- people on the move
Partners launching venture fund
BofA, Consumers Energy Foundation, The Right Place establish fund for minority-owned businesses.
When The Right Place was conducting interviews for its next three-year strategic plan at the end of 2019, the resounding feedback from over 100 business leaders was fostering a diverse economy needs to be a bigger priority in West Michigan.
The Grand Rapids-based regional economic development agency took the advice seriously and, on Jan. 23, announced it is helping to launch, in partnership with Bank of America and the Consumers Energy Foundation, the New Community Transformation Fund.
It will be an investment fund based in Grand Rapids to support diverse business owners. The fund aims to increase ethnic and racial diversity in business ownership in West Michigan by funding businesses already located here or businesses that move here. It also will focus on businesses that intend to provide multigenerational wealth creation within historically disadvantaged groups.
In 2020, the fund consultant team will focus on the design and development of the fund, including the goal of raising $15 million-$25 million in capital. The team will primarily be seeking family offices, institutional investors, venture funding and corporate partners and will aim to begin investing in businesses by 2021.
“I think we can all agree that West Michigan has been extraordinarily successful over the last 10 to 12 years and even beyond in our economy,” said Birgit Klohs, president and CEO of The Right Place.
“We have grown our population, we have grown our businesses, we’ve attracted businesses and talent, but it certainly is not distributed equally amongst all of our populations. And when we started on the journey of our next strategic plan with our board and the community ... the more diverse and inclusive economy kept coming up.”
Klohs said Bank of America and the Consumers Energy Foundation were natural friends to turn to when developing the fund, as BofA and Consumers both have “deep commitments” in diversity, equity and inclusion and also have executives currently sitting on The Right Place board.
A consulting team chosen for its experience will lead the design and development of the fund:
Skot Welch, general partner for the fund and principal of Global Bridgebuilders in Grand Rapids. He has 25 years of experience specializing in diversity, equity and inclusion; community engagement; and business development.
Kwame Anku, fund consultant, CEO and chair of the Black Star Fund in Sacramento, California, and co-founder of the Black Angel Tech Fund in Silicon Valley. His responsibilities for the New Community Transformation Fund will include fundraising, portfolio building, portfolio management and strategic partnerships.
Klohs, senior adviser and president and CEO of The Right Place, a position she has held since 1987. Klohs and her team will provide operational, rather than financial, support for the endeavor.
In addition to the leaders above, also present at the press conference were Renee Tabben, Grand Rapids market president for Bank of America, and Garrick Rochow, executive vice president for operations for Consumers Energy. Tabben and Rochow also serve on The Right Place’s board of directors.
“While the West Michigan economy is booming, communities of color have not shared fully in our region’s success,” Rochow said. “In order to truly ‘win’ as a West Michigan community, our success must be collective. And to do that, we must go beyond talking about our good intentions and take action.”
Tabben said the fund fits with Bank of America’s mission to “make financial lives better through the power of connection.”
“We deliver on this commitment through a strategy of responsible growth by focusing on investing in the success of our employees, helping to create jobs, developing communities and fostering economic mobility to address society’s biggest challenges,” she said — including inequity.
Bank of America and the Consumers Energy Foundation each provided $200,000 in initial startup capital. Their contributions will support the design and development of the New Community Transformation Fund, including creation of the fund’s legal structure and operational systems; establishment of a management team, advisers and a board of directors; and securing local and national portfolio growth partners.
Klohs said “quiet conversations” with interested investors already began.
The fund will focus on scalable stage-two businesses and transitioning succession companies in the industries of advanced manufacturing; food processing and agribusiness; life sciences and medical devices; and information technology, which were chosen because they are industries in which West Michigan already is strong. However, the fund will not necessarily be limited to investments in those sectors.
The fund will invest in current and prospective West Michigan companies but will require founders and portfolio companies to locate and operate in West Michigan.
“We think that’s the perfect blend. You’re fueling the local talent and helping them to grow with the wraparound services that we have provided by The Right Place, and then you’re bringing in new talent, new ideas,” Anku said.
“Keep in mind when you’re relocating a company from outside of West Michigan, you’re also now leveraging their investor partner pool. Our strategy is really about partnerships. How do we leverage what’s already happening and what’s already been successful, and how do we then have exponential growth leveraging those partnerships?”
The minimum investment the fund will make in a business is “at least $250,000,” according to Anku.
“A lot of the funds we see today at this stage are $50,000, $100,000 (per company), certainly nothing to sneeze at, but I think it makes a very strong statement to say that the minimum investment will be a quarter of a million dollars,” Anku said.
Welch, a Grand Rapids native whose children are the fourth generation in his family born in this city, said he will serve as the “ambassador,” or “the voice and face of the fund” to “help sell West Michigan on a national platform.”
As far as expected local demand for support from the new fund, Welch said he doesn’t expect a shortage of deal flow.
Anku said this reflects national capital shortages for underrepresented groups. In 2018, about $131 billion in venture capital was deployed, and less than 1% of the total amount was awarded Black founders, and only 2.2% of the capital went to women-led companies.
Tim Mroz, vice president of strategic initiatives for The Right Place, said the agency has a list of about 150 businesses owned by people of color in West Michigan, which represents about 5% of all businesses in West Michigan. The vast majority of the region’s minority-owned businesses are lifestyle/retail operations, he said.
Klohs added the 5% figure is comparable to other markets the size of the Grand Rapids metro area, which has a population of about 1 million.
“As bad as (that statistic is), by other communities of the same size, it’s about the same thing. But we want to change that,” she said.
Anku said though he has traveled all over the U.S. for his roles as an investor and a consultant, he has not seen anything like the type of collaboration represented by the New Community Transformation Fund in West Michigan, and in particular, an agency like The Right Place providing operational support is “extraordinary.”
“We believe that this will have an extraordinary impact on the West Michigan community and marketplace, but quite frankly, can and should be a national model for what is possible,” he said.
“It’s the coming together of powerhouses to create something new.”
Anku and the others added that if the New Community Transformation Fund is successful, they hope to add follow-up funds under the same umbrella.