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Diversity-focused VC fund garners widespread attention, even before making initial investment COURTESY PHOTOS

Diversity-focused VC fund garners widespread attention, even before making initial investment

BY Sunday, January 31, 2021 03:56pm

GRAND RAPIDS — The West Michigan venture capital fund that intends to invest in growing, minority-owned businesses has garnered attention from interested parties who want to replicate the model elsewhere in the U.S.

Renee Tabben, Grand Rapids market president at Bank of America and a board director at the New Community Transformation Fund LP, said she’s been contacted through her professional network by people in Denver, Colo., Miami, Fla., and Sacramento, Calif. who “seem to have the same demand for what we’re trying to achieve with the fund (and) the same thinking in terms of what’s possible.”

“Just in the last few weeks, we’ve had conversations with those cities and a few other ones have started to come in as well. The opportunity to duplicate this model is very strong, very promising,” Tabben said. “When you’re thinking big, good things happen.”

Since launching a year ago, the New Community Transformation Fund has netted $8.5 million in commitments to date from investors, and should reach $10 million perhaps as soon as next month.

Another $17 million is “in the pipeline from folks who are very excited about this fund and looking to make a significant investment,” said Kwame Anku, the CEO of Sacramento-based Black Star Fund, who’s been advising local partners on the formation of the new venture capital fund. 

The social unrest of last spring led major institutional investors to commit to supporting initiatives such as the New Community Transformation Fund, Anku said. He cites Bank of America as an example of a commitment that has now come through for the fund.

The Charlotte, N.C.-based Bank of America made what Tabben described as a “substantial” investment in the New Community Transformation Fund, which was in addition to providing early seed capital. The investment was part of a broader $200 million, four-year commitment the bank made last year to support Black, Hispanic and other underrepresented minority and women entrepreneurs. Bank of America last week announced $150 million in investments in 40 funds based in 21 markets across the country.

“It takes time to put that infrastructure in place. Now, we’re starting to see those commitments and those deployments starting to happen,” Anku said. “We know at the family office level and at the corporate level that there is an appetite and a hunger to be able to deploy this capital. There is a movement that’s happening in the country.”

A November 2020 report by Morgan Stanley illustrates that movement. More than six in 10 U.S. venture capital firms that Morgan Stanley surveyed said the Black Lives Matter movement affected their investment strategy. Nearly half made changes in 2020 and more than two-thirds said they are now more likely to invest more in companies with diverse founders, according to the Morgan Stanley report.

Feeding the pipeline

The New Community Trans-formation Fund ultimately hopes to raise $25 million through 2021 to support minority entrepreneurs.

“With the momentum that’s happening nationally, with all of the excitement that’s happening locally, we feel we’ll be able to accomplish that goal by year’s end,” Anku said.

Once the venture capital fund hits $10 million in committed investors, it will begin pursuing investments in growing, second-stage companies that are owned by people of color and in need of growth capital. The fund also will invest in companies that are going through transition as owners retire and a person of color is acquiring the business. The fund could make its initial investments in late summer, all in locally-owned companies, said Managing Partner Skot Welch.

“We’re going to start at home with our first three investments,” Welch said.

Investments will range from $250,000 to $500,000 per company. The fund will target investments in companies involved in advanced manufacturing, food and agribusiness, e-commerce, information, financial and sports technology, or life sciences. Companies outside of West Michigan that receive an investment will have to move “the majority, if not all of their operations” to the region “because we want them to be of the landscape of West Michigan (and) to be involved,” Welch said.

Anku said the fund that he runs has invested in more than a dozen companies led by people of color and “I can tell you that the pipeline is robust with potential deals with incredible companies across different industries.”

“We’re very comfortable with that pipeline and feel we have some great companies outside of West Michigan that will relocate,” Anku said.

Filling a gap

Citing a need to focus more on diversity and inclusion, regional economic development firm The Right Place Inc. spearheaded the formation of the New Community Transformation Fund early last year with $200,000 in seed money apiece from Bank of America and the Consumers Energy Foundation to cover startup costs. DTE Energy has since given $100,000 in seed money. The founders publicly announced the creation of the fund a year ago and began fundraising last spring.

“We’ve come a long way,” The Right Place CEO Birgit Klohs said. “One thing I learned from Kwame is there’s a lot of venture fund money floating around for young, white kids coming out of Stanford, but not so much for young people of color. It has really strengthened that this fund is a really, really important thing to bring about in Western Michigan.”

Studies have repeatedly shown that only a small percentage of the venture capital invested in the U.S. annually goes to startups owned or led by a female or racial minority. Of the more than $2.1 billion in venture capital investments in 71 Michigan startups in 2019, less than 5 percent was for companies led by racial minorities.

Gearing up

Since forming, the New Community Transformation Fund secured investments of $1 million from Mercantile Bank Corp., Spectrum Health Ventures and most recently, Consumers Energy Foundation. Additional investments came in during the year from Autocam Medical, DTE Energy, Gentex Corp., Greenville Partners/Meijer Inc., Horizon Bank, Rockford Construction Co. Inc., Wolverine Building Group and Wolverine Gas & Oil Co.

As they prepare for making the fund’s first investments, partners this year plan to hire administrative staff such as a managing director, financial analysts and other positions. The fund should have a management team in place by April, Welch said.

The founders also will consider extending the New Community Transformation Fund’s model across the U.S.

“The nation is watching us,” Welch said. “We haven’t even made our first investment, but we’re getting requests to help create a New Community Transformation Fund in major cities.”

Welch holds the vision that the fund can drive “a further mosaic landscape within West Michigan and to make sure that we are no longer a flyover city for entrepreneurs of color.”

“We want to be the place where people say, ‘You’ve got to go to West Michigan because that’s where some really important work is occurring,’” he said.

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