Asset Management CultureMarch 7, 2024

More Diverse Managers Are Raising Venture and PE Funds at Fastest Pace, Research Finds

The number of women- and minority-owned private equity and venture capital firms in the US grew nearly 20% from 2022 to 2023.

Reported by Matt Toledo

There were 907 women- and minority-owned private equity and venture capital firms in the U.S. by the end of 2023, according to Fairview Capital’s 2023 market review. The $10 billion asset manager has conducted the annual survey of diverse managers since 2014, when there were only 100 such firms in the market.

Fairview counts women- and minority-owned firms as those that are at least 50% owned by people from these groups.

The report’s findings include:

Diverse managers in VC and PE grew to 907 at the end of 2023 from 760 at the end of 2022;
Those raising capital increased to 417 from 346;
The median fund size target of these managers was $100 million; and
50% of funds were continuing funding rounds that began in 2022.

“We find that the increase in diverse talent is continuing to drive consistent growth in the community of woman- and minority-owned firms, despite significant underrepresentation in the market overall,” said Aakar Vachhani, Fairview Capital’s managing partner, in a statement. “While the data makes it clear that the opportunity set of woman- and minority-owned firms remains dynamic, we are observing some limited partners gravitate to the perceived safety of larger, more tenured firms.”

VC Firms Growing Fastest

“The investment opportunity with [minority]-owned firms continues to be dominated by venture capital,” the report stated. Fairview wrote that barriers to entry are lower in VC for diverse managers, leading to higher growth for these managers.

According to the report, growth in women- and minority-owned venture capital firms has outpaced growth in buyout and growth equity firms. From 2014 to 2023, the number of growth funds grew 3.7 times, which lagged behind the growth of diverse managers (9.4 times) and venture capital firms (16.7 times).

Of diverse managers listed in the report, 72% were managers of venture capital firms, with the rest working on buyout, growth and credit-related strategies.

Underrepresentation of diverse managers in buyouts and growth equity correlated to the size of the funds needed in the different strategies. Many diverse managers are raising smaller funds, while growth equity and buyout funds often write larger checks and raise larger funds and require significant up-front investment, the report stated.

According to Fairview, track records are harder to generate for diverse managers in buyouts and growth equity; the firm noted that these managers have more success building track records in VC through smaller “proof of concept” funds and through angel investing, which have lower barriers to entry, according to Fairview.

Troubles Amid a Volatile Market

While Fairview has published the annual report for a decade, it has been an active investor in diverse-managed firms for 30 years. The firm noted that diverse managers tend to be more impacted by market sentiment shifts.

“In uncertain times, [LPs] tend to take a flight to perceived safety in larger and more tenured firms; it appears this time is no different,” the report stated.