Niche Focus

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Niche Focus
Community Connections: VentureOut founder Greg Wiles at the venture capital firm’s headquarters in West Hollywood.

Greg Wiles was carving powder on the slopes during Aspen Gay Ski Week with some of his Harvard Business School buddies. He was struck by how many other people he met in the lift lines were starting their own companies and looking for funding. That was in January.

Since then, he’s been setting up his West Hollywood-based venture capital fund called VentureOut, which will invest in LGBT entrepreneurs and management teams.

“What we’re trying to do is invest in gay folks who are very capable and have great business ideas, but who may not be getting the capital they need because they don’t have the connections,” Wiles said. “We believe very strongly that the market’s not efficient and this is the way to level the playing field.”

Many of the people he met on the slopes told him they were finding it hard to relate to the typical venture capitalist.

Wiles, 29, said people invest in what they know. So investors who are straight, white and male tend to bet on founders who are straight, white and male. But he finds it preposterous to assume that demographic has the monopoly on good ideas.

“A lot of times, the role of the VC is kind of like the chief psychologist for the entrepreneur,” Wiles said. “And when you feel that person doesn’t really understand the personal life that you lead, it can actually be a detriment.”

Wiles felt like he could become a venture capitalist to bridge the gap between the LGBT community and corporate financing. As an openly gay former associate at Santa Monica private equity fund U.S. Renewables Group, he had a foot in each world. After mulling over the idea with some friends, he decided to put this thesis to the test by raising capital and meeting with LGBT entrepreneurs.

He spent a few months putting together the business plan and networking. During that time, he met Shereen Shermak, chief executive of Launch Angels, a Boston firm that specializes in crowdfunded equity investments. Shermak had independently thought of doing something similar, so the two agreed to join forces and raise a $2 million fund.

Wiles will serve as the fund’s managing director and will be based in West Hollywood. He hopes to close the fund in October and start putting money to work immediately. He has already identified several target companies.

His old boss, who recently gave Wiles some pointers on how to improve his pitch book, has a lot of faith in his former protégé.

“I am confident his fund will be successful,” said Jim McDermott, a managing director at Renewables.

Green manager

Wiles notes that his biggest hurdle has been convincing prospective investors to take a chance on a new manager trying an unproven concept. Most first-time funds fail, so it’s on Wiles to convince investors that he’s the exception.

“It’s a risky investment,” he acknowledged.

A 2006 Duke University study found that the strongest predictor of success for an early stage fund is having management with venture investing experience combined with at least one VC who had founded or run a startup. Wiles has not done that, so he’s appointed experienced entrepreneurs to his board, such as Heidi E. Lehmann, co-founder of digital entertainment company MoxieQ in New York, and Michael Collins, who started Boston employment services firm NextHire.

There’s also the fact that VentureOut is the first known fund dedicated to LGBT-founded businesses, and there’s no success story yet. Many investors feel like restricting a fund to a certain niche of the market limits opportunity.

Some of this pushback against investing exclusively in LGBT companies comes from an unlikely place: the gay community. Although Wiles said that VentureOut has received most of its funding commitments to date from other LGBT execs, some of them aren’t as enthusiastic as he is about flying that flag so proudly.

“A lot of people who are LGBT and are now very wealthy these days made their money when they were in the closet,” Wiles said. “They weren’t out at work and I think the attitude may tend to be, ‘Well, I succeeded without being out of the closet, and I separated my personal and professional life. So why are you trying to link these things together?’ It’s an interesting perspective that I try to fight against when I’m in a pitch meeting.”

Wiles believes there’s a real economic opportunity in combining his business experience and LGBT network. He thinks VCs have overlooked gay entrepreneurs – to their detriment.

“A lot of venture capitalists will sit there and tell you that they think the venture market is perfectly efficient,” he said. “In other words, the best entrepreneurs and the best ideas are getting funded. I think that’s absolutely not the case.”

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