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GR investment fund for minorities replicated in Denver; other U.S. cities eyed

BY Sunday, July 31, 2022 10:00am

Leaders behind a Grand Rapids investment fund formed to support entrepreneurs of color hope a similar venture in Colorado becomes the first of multiple funds that replicate the model across the country.

The New Community Transformation Fund-Denver represents the first affiliate for the Grand Rapids-based New Community Transformation Fund. The Denver fund aims to raise $50 million to invest in companies owned and operated by diverse leaders.

More affiliates could form elsewhere. Transformation Fund leaders in Grand Rapids are presently talking to peers in other U.S. cities about forming similar investment funds in their markets, said Executive Chairperson Birgit Klohs.

“It was born here in Grand Rapids and it’s now becoming something that people in other cities want to do,” Klohs said. “There are people in other cities calling us, ‘How do you do this?’ It takes a while to set it all up, but without question, we started something in Grand Rapids that hadn’t been done before.”

Klohs conceived the New Community Transformation Fund four years ago while CEO of The Right Place Inc. as a way to diversify the economy and to focus more on diversity, equity and inclusion.

The fund invests $250,000 to $500,000 in second-stage, minority-owned companies in advanced manufacturing, food and agribusiness, e-commerce and information technology, life sciences, and finance technology. The Grand Rapids fund will also back entrepreneurs of color who are buying companies going through an ownership transition, including businesses based outside of the region that are willing to relocate to West Michigan.

Grand Rapids New Community Transformation Fund Managing Director Ollie Howie said “active” conversations are ongoing with parties in two other markets about forming additional affiliates. Howie hopes another new affiliate can launch by the end of 2022 as the New Community Transformation Fund builds a network of what “hopefully is going to be a series of great funds impacting diversity, changing the narrative around venture capital and creating economic opportunity throughout the nation.”

The fund’s goal is to have up to 10 affiliates “in pretty short order,” Howie said.

“That’s the first milestone for us and we’ll continue to go from there,” he said. “We are excited about promoting diversity and equality globally. For too long the venture capital numbers going to diverse-led companies have been abysmal.”

Affiliates will operate under a holding company, New Community Transformation Fund Holdings LLC, that formed in November 2021.

Only a small percentage of the venture capital invested in the U.S. annually has historically gone to startups led by people of color, and the industry’s workforce is dominated by white males.

A March 2021 diversity report by the National Venture Capital Association and Deloitte indicated that just 4 percent of the workforce at venture capital firms is Black, even as more companies promote greater diversity and inclusion.

Forming new funds led by people of color and dedicated to investing in companies founded by minorities can diversify the flow of capital in the U.S. and create greater diversity in the industry’s workforce, Howie said.

“Hopefully, with this model we can think differently about where venture (capital) can go, but also enable new fund managers of color to gain a track record and experience in the space while having a group of seasoned investors behind them,” he said. “It’s a good mix of enabling new fund managers and new regions to kind of think differently and to have a new pipeline of opportunities that actually have a place to go to for funding.”

Replicated in Denver

New Community Transformation Fund leaders in Grand Rapids worked with organizers in Denver to replicate the model, Klohs said. They visited Denver earlier this month to join their colleagues to launch the new fund and host a seminar.

While leading the formation of the New Community Transformation Fund in Grand Rapids, Klohs wasn’t clear whether or how the concept would catch on elsewhere.

“I had no idea where this could all lead. What I wanted was for Grand Rapids, in a slice of economic development, to make a serious effort at diversifying our business community where entrepreneurs of color and BIPOC folks had an opportunity to put their idea on paper and eventually get funding for it,” she said. “That other people would pick up on it … was not even on my radar, but that we’re doing it is really fantastic.”

In a recent email to supporters, fund organizers in Denver indicated that they expected to close in August on the first $20 million of their $35 million to $50 million goal. Like the Grand Rapids fund, the Denver affiliate wants to create “a growing pipeline of founders of color, and other underinvested businesses suited to scale sustainably,” and will invest in “scalable early to mid-stage businesses and transitioning succession companies founded and or operated by persons of color.”

“The fund’s mission is to be the dial-mover to advance racial diversity and business ownership by raising capital for founders of color and other underinvested entrepreneurs,” Denver organizers recently wrote to fund supporters. “The fund will be directed towards preparing these entrepreneurs to be investment-ready and to drive wealth building and business creation in communities that have not traditionally been served.”

The Denver fund is led by Danielle Shoots, who also leads her own venture capital fund, a real estate investment company and a leadership and executive coaching company.

In Grand Rapids, New Community Transformation Fund founders have so far raised more than $10 million from investors toward the $25 million goal and “we continue to go out for new asks,” Howie said.

“We continue to march toward our goal,” he said.

The fund made its first investment in BAMF Health Inc., which is opening an advanced treatment clinic for cancer in Grand Rapids. The investment was part of the $30 million capital round for BAMF Health, whose founder, Anthony Chang, envisions opening a series of cancer treatment centers around the nation that use radiopharmaceuticals for molecular imaging and artificial intelligence.

Howie expects the fund to close soon on its second investment.

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