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.