Racial Diversity in Private Capital Fundraising

Johan Cassel, Vanderbilt University - Finance
Josh Lerner, Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)
Emmanuel Yimfor, University of Michigan, Stephen M. Ross School of Business

In this study, the authors examine potential reasons for the industry’s low levels of minority ownership, focusing on venture capital (VC), buyout, and growth investment groups. The following are excerpts from the study:

“The total share of assets under management (AUM) by groups owned by all minorities in the United States in 2021 was about 1.4%, even though minorities represented over 40% of the population at the time. This disparity was even starker for Blacks and Hispanics.

The well-documented disparities of wealth by race in the United States are likely to be exacerbated by the uneven ownership of asset management groups. Second, academic researchers have demonstrated the presence of homophily in private capital markets: the tendency for investors to fund people that share characteristics with themselves. The disparities in the racial composition of the ownership of private capital groups may thus have substantial effects on what types of entrepreneurs get funded, raising barriers to other critical avenues of wealth and job creation. As a result, Black-owned startups face more difficulty in raising external debt and equity capital, stunting their growth.

To better understand the lack of diversity in private capital, we build what we believe to be the most comprehensive database of minority ownership of private capital groups developed to date. We combine information from Burgiss, PitchBook, and Form D filings with the U.S. Securities and Exchange Commission (SEC), with our own extensive research using public sources such as LinkedIn, news articles, commercial data-sets, and private communications from limited partners and consultants.”