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Fairview Capital’s 2023 Market Review of Woman and Minority-Owned Private Equity and Venture Capital Firms Released

Fairview Capital Unveils 2023 Market Review; Woman and Minority-Owned Private Equity and Venture Capital Firms Enter A New Era of Resilience

This annual report offers insights into the growth and resilience of women and minority-owned investment firms despite significant economic volatility, geopolitical conflicts, and setbacks for diversity, equity, and inclusion initiatives.

Fairview Capital, a minority-owned venture capital and private equity investment management firm in the United States, released its 2023 Market Review of Woman and Minority-Owned Private Equity and Venture Capital Firms. This annual report offers insights into the growth and resilience of women and minority-owned investment firms despite significant economic volatility, geopolitical conflicts, and setbacks for diversity, equity, and inclusion initiatives.

This year’s report shows a significant expansion in the universe of women and minority-owned firms, reaching a new high of 907 firms in 2023, up from 760 firms at the close of 2022. This signifies a growth trajectory, as the universe of diverse firms has expanded nine fold since 2014, when Fairview initially started reporting this data. In 2023, a record 230 first-time woman and minority-owned firms were in the market raising capital, representing 55% of the 417 woman and minority-owned firms in the market. This continued growth in women and minority-owned firms is driven by the persistent rise of diverse talent in the industry, with many managers possessing a strong conviction to launch their own firms.

“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, Managing Partner at Fairview Capital. “While the data makes it clear that the opportunity set of women and minority-owned firms remains dynamic, we are observing some limited partners gravitate to the perceived safety of larger, more tenured firms.”

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Key Findings from Fairview Capital’s 2023 Market Review include:

  • Resilient firm formation: In 2023, a record-high 230 first-time woman and minority-owned firms were in the market raising capital, representing 55% of the 417 woman and minority-owned firms in the market.
  • Lengthened fundraising timelines: This year’s findings also signalled that the fundraising processes are taking longer. In 2023, approximately 50% of the funds in the market were continuing fundraisers that started in 2022. Nearly 51% of these firms were raising first-time funds and 49% were raising successor funds.
  • Small fund size targets: The median target fund size for women and minority-owned firms was $100 million, consistent with the prior two years and below the industry-wide median fund size which increased to $228.9 million, resulting in the largest gap ever observed by Fairview.
  • Opportunity in venture capital: In 2023, 72% of women and minority-owned firms were raising venture capital funds, down slightly from 75% in 2022.
  • Growth equity and buyout strategies growing slowly: In 2023, buyout funds represented 15% of the funds sponsored in the market by diverse managers, the highest proportion since 2019.

“The universe of women and minority-owned firms is experiencing sustained growth despite significant economic volatility and uncertainty in the market,” said Kwesi Quaye, Partner at Fairview Capital. “With an unprecedented number of talented and experienced diverse firms in the market, we continue to believe institutional investors who establish and maintain an authentic, programmatic approach to investing with diverse managers can benefit from the powerful combination of meaningful outperformance and long-term stakeholder value.”

Demographic-Specific Challenges and Opportunities:

A Growing Proportion of African-American-Owned Firms are Raising Subsequent Funds: There were 154 African-American-owned firms in the market in 2023, a 26% increase over the prior year. Approximately 69% of African-American firms in the market were raising a first-time fund, which is down from 75% in 2022. More African-Americans were raising subsequent funds, an early indication of the emergence of more enduring African-American-owned firms.

Expansion of Asian-American-Owned Firms:

In 2023, there were 61 first-time Asian-American-owned firms in the market, a record and a 9% increase from the prior year. 53% of Asian-American-owned firms in the market were raising a subsequent fund, and notably 26% were raising a third institutional fund or higher. Despite the majority of Asian-American-owned firms in market in 2023 raising a subsequent fund, the median target fund size was $100 million, down from $115 million in the prior year.

Latinx Firms Remain Underrepresented But Are Often Raising a Subsequent Fund:

In 2023, 52 Latinx-owned firms were in the market during the year. This is a 21% increase compared to the prior year. Notably, 44% of Latinx firms in the market were raising a subsequent fund, indicating the continued development of firms. Regarding fund sizes, Latinx-owned firms are targeting a median fund size of $100 million, in line with the broader universe of women and minority-owned firms.

While Woman-Owned Firms Continue to Grow, Minority Woman-Owned Firms Face Greater Challenges

  • The number of women-owned firms has been a particularly strong area of growth. It was a record year for women-led firms, with 167 in the market, an 11% increase compared to the prior year.
  • The number of African-American woman-owned firms in the market decreased 1% over the prior year.
  • The number of Asian-American woman-owned firms in the market decreased 5% over the prior year.
  • Latinas are the most underrepresented group as measured by firms in the market. Latina-owned firms were targeting a $35 million fund size, down from $40 million in the prior year.
  • Fairview Capital started publishing Market Review data publicly starting in 2014. For nearly 30 years, Fairview has actively invested with diverse managers in partnership with many of the nation’s leading institutional investors. As a result, the firm has built one of the most comprehensive databases of diverse managers. In a market that can often be opaque, reliable data on diverse managers can be difficult to access. Fairview believes the data shared in this Market Review can continue to serve as a valuable tool for a wide range of institutional investors.

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[To share your insights with us, please write to  pghosh@itechseries.com ]

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