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GR-based VC fund targeting minority-owned companies raises $8.5M in first year

Author: Carol Zichi
Posted Date: January 26, 2021

GRAND RAPIDS — The venture capital fund formed a year ago in Grand Rapids to invest in minority-owned businesses has netted $8.5 million in commitments from investors and aims to hit $10 million this year.

The amount raised to date far surpassed the $5 million first-year fundraising goal for the New Community Transformation Fund LP. Once the venture capital fund hits $10 million in committed investors, it will begin pursuing investments in growing, second-stage companies owned by people of color that are 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 venture capital fund looks to make three investments in 2021 of local companies. Investments will range from $250,000 to $500,000 per company.

“This fund aims to create a more diverse economy and drive economic prosperity in West Michigan’s communities of color,” said Birgit Klohs, president and CEO of The Right Place Inc. “Those who have already invested in the New Community Transformation Fund share this goal, and it is my hope that many others will join us in creating upward mobility for entrepreneurs that have not been given opportunity historically.”

Citing a need to focus more on diversity and inclusion, The Right Place Inc. spearheaded formation of the New Community Transformation Fund in early 2020 with $200,000 in seed money apiece from Bank of America and the Consumers Energy Foundation to cover startup costs, plus $100,000 from DTE Energy. The founders publicly announced the creation of the fund a year ago today and began fundraising last spring.

“We’ve come a long way,” Klohs said today during a virtual media briefing.

Since then, the venture capital fund secured investments of $1 million from Mercantile Bank Corp., Spectrum Health Ventures and, most recently, the Consumers Energy Foundation.

Bank of America Grand Rapids market President Renee Tabben also announced a “substantial” investment in the venture capital fund today.

“West Michigan must have a healthy diverse community,” Tabben said.

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.

The venture capital fund ultimately hopes to raise $25 million by the end of 2021.

On top of the $8.5 million committed, the venture capital fund has another $17 million “in the pipeline from folks who are very excited about this fund and looking to make a significant investment,” Kwame Anku, the CEO of Sacramento, Calif.-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 has brought out major institutional investors to commit to supporting initiatives such as the New Community Transformation Fund, Anku said. He cites the Bank of America investment as an example

The investment was part of a broader $200 million, four-year commitment by the Charlotte, N.C.-based Bank of America to support Black, Hispanic and other underrepresented minority and women entrepreneurs, Bank of America today announced $150 million in investment in 40 funds based in 21 markets across the U.S.

“It takes time to put that infrastructure in place. Now, we’re starting to see those commitments and those deployments starting to happen,” he said. “We know that 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.”

As they begin to consider the fund’s first investments, partners this year also plan to hire administrative staff such as a managing director, financial analysts and other positions. They also are looking to expand the New Community Transformation Fund’s model across the U.S.

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

For years, 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.

In Michigan as of 2019, just 13 percent of venture-backed companies were led by a CEO who was a racial minority, and 10 percent were led by a woman, according to MVCA’s 2020 research report issued last spring.

Of the more than $2.1 billion in venture capital investments in 71 Michigan startups in 2019, funds invested $146 million in companies led by a CEO who is a member of an underrepresented group. Of that amount, $29.2 million went to startups led by women and $109.2 million — or less than 5 percent — was for companies led by racial minorities. Another $7.6 million went to startups led by a CEO who identifies as LGBTQ.

The annual report from the MVCA this year did note that over the last five years, the amount invested in minority-led startups increased by nearly 30 times.

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Mark Sanchez - January 26, 2021