A more diverse group of investors means a more diverse group of business owners scoring investments, one study finds. (Credit: WOCinTech Chat, Flickr)

The investing world is getting more diverse – and as a result, so are the businesses scoring investor funding, one new study finds.

Fairview Capital, a decades-old, minority-owned investment management company, recently released the latest edition of its annual report on diversity among venture capital and private equity firms. And that report contained several bits of good news.

First, firms helmed by women and minorities grew by about 25 percent from 2020 to 2021 – from 502 to 627. “In 2014, there were just over 100 woman- and minority-owned firms in the industry, meaning the universe has grown approximately [six times] in size in 7 years,” the report adds.

Better still, this more diverse group of investors boasts more diverse portfolios, the study also found. Upon examination of these firms’ portfolios, researchers discovered that between 65 and 73 percent of the companies invested in were run by women or minority entrepreneurs.

And it’s not about meeting quotas, the study notes. “Organically, these managers are tapping into their differentiated networks and are explicitly or implicitly presenting themselves to entrepreneurs as less biased and relatable,” the report says. “The results lead to differentiated deal flow, more access to next generation entrepreneurs, and attractive deals and valuations given the proprietary nature of some of these opportunities.”

But here’s the rub: These firms raise, on average, tens of millions of dollars less than their non-marginalized counterparts. In 2021, the median fund size for firms with diverse leadership was $100 million – compared to white- and male-owned firms, whose median fund sizes averaged closer to $170 million.

Still, researchers assert, there is plenty to celebrate. “The persistent growth in the universe, despite the hurdles, is indicative of the strength of the motivation driving many diverse managers,” they wrote.