Trends Watch: Venture Capital Investing in Diverse Startups

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

This week, Elana talks with Peter Callister, General Partner, Senatus Fund. 

What is your outlook for VC investing in startups led by diverse management teams?

We are bullish on investing in startups led by diverse management teams, driven by clear data showing such teams consistently deliver superior outcomes. Further, we believe it’s important for teams to have the right expertise for their individual roles and complementary skills. Teams are often incomplete due to the stage of their startup (seed to series A) when we first engage; therefore, it’s important to identify these gaps to ensure the right people are in the right roles.

Where do you see the greatest opportunities and why?

We believe the greatest opportunities are in sectors and startups that leverage technology, particularly AI-enabled businesses addressing tangible problems more effectively. The disproportionate recent focus on AI has resulted in attractive, underfunded opportunities in tech, fintech, medical devices, and consumer packaged goods (CPG), industries we believe to be underinvested and currently offering compelling value. Additionally, we see great potential in overlooked markets, and we believe sourcing deals in unconventional places also present attractive opportunities. 

What are the greatest challenges you face and why?

Our primary challenge is currently attracting new investment capital amid a difficult fundraising environment. Several macroeconomic factors have contributed to this challenge, including the significant influx of cheap capital from 2018 to 2020, resulting in inflated valuations and overpriced transactions. This easy access to capital also accelerated inflation, leading valuations to reset. Consequently, many fund managers are still holding underperforming investments from 2020 and 2021 and extending fund durations beyond their original timelines.

Adding to these challenges is an unfavorable regulatory climate, particularly regarding mergers and acquisitions. Reduced M&A and IPO activity has effectively locked capital within private companies longer than expected. While many anticipated regulatory conditions would ease with a new administration, ongoing uncertainties, including executive orders and tariffs, continue to hinder market recovery and the regulatory environment hasn’t improved.

These challenges also present opportunities. The current environment has driven valuations down, allowing investors to access high-quality deals with strong fundamentals at more attractive entry points. We remain optimistic about the long-term economic outlook, recognizing that historically, successful companies have navigated through at least one recessionary period. 

What keeps you up at night?

The polarized nature of domestic politics creates uncertainty, potentially affecting long-term investor confidence and hindering crucial investments in innovation and progress. I believe venture capital is the best vehicle to enhance quality of life by funding innovation and emerging technologies, benefiting not only founders and investors but also the stakeholders who benefit from these transformative solutions. Short-term, narrow-focused political decisions by both political parties have already disrupted the fundraising environment and the overall venture capital industry. I'm experiencing these impacts firsthand as I raise my first fund, and I wonder what the landscape will look like five or ten years down the road.

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.