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Published in Finance

Grand Rapids venture capital fund secures millions for minority-owned companies

BY Wednesday, September 30, 2020 04:45pm

A Grand Rapids-based venture capital fund that will invest nationally in companies owned by minorities has secured commitments now totaling $6.25 million, with potentially millions more on the way.

Nearly $17 million in additional commitments are “in the final stages of the pipeline as well” for the New Community Transformation Fund LP, according to Managing Partner Skot Welch.

Skot Welch, managing partner of the New Community Transformation Fund COURTESY PHOTO

“We’re experiencing great acceptance,” Welch said this week during a webinar hosted by the Michigan Venture Capital Association. “We’re experiencing some really, really great momentum.”

If finalized and secured, the prospective investors in the pipeline would bring the New Community Transformation Fund close to a goal to raise up to $25 million.

In a move to support economic inclusion, The Right Place Inc. initiated formation of the New Community Transformation Fund to invest in second-stage businesses owned by people of color. That’s been an area where venture capital historically has flowed the least in the U.S.

The Right Place wants to increase the flow of capital to entrepreneurs of color who can create wealth and who have not shared in the region’s success over the years, CEO Birgit Klohs said.

“We are not doing well in a very, very big area of our community ... our communities of color have not participated in the success of West Michigan in the past 15, 20 years,” Klohs said in the MVCA webinar. “Money is always an issue for an entrepreneur, and it’s a much bigger issue for an entrepreneur of color.”

Founders in January announced plans for the venture fund with the backing of $200,000 each from Bank of America and the Consumers Energy Foundation to pay startup costs.

Organizers formally established the fund in May as its own corporate entity and began seeking investors. The fund secured its first investors this summer when Grand Rapids-based Mercantile Bank Corp. and Spectrum Health Ventures, the corporate venture capital arm of Spectrum Health, each committed $1 million.

During this week’s webinar, organizers listed Gentex Corp., Rockford Construction Co., Wolverine Building Group, Consumers Energy Co. and Horizon Bank as among the latest investors. “And there are more,” Welch said.

Horizon Bank committed $250,000 to the venture fund, Regional President Dave Quade said.

The investment originated when a member of Horizon Bank’s advisory board in Grand Rapids who’s active in The Right Place brought the opportunity to Quade. He then presented the idea to CEO Craig Dwight.

“It seemed like opportunity and the right thing to do, so we decided to participate,” Quade told MiBiz on Wednesday. “It seemed like a good opportunity for us to do something for the community that’s outside of the traditional banking services that we do from an investment standpoint.”

The New Community Transformation Fund will invest $250,000 to $500,000 in companies in advanced manufacturing, food and agribusiness, e-commerce and information technology, life sciences, and finance technology.

Fund managers intend to scout for deals in West Michigan and across the U.S. Minority-owned firms that receive an investment would have to move their operations to West Michigan.

“Part of this is actually casting a very broad net across the nation, and so it’s pipeline opportunities that are in our backyard, but also we’re going to other parts of the United States where this population is very robust, but oftentimes it’s off the radar,” Welch said.

The fund could begin vetting prospects in November and announce its first deals in early 2021, and will look to syndicate investments with other venture capital funds or angel investors.

“You need to leverage and to bring additional capital to the party,” Klohs said. “We’ve already had many conversations with those kinds of groups, both here and across the state.”

The New Community Transformation Fund also will make investments in minority entrepreneurs buying family-owned companies whose owners are exiting the business, thereby ensuring the firms remain locally owned.

The Right Place will provide support services and assistance to companies that receive investments, such as helping find a place to locate, identifying markets and customers, and developing a local network so founders can “become a part of the community,” Welch said.

“We want to create a space for the founders of color, the entrepreneurs of color, where they are not simply welcome to West Michigan, but where they can actually belong,” he said.

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EDITOR’S NOTE: This story has been updated to clarify that the New Community Transformation Fund plans to invest in second-stage minority-owned companies, not startups. 

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