Insights from Data Analytics, SEC Filings, and News Reports Illuminate Opportunities for Black-Owned Private Capital Firms
By: Cameron Spiller
The Challenge: Disparities in Fundraising
It's an unfortunate reality: Black-owned funds often need to overcome a steeper hill to climb when reaching their target fund amounts. A comprehensive study of U.S.-based leveraged-buyout, venture capital, and growth funds launched from 2000 to 2001 shows that Black- and Hispanic-owned firms secured only 25% of their targeted amounts. This contrasts sharply with White-owned firms, which averaged 50% of their funding goals. Moreover, investors tend to be three times more responsive to underperformance by Black-owned firms.
Debunking Common Misconceptions
Contrary to what one might assume, the study didn't indicate that Black-owned firms overvalued their portfolios, struggled with hiring key personnel, or lacked viable investment opportunities. Instead, it highlighted two specific scenarios in which societal attitudes toward race play a role in Black-owned firms’ fundraising capacities:
Increased Sensitivity Post Racial Injustices: Instances of racial injustice, such as police brutality, often lead to a surge in investment in Black-owned funds as companies become more racially aware and sensitive.
Role of Public Pension Funds: When a Chief Investment Officer (CIO) joins the board of local public pension funds, there’s a notable increase in the probability that Black-owned firms will not only raise more capital but also secure larger funds.
If your objective is to maximize your fund’s potential, the data suggests you should focus on two key areas. Firstly, it may be worth capitalizing on periods when societal attention to racial issues peaks, as these often lead to increased investments in Black-owned funds. Secondly, it’s advisable to research and engage with individuals who are either working on or serving on the board of local public pension funds.
Although challenges abound, there are actionable strategies and targeted approaches that can help level the fundraising field for Black-owned private capital firms. Understanding these approaches is the first step toward achieving equity in capital allocation.
Referenced article: Stiff Headwinds for Minority-Owned Private Capital Firms. Harvard Business Review, [s. l.], v. 101, n. 5, p. 29, 2023.