“We’ve seen the interest, but not necessarily the dollars flowing” to diverse-owned businesses in the US, explained Sengal Selassie, founder of mid-market private debt lender Brightwood Capital Advisors, during a conference interview last week.
Speaking at PEI Media’s Private Debt Investor Virtual Forum, Selassie said “demand has ramped up” from investors wanting to get capital to diverse and women-owned businesses, which historically have faced difficulties securing financing, since the onset of the pandemic and last year’s social justice movement.
“Private markets generally turn a blind eye to smaller companies,” said Selassie, who noted that diverse-owned businesses are more likely to be sized in the low-to-mid market space. “Having access to capital is even more critical to that space.”
“The supply of opportunities has been increasing at a fairly steady pace, but really, it’s been under the radar,” Selassie continued. “Now, people are asking, ‘what do you need to get capital into those businesses that have been overlooked or ignored?’”
The interest in demand [from investors] is now “meeting the opportunity set”, he said. “People are figuring out the best vehicles to use.”
Brightwood provides senior secured and mezzanine loans to lower mid-market businesses in the US with between $5 million and $75 million EBITDA. The firm lends to sectors including healthcare, business services, tech, telecommunications, transportation and logistics, and franchising.
In June, the firm launched Brightwood Capital Fund V targeting $2 billion in commitments from institutional investors. The New York State Common Retirement Fund, an existing Brightwood LP, has committed $200 million to Fund V. Brightwood will earmark at least a quarter of capital for investments in diverse-owned businesses, according to previous New Private Markets reporting. The firm is also planning to launch its third vehicle focused on small business investment companies, a tax registration that offers investors incentives.
Selassie said the overall performance of the private credit market during the pandemic has been strong, and that this – combined with new DE&I efforts to support diverse-owned businesses – has made the mid-market an attractive strategy for debt providers.
“The fact that mid-market businesses were able to respond so effectively […] has really driven a sense of the economy as not only strong but resilient,” he said. “It can take a punch and come back as good, if not a little better.”