How Private Equity & Venture Capital Firms Can Create Unfair Advantages in 2023 and Beyond.

As we reach the final stretch of a tumultuous, disruptive, and disorienting year, many venture capital, private equity, and even sovereign wealth funds as well as family offices are looking for the best ways to allocate their money.?

This trend was on full display in Q3 as venture capital (VC) and private firms (PE) scaled back their investment pace in response to rising interest rates, anticipated economic uncertainty, and other headwinds reducing their appetite for risk.?

Last quarter, venture funding was down by 53 percent year-over-year, the lowest since Q1 2020.?

At the same time, VC funds are increasingly looking to invest in ESG-focused companies. This is great news for Black and Latinx founders that are habitually underfunded and systemically overlooked when it comes to VC or private equity investment potential while continuing to create game-changing solutions.

While it’s unclear if we’ve reached the bottom or if investment will continue to decline as 2022 comes to a close, investors looking ahead to 2023 should proactively seek out minority-led companies to gain an “unfair” advantage over the competition.?

There are more opportunities than you might imagine. You just need to know where to look or who to partner with in the year ahead.

The Case for Investing in ESG-focused Companies?

There are many reasons to invest in ESG-focused companies, but the economic upside is at the top of the list.?

As we have heard and what the research shows consistently is that diverse companies frequently outperform their more homogeneous peers.?

According to one report, diverse companies are 70 percent more likely to capture new markets, 36 percent more likely to outperform on profitability, and 76 percent more likely to see new ideas becoming compelling products.?

In addition, diverse companies better engage diverse consumers.??

For example, Hispanic people are historically the least represented demographic in the boardroom. When Fannie Mae named Priscilla Almodovar the company’s new CEO in September 2022, it became more responsive to its customer's unique needs, transforming its investment potential overnight.?

Latinos are significant economic drivers, and companies disconnected from this cohort will struggle to market and sell goods and services effectively. In contrast, companies with diverse leadership and workforce are best positioned to optimize the opportunity.?

Some VCs are already noticing and responding to this trend. Consuelo Valverde, the founding and managing partner at the SV LATAM Fund, is investing in Latin America and its multifaceted biotech and robotics talent pipeline. In doing so, she’s capitalizing on often-overlooked investment opportunities that can drive outsized results.?

Often, these companies thrive because diverse companies access the best talent and they know where to look to find them too.?

There are thousands of Blank and Latinx executives, top-level professionals and subject matter experts ready to help companies achieve their goals, set better direction, and execute critical priorities.?

When companies are deliberate about identifying and engaging this talent, they unlock growth potential that can allow VC, private equity, or other investors to flourish.

We Don’t Know What We Don’t Know

Investors can’t back opportunities that they don’t know about or understand. Unlocking this “unfair” advantage requires strategic partnerships and an established talent pipeline to succeed.?

At Culture Shift Labs, we understand that the most challenging part of diversity and innovation is getting started while determining a budget, key performance indicators, and metrics. However, identifying your “unfair advantage” in all the ways described above is the key to winning and unlocking social and financial returns that improve business and society.

In nearly a decade of working with Black and Latinx founders and fund managers and advising family offices, VC and PE firms as well as Tech and Fortune 500s, we’ve seen that locating and responding to the right opportunities is often the top challenge.?

In other words, if you don’t know where the opportunities are, you are going to have a warped perspective on whether they exist at all or that they exist in large numbers.

The Help You Need in 2023 and Beyond?

Culture Shift Labs is powering the nation’s diversity and innovation outcomes with a variety of services including by bringing together investors, founders, business influencers and leaders as well as top talent. Our Knowledge + Network business model is helping companies and investors outperform their competitors at scale.?

For VC and PE firms, sovereign wealth funds, and family offices looking to identify the best ways to invest their money, unlocking their “unfair” advantage is key to maximizing their impact and return on investment in 2023 and beyond. As a prime example check out this recent announcement from IFC “IFC has launched a new $225 million platform to strengthen venture capital ecosystems.” This is a tiny snapshot of an incredible movement that I anticipate we’ll see more of globally in 2023.

To learn more about how we can help you identify the best investment opportunities in the year ahead, create a playbook to achieve your goals and gain a competitive advantage, or tap into our over 300 Black and Latinx led VC funds, visit https://cultureshiftlabs.com/ today.