Skip to main content

Opening Remarks at the Diversifying Opportunity in Venture Capital Series

March 31, 2021

Thank you, Jessica [McKinney], for welcoming us today and for being the leader behind this emerging managers series of events. For those who are joining us live, I am thrilled you are choosing to spend your valuable time in the first of our three-part series exploring the role of emerging fund managers and their investors in funding underestimated founders across the country and empowering a new generation of investment decision-makers. Before I begin, I will give the standard SEC disclaimer that the views you hear today from SEC staff, including myself, represent only our own.[1]

Our team hears me say it often: before we get into the “what” and “how,” let’s start with “why.”[2] Our Office advocates for solutions to capital-raising challenges faced by small businesses and their investors, with a spotlight on the challenges faced by women and minorities, as well as those living in rural or natural-disaster areas. When we peel back the macro-level data on capital-raising trends and zero in on metrics for underrepresented founders and their investors, the data tells a compelling story.[3] 2020 may have been a banner year in some respects for late-stage venture capital (VC) fundraising and deal activity, but the story is different for early-stage companies, underrepresented founders, smaller funds, and emerging managers.[4] Our Office’s recent report to Congress highlighted how the percentage of smaller VC funds raised was poised to dip to rates not seen since 2008.[5] This should be a red flag to us all, because smaller funds disproportionately fund underrepresented founders: namely women, minorities, “fly-over” state residents, and others who are statistically less likely to raise capital.[6]

The Commission has engaged thoughtfully on this and related topics in recent months. For example, our Asset Management Advisory Committee has been exploring diversity among asset allocators and larger fund managers,[7] our Investor Advisory Committee has been exploring solutions to bridge the wealth gap through minority inclusion in investment and financial services,[8] and our Small Business Capital Formation Advisory Committee has adopted recommendations encouraging the Commission to take action to reduce barriers to entry for underrepresented founders and their investors.[9] Our team has continued to hear during outreach that solving many of the inequities in capital formation requires examining where and how capital flows among sophisticated investors and talented entrepreneurs.

While some modest gains have been made in the diversity of founders receiving venture capital in recent years, the implicit bias underpinning pattern matching is a powerful force.[10] Women and minorities still represent only 12% and 23%, respectively, of VC decision-makers, and 12% and 20%, respectively, of VC-backed founders.[11] We continue to hear calls for solutions that diversify who is funding entrepreneurs by supporting emerging fund managers. While often confused among related topics, the solution does not necessarily entail expanding private markets, or expanding retail investor access, but instead examining how sophisticated, and often underrepresented, capital allocators raise and deploy risk-appropriate capital.

Today’s panel will discuss the opportunities and challenges faced by fund investors looking to support and invest with emerging managers. In our next event in the series,[12] we will hear from emerging managers about their experiences raising and deploying capital, followed by a third panel on the impact of emerging managers and how they are bringing more diversity to venture capital and making access to capital more inclusive. As Jessica mentioned, we are excited today to be launching our expanded “Cutting Through the Jargon” glossary of key terms to make the language of capital raising more accessible contemporaneously with this series.

Thank you, Frederik Groce (of BLCK VC and Storm Ventures), Winter Mead (of Oper8r), and Jamie Rhode (of Verdis Investment Management) for joining us today for what I know will be an insightful and empowering conversation.

[1] The Securities and Exchange Commission disclaims responsibility for any private publication or statement by any of its employees. This speech expresses the author’s views and does not necessarily reflect those of the Commission, the Commissioners, or other members of the staff.

[2] I do so drawing inspiration from Simon Sinek’s book Start with Why and his widely-viewed TED Talk.

[3] For an in-depth dive into capital raising metrics, see pages 11-63 of our FY2020 Annual Report, in which we explore not only trends by company life cycle stage, but also founder and small business investor demographic trends, as well as COVID-19-related trends.

[5] See FY2020 Annual Report at 39, highlighting that the percentage of small funds under $50 million raised in 2020 was on track to dip below 40% for the first time since 2008.

[6] See, e.g., Women in VC, The Untapped Potential of Women-led Funds, (Oct. 2020) at 12, 15 (“Overall, 90% of all women-led funds qualify as emerging managers. That means we are at a serious inflection point to pave a path towards a more accepting, accessible venture community for women, and as a byproduct, women founders…Even by very conservative estimates, these 275 women-led firms are poised to invest in more than 7,000 companies in the coming years, potentially creating more than 80,000 jobs. With women proven to be more inclusive in the profiles of founders they back, the cultural impact this could have is unquantifiable.”)

[7] See, e.g., Meeting Materials from the SEC Asset Management Advisory Committee from July 16, 2020.

[9] See Recommendations of the SEC Small Business Capital Formation Advisory Committee (SBCFAC), delivered on August 26, 2020; see also Investing in Underrepresented Founders, Presentation to the SBCFAC on August 4, 2020.

[10] See FY2020 Annual Report at 56, highlighting that founders are 21% more likely to be funded by investors of the same ethnicity than of a different ethnicity.

[11] See FY2020 Annual Report at 49, 51, 55, and 57; see also Deloitte, NVCA and Venture Forward’s 2020 VC Human Capital Survey, showing only moderate change over the years in which the organizations have surveyed VC funds and entrepreneurs.

[12] Details on the next two series will be posted on our office’s Virtual Coffee Break page.

Return to Top