The interview below is part of an ongoing effort by McGuireWoods to profile women leaders in private equity (PE) and finance. To read previous profiles, click here. To recommend a woman for a future interview, email WPEF@mcguirewoods.com.
Caroline Dallas is a director in the investment research group at GEM Investments. Dallas sources new opportunities, directs due diligence and research, and monitors existing investments, with a particular focus on small buyouts — including the firm’s independent sponsor relationships — and venture capital. Prior to joining GEM in 2018, she was the assistant vice president of institutional equity sales at FBR Capital Markets. She started her career in BB&T Corp.’s private wealth management group.
Dallas serves on the endowment investment advisory committee at Davidson College and was named a 2023 Woman to Watch by The Wall Street Journal Pro Private Equity. She received a B.A. in English from Davidson College.
Q: What attracted you to GEM and working with emerging managers?
Caroline Dallas: I’ve worked in finance my entire career and spent the last seven years on the buy side. Previously I was on the sell side working in sales and trading at an investment bank, and I had this desire to be the check writer. I wanted to feel like I was making the difference in deciding where money was going versus feeling like a service provider in the industry. I was also interested in seeing how money moves in capital markets, learning how that affects the economy, and understanding how those trends help uncover unique investment opportunities, such as investing in more diverse populations and managers.
As a firm, GEM almost entirely represents nonprofit institutions whose scale does not support an in-house investment staff. Representing these clients is incredibly rewarding.
GEM invests in many types of strategies and with smart people. The most rewarding aspect of my job is that I learn something new almost every day across a multitude of topics because I’m talking to people who are excellent at their specific strategy. Every day in this job feels a little like putting a puzzle together, which I find endlessly interesting.
Q: What do you view as some of the biggest challenges facing women in finance?
CD: On the buyout side, the number of net new women-led managers coming to market each year has been disheartening. In the past 18 months, we’ve probably only seen three new women-led PE firms. Venture capital tends to be more diverse. Women are still underfunded relative to men, but the barriers to entry to become an angel investor and build a track record as a venture capitalist are lower. In venture capital, an angel investor can start out by writing a $25,000 check — which is still a good amount of money — to a founder who has an idea. In PE, there are so many more constituents involved. Managers need to source the deal, know sellers or bankers who can introduce them to sellers, raise debt capital, and find a legal contact and an accountant. The barriers are high for emerging managers — particularly those from underrepresented populations including women — who are looking to put together a PE deal.
The women who have enough of a track record to be successful managers have been in this industry for at least 10 years on the PE side, and probably worked two to five years prior in banking. This timeline represents the least amount of experience managers need before they are ready to launch their own funds. When you consider that timeline and the fact that so few women-led firms launch each year, it unfortunately will take a while to foster an environment and a community with more women-led managers.
We can be helpful as limited partners (LPs) by pushing our existing successful managers to think about diverse teams and assess their hiring plans. If we receive a deck that only has men on it, we should ask why that’s the case. Are you looking to hire more women on your team? Is it an issue of supply? Are you not actively sourcing talent who look and think differently from you? It’s incumbent upon the individuals who are writing the checks to those managers to hold them accountable for that type of decision-making.
GEM is active in the emerging manager market. Over half of our buyout portfolio and a third to a half of our venture portfolio are with emerging managers. We are constantly getting referrals to people who are considering spinning out of their firms because they have that entrepreneurial bug. We try to sit down with them to discuss their options and explore how GEM could be supportive.
Our team has developed extensive materials for individuals who want to spin out. These materials outline what they need to know and do in the first 100 days after leaving their firms. We’ve made these materials as comprehensive as possible. They include a list of LPs that are supportive of emerging managers and suggest who to call to set up the right precautions around cybersecurity. They also cover smaller issues that managers would likely never think about. Even if a new manager we meet with turns out to not be a fit for GEM’s strategy, we have no regrets about the time we’ve spent supporting these investors and trying to be a partner to this part of the ecosystem.
It’s important to me to offer this level of support to women investors in particular — to act as a sounding board and ensure they’re well informed about what to expect if they spun out, the risk they would take on and the personal financial liability. Hopefully our efforts will encourage more women and people of color who are thinking about starting their own firms to pursue their dreams.
Q: What advice would you give to someone who is on the fence about taking that leap?
CD: We give the same advice to every emerging manager: You must want to do this for it to work. The entrepreneurial journey is not for everybody, and that’s okay. Our job as allocators is to share our options and perspectives with people to help them understand what their journeys might look like. It’s ultimately up to them to decide if it’s the right fit.
LPs used to identify people they believed were talented and try to spin them out of their firms. The reality is, you can’t make others want to take on the risk and the hard work that comes with starting a business. They need to want that challenge and have that fire in the belly if they’re going to be successful. Our role should be to educate the market about their options and help people make sound decisions.
Q: What advice would you give to emerging managers?
CD: Seek out the advice of different constituents in this part of the ecosystem. Equity providers to pre-fund deals or first-time funds tend to have interests and priorities that may or may not align with the manager’s needs or best interests. I often see emerging managers talk to one LP and get good advice but then only follow what that person told them. This is risky because there are so many different funders with their own strategies in the lower middle market, and it’s important to make sure you’re partnering with a group that will be a strong match long-term. Once you enter into a partnership, you are looking at a long relationship — one that can span more than 10 years and potentially unlimited extensions on a fund’s life.
The key is to make sure you have the right people around the table — those who will support you as you learn how to build your own business. You might be a great investor, but there’s a lot more that comes along with entrepreneurship: managing a team, handling the back-office work, and everything else that will need your time and attention. By having as many conversations and asking as many questions as possible in those early days, you will put yourself in a better position to get the right people on your team.
To contact Caroline Dallas, email cdallas@geminvestments.com.