When we announced in August 2024 that Colorful Capital would stop our forward progress, we said almost nothing publicly, declining comment. We didn’t need to say much, because the market was saying it for us, loud and clear.
We launched Colorful Capital in 2022, driven by a conviction about the systems holding LGBTQIA+ founders back. That year, LGBTQIA+ founders received less than 0.5% of venture funding. And LGBTQIA+ individuals faced legally sanctioned discrimination in credit, housing and employment across more than half of US states. These weren’t social problems that persisted adjacent to capital markets. They were capital market problems, embedded and emboldened in the systems through which capital flows and value is measured.
Our core question was simple, if uncomfortable: What happens when you look at LGBTQIA+ inequity through the lens of capital markets? The answer, illuminated thanks to William’s years of work on The Investment Integration Project, was that LGBTQIA+ exclusion represents a form of systemic risk.
When investors internalize gains while externalizing costs onto communities, they don’t just overlook value — they shape the system. In this case, the system in question constrains entire swaths of the population from participating fully in the economy. When the costs of those exclusions compound over generations through what the economist Lee Badgett describes as a reinforcing cascade — from school bullying to lower graduation rates to limited employment to constrained access to capital — the economic loss is real, even when our models fail to measure it.
In building Colorful Capital, we were building more than a VC firm. We were building a model to demonstrate that looking at this particular systemic issue through a capital markets lens — from its costs to its overlooked opportunities — could unlock impact, returns and a reinforcing upwards cascade.
The danger of unrealized fragility
By 2024, it looked like the conditions for systems change in capital markets’ relationship to LGBTQIA+ equity might finally be taking shape. That June, a group of venture investors, advocates and entrepreneurs gathered at the White House to engage the administration directly on LGBTQIA+ capital access. It felt like momentum, and the system seemed to be moving in the right direction.
Looking back, we know now how fragile that moment was. We were raising the money, all the way up until we weren’t.
The contributing factors aren’t hard to identify. The market shifted quickly, and we found ourselves facing one of the worst fundraising environments for managers, especially emerging managers, in a generation. Next, the political backlash against DEI-oriented investing accelerated exponentially, sparking fear. LPs who had planned to invest quietly withdrew as the political winds shifted. The environment for LGBTQIA+-focused capital formation, which had felt bolstered and celebrated at the White House in June, became eerily quiet and vacant.
The system was system-ing. What we encountered wasn’t simply a bad moment. It was a system that selectively absorbed some signals and filtered others out. The capital market infrastructure for LGBTQIA+ investing — the data, the LP familiarity, the field-level support, the track record that breeds confidence — didn’t exist in sufficient depth to withstand the headwinds. We were trying to build on a landscape still in formation.
In a consolidating market — one facing any number of onslaughts — that was not a tenable position. The necessary grounding to withstand the wave of negative sentiment and hostility was simply not there.
Policy and practice require intention and action
The CFA Institute, in a recent report on complex systems and investment management, notes that capital markets behave as complex adaptive systems. They evolve, adapt and can experience rapid phase transitions in either direction. And what looks like a setback can, if understood correctly, create the conditions for more durable progress.
Colorful Capital’s demise is, in that frame, informative rather than terminal. It illuminates gaps, frailties, strengths, potential and fissures.
A systems lens on investment views LGBTQIA+ exclusion — and any identity-based exclusion — as a source of systemic risk affecting productivity, innovation and long-term economic performance in ways that prevailing models consistently undervalue. The market fails to price this not because the risk isn’t real, but because the data infrastructure doesn’t yet exist to make it visible. And without visible data, coordinated action is impossible.
The gaps are specific and structural. For example, the US Census and the American Community Survey still only collect data on married or cohabiting same-sex couples — meaning that single LGBTQIA+ individuals have no data demarcation at all. That which cannot be seen cannot be addressed.
Investor engagement on policy is not optional. Active, deliberate participation in the public policy debates that shape capital markets is central to investor strategy. That means pressing for SEC data infrastructure on LGBTQIA+ economic engagement. It means demanding the same for all identity-related data across public and private systems. It means advocating for anti-discrimination protections in credit and lending, and for accreditation pathways for underrepresented investor communities. It means setting system-level goals — around capital access, corporate equity and financial inclusion — and holding ourselves accountable to them. The change we want to see requires us to advocate, press and insist on it.
Our question still demands an answer
Tim Cook wrote in 2014 that we pave the sunlit path toward justice together, brick by brick. That phrase became the inspiration for the op-ed we wrote when we launched Colorful Capital.
Investors who see the path not as a linear progression but as a complex, nonlinear process requiring sustained, strategic and sometimes uncomfortable engagement are the ones who will move markets.
The odds turned against Colorful Capital, but the question we were asking — What happens when you look at LGBTQIA+ inequity through the lens of capital markets? — remains the right question. It’s a question that still demands an answer.
William Burckart is the CEO of The Investment Integration Project, an adjunct professor at Columbia University, and co-founder of Colorful Capital.
Megan Kashner is the director of social impact and sustainability at the Kellogg School of Management at Northwestern University and co-founder of Colorful Capital.
Guest posts on ImpactAlpha represent the opinions of their authors and do not necessarily reflect the views of ImpactAlpha.
