It's not that it matters because it's the right thing to do,” he said. “It matters because companies like McKinsey and organizations like Harvard University have done so many studies that say that companies with diverse management teams and diverse boards fiscally outperform companies that don't.”

The organization’s structure — it’s a syndicate, not a fund — is crucial, he added. For every potential deal, Gaingels receives an allocation from the prospective company’s CEO, which can depend on the stage of the deal.

“And then we bring it to our members, and our members choose which deal that they wish to invest in,” he said. “And we put together a special purpose LLC for that. And then we do the work to enable that LLC to make that investment.”

Gaingels' membership has since expanded to 2,700, and the organization has invested in thousands of companies, according to its website. Pitchbook and CrunchBase have both recognized it as the among the most active venture capital firms in 2021, Beatty said.

“What it's doing is it's opening up this whole world of previously unavailable investment opportunities to individuals," he added. "And our focus is expanding the number of members we have to minorities from right across the board, not just the LGBTQ-plus community.”

Prospective portfolio company CEOs are asked to sign Gaingels letter, of commitment to do certain things in their hiring and HR practices—for instance, considering a non-discrimination policy and pledging to seek out qualified minority candidates for every executive job opportunity—that put them on a good footing for hiring and supporting an inclusive staff.

“—which you may think is a very simple thing,” Beatty said. “But when you know that you can get evicted from your house in 28 states in the United States just for being gay. These kinds of things actually matter when they come from companies.”

Aside from access to capital, Gaingels portfolio companies get access to a more diverse set of investors and get to the syndicate’s network of expertise and tools for hiring, including its jobs portal.

“We're now expanding that to use technologies with the partners who can bring in recruiters who can actually specialize in recruiting from minorities, so that we can actually provide more resources,” Beatty added.

The goal, he said, is to make it as easy as possible for executives of their portfolio companies to hire qualified candidates from traditionally underrepresented groups.

“It's amazing to me how pretty much all of the top venture capital firms want us to be co investors on their cap tables, because of what we can help them focus on,“ he said.