There’s a lot of talk these days about the need to democratize the investing marketplace. And for good reason: right now, the playing field is tilted heavily in favor of a small group of highly connected managers and LPs. This stifles innovation and leaves everyone else behind.
It’s time to level the playing field and expand the circle of investors. By doing so, we can unlock private market investments for everyone. This will overcome the systemic environment in which money flows only to specific groups, and certain people are unable to create generational wealth.
There are well-documented issues with the current system, including gender and racial stereotyping, unconscious bias, and systemic economic barriers. Democratizing the marketplace will help overcome these problems. Additionally, the investment community has a preference for serial entrepreneurs, which further exacerbates the problem.
It’s time to democratize the investing marketplace and open it up to everyone. This will lead to more innovation, better use of resources, and a level playing field.
The Systemic Environment
The current system of investing is heavily skewed in favor of a small group of people. This leads to what is known as the “Matthew effect,” where the rich get richer and the poor get poorer.
For instance, as a World Economic Forum article highlights, men make up 91% of the venture capitalist industry’s executive ranks. This is a clear example of how the current system benefits those who are already in power. This spills over into who gets funded. As another article points out, women-led startups received just 2.3% of VC funding in 2020.
Similarly, only 4 percent of all venture capitalists are Black, according to data from the National Venture Capital Association. This lack of diversity leads to a bias in who gets funded. Black entrepreneurs receive just around 1% of venture capital, as a Harvard Business Review article points out.
Collectively, investment firms owned by women and people of color manage less than 1% of the $70 trillion in U.S. assets under management. This lack of representation leads to what is known as the “financing gap.”
The current system also favors those who have already been successful in the investing world. As one research report points out, research shows that “entrepreneurs with venture-backed founding experience tend to raise more venture capital.” This creates a vicious cycle where only those who have already received VC funding are able to get more VC funding, exacerbating inequality.
It’s clear that the current system benefiting a small group of connected individuals fails to provide opportunities for others.
Overcoming The Systemic Environment Boosts Returns
Not only is it unfair, but the current system is also harmful to overall returns.
As a Forbes article points out, “companies with above-average diversity produced a greater proportion of revenue from innovation (45% of total) than from companies with below-average diversity (26%).” This innovation advantage translates into better financial performance.
Similarly, another Forbes article cites McKinsey data showing that “companies in the top 25th percentile for gender diversity on their executive teams were 15% more likely to experience above-average profits. The latest data shows that likelihood has grown to 21%.” In other words, businesses are missing out on potential profits by not having diverse leadership teams.
The same is true for cultural and ethnic diversity, as firms with more culturally and ethnically diverse executive teams were 33% more likely to see better-than-average profits, according to McKinsey data.
Gridline’s mission is to open up access to top-quartile private market alternative investments, which have historically only been available to sophisticated family offices and endowments. This will allow individuals to invest in a transparent, efficient, and lower-cost manner.
By democratizing the investing marketplace, we can level the playing field and provide opportunities for everyone. This will lead to more innovation, better use of resources, and a fairer system overall.