I recently received an interesting press release from Galileo Capital Management, a respected UK investment fund group. On February 2, 2010, Galileo announced the launch of a Lesbian, Gay, Bisexual and Transsexual (LGBT) specialist unit that will provide "corporate advisory and business development services for companies that serve the LGBT consumer sector." The press release specifically mentioned China as a target market.
Galileo gave two primary business justifications for the expansion. First, "the power of the pink dollar" is becoming increasingly important. Second, the firm believes that LGBT companies suffer from a lack of good advice and access to capital because of their "secretive" nature.
The power of the pink dollar is one thing, but the power of the pink business case seems fairly weak, especially in China. Here’s what Paul Thompson, co-founder of LGBT Capital, had to say about the plan: “LGBT-oriented business owners often have the desire to expand, but also frequently lack the expertise, correct capital structure or know-how to access funding.” This logic is both dubious and insulting. Are gay people less capable of writing business plans and loan applications? In China, access to capital is indeed subject to discrimination, but usually on the basis of political connections, not lifestyle.
Secondly, why would a company selling products that are popular with Chinese LGBT customers differ from regular companies? Do LGBTs prefer to buy gay cars, gay toilet paper, gay televisions? The founders mentioned a LGBT resort that failed due to lack of investor interest – the assumption being that had it been a straight resort, it would have succeeded. Perhaps. Or perhaps this isn’t the year to be raising capital for resorts. But apart from that, the argument presumes the existence of a vast difference in consumer product preference that requires a separate constellation of specialized LGBT firms.
Yes, gay people are still discriminated against, in particular in China, where the recent gay pageant was canceled by police an hour before it opened, and the opening of a gay bar in Dali postponed. In 2001, homosexuality was considered a mental illness; in 1997 it was a crime. It is unlikely, therefore, that a LGBT resort would be allowed to open here, no matter how well advised and funded. It’s not that gay entrepreneurs can’t get funding, it’s that their target market can’t risk buying gay-specific products.
Still, the thesis seems to be that homosexuals are discriminated against economically, and that has some serious flaws. For example, Richard Florida, a professor of regional development, recently wrote a famous book, The Rise of the Creative Class, in which he shows a correlation between high gay populations and high levels of economic development in US cities, which he called the Gay Index. I don’t think that sexual preference has anywhere near the influence on economic opportunity that race or social class do; the gay people in Florida’s gay index are, for the most part, college-educated and white. In China there is no such index, as the bulk of Chinese homosexuals remain quite rationally in the closet – but it seems safe to presume that the gay son of a powerful politician or general will still have better access to capital than the gay daughter of a migrant worker.
I doubt that this new venture will get much traction anywhere, although it is interesting CSR. But to try to bring it to China, given the attitudes here, seems especially ill-advised. The companies here that produce products solely for the LGBT community – if they exist – are far, far underground, and are highly unlikely to self-identify by visiting the Galileo LGBT fund offices. To protect their privacy, Galileo will need to conceal information about them, which is bad for corporate transparency, and which in turn puts off investors. As for foreign firms trying to target Chinese LGBT consumers, I’m baffled about what they can legally sell here. There is enough difficulty finding and funding good private companies here without putting a sexual preference checkbox on a form. Isn’t that what we are trying to move away from?