While grappling with a high inflationary environment, a regional banking crisis and fallouts from geopolitical conflicts, minority- and women-owned managers also dealt with attacks on diversity, equity and inclusion initiatives, the report said. These conflicts impacted these programs directly and indirectly "by perpetuating misperceptions and obfuscating realities about access to capital," it added.
Since Fairview Capital — itself a minority-owned firm — started reporting this data in 2014, the number of minority- and women-owned firms has grown about nine times in size, rising at a compound annual growth rate of 26%.
The West Hartford, Conn-based firm attributed its findings to growth in diverse talent in the industry, lucrative opportunities best available through new platforms and increased interest among individuals to launch their own firm "after facing limited opportunities to advance careers" at established, tenured firms, it said in the report.
Some 72% of minority- and women-owned firms sought opportunities in venture capital funds in 2023. This is down from 75% in 2022.
Among the 417 minority- and women-owned firms in the market raising capital, 230, or 55%, of them were in their first round of fund raising, the report added. The median target fund size for these managers was $100 million, unchanged over the past two years but lagging against the industrywide median fund size of $229 million, which Fairview Capital said was "the largest gap ever."
About 50% of the funds in the market were continued fundraising for funds launched in 2022. Close to 51% of these managers were in their first round of fund raising, while 49% were in subsequent rounds.
Smaller target fund sizes result in shorter fundraising processes and is a reason diverse managers "are often below the radar of many institutional investors and their intermediaries," the report added.
Some small managers often don't meet the minimum size requirements implemented by institutions, including emerging manager programs, Fairview Capital said. Further, the firm expects a drop in emerging manager programs and investments to come.
"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," said Aakar Vachhani, managing partner at Fairview Capital, in a news release about the report.
Looking at specific demographics, 154 African American-owned firms were raising funds in 2023, up 36% from 2022. The report added there were more managers in this group raising subsequent funds vs. first-round funds, indicating an emergence of more enduring African American-owned firms.
The presence of new Asian American-owned firms increased 9% between 2022 and 2023, with a report record 61 first-time managers in the market. While 53% of Asian American-owned firms raised capital for a subsequent fund, 26% of these firms were notably in their third or a later fundraising cycle.
The most underrepresented group, Latinx-owned firms increased 21% year over year, with Fairview Capital observing 52 managers, 44% of which were raising a subsequent fund. But those raising venture capital funds saw a decline to 69% in 2023, from 72% in 2022.
The report added that firms owned by African American women and Latinas often raise the smallest funds. African American women-owned firms had a median target size of $50 million in 2023, unchanged from 2022. Latina-owned firms targeted a median size of $35 million in 2023, down from $40 million the previous year.
Fairview Capital manages $10 billion in assets under management.
