Transformation fund approaches $10M

Grand Rapids venture fund prepares to make first investments in companies owned by people of color.
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Organizers, from left, Skot Welch, Birgit Klohs, Garrick Rochow, Renee Tabben and Kwame Anku. Courtesy The Right Place

One year after it was announced, the New Community Transformation Fund has secured $8.5 million from stakeholders looking to invest in Grand Rapids-area companies owned by people of color and is on its way to hitting the $10 million mark.

The venture fund NCTF, announced by The Right Place on Jan. 23, 2020, is aimed at boosting businesses owned by people of color in West Michigan, and it is nearing the first organizational milestone of raising $10 million, thanks to an investment of an undisclosed amount from Bank of America announced Jan. 26.

The $10 million figure is important, NCTF said, as it is the amount of capital raise necessary for the fund to make its first investments in businesses owned by people of color.

First-year highlights

The first-year investments and general updates on NCTF’s activities were highlighted to NCTF investors and the media during a Zoom call on Jan. 26. Successes shared on the call included:

  • Securing $8.5 million in committed investments
  • Obtaining a “substantial” Bank of America investment, in addition to the bank’s contribution of $200,000 in seed funding provided in 2020
  • Securing $1 million investments from Spectrum Health Ventures, Mercantile Bank and the Consumers Energy Foundation, which also provided $200,000 in seed money in 2020
  • Securing $100,000 in seed money from DTE

The fund hopes to hit the following goals in 2021:

  • Hiring staff, such as a managing director, financial analysts and administrative positions, by April
  • Reaching $10 million in funding, which will allow NCTF to begin investing, likely by next month, and reaching its $25 million goal by year’s end
  • Making the first three investments in West Michigan-based, people of color-owned businesses
  • Implementing the NCTF template in other cities

Fund origins

Inspired by an idea in 2018 by longtime President and CEO of The Right Place, Birgit Klohs, who serves as a board member, NCTF publicly launched on Jan. 23, 2020, just two months before the COVID-19 pandemic turned the regional economy upside down.

The goal of the fund, Klohs said, has always been simple.

“This fund aims to create a more diverse economy and drive economic prosperity in West Michigan’s communities of color,” Klohs said. “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.”

That premise led Klohs to share the idea with longtime friend Skot Welch in 2018. The two incubated the idea and socialized it with potential funders. It quickly became clear the idea was widely supported.

NCTF was seeded with funds from the Consumers Energy Foundation and Bank of America and has since seen investments from some of West Michigan’s most notable business names, including Autocam Medical, DTE, Gentex, Greenville Partners/Meijer, Horizon Bank, Mercantile Bank, Rockford Construction, Spectrum Health Ventures, Wolverine Building Group and Wolverine Oil & Gas.

World class leadership

Welch, a leader in global diversity, equity and inclusion initiatives, serves as managing partner of NCTF. He oversees daily operations and investor management. Kwame Anku, CEO and general partner of Black Star Fund in California, serves as fund consultant. Anku’s responsibilities include fund and operational design, as well as fundraising.

NCTF maintains an investment committee and advisory committee comprised of local and national members and is governed by a board of directors which, along with Klohs and Welch, includes Renee Tabben, president of Bank of America’s Grand Rapids market; Garrick Rochow, president and CEO of Consumers Energy; and Christal Jackson, an internationally known venture philanthropist.

The investment committee members are Scott McLean, managing director of Spectrum Health Ventures; Myrna Soto, board director of CMS Energy; Kurt Trevan, CEO of Gun Lake Investments; Harold Burrell, partner and senior vice president of Lighthouse Insurance; Tim Liang, managing director of AlphaMax Advisors; and Doug Holtrop, SVP of corporate banking with Mercantile Bank of Michigan.

Early and major support

Tabben was one of the first people NCTF approached. The bank seeded the fund with a $200,000 commitment in 2020 and strengthened its commitment with another undisclosed sum on Jan. 26.

“To continue to grow and prosper, West Michigan must have healthy and diverse communities,” said Tabben, who sits on the board of The Right Place. “Our additional investment in the NCTF and ongoing support of ethnic and racial diversity in business ownership comes at a critical time, as the health and humanitarian crisis has significantly increased the need for greater opportunities to ensure more access to capital and essential support services are available for entrepreneurs of color.”

Along with Tabben and Bank of America, Rochow, of Consumers Energy, has been with NCTF since its inception. The Consumers Energy Foundation also was first to the table with $200,000 in seed money, and just this past summer, pledged more to the endeavor.

Recently, the Consumers Energy Foundation agreed to become one of the fund’s inaugural trailblazers, with a $1 million investment, one of the largest commitments in the foundation’s history.

“This is an investment in equity,” Rochow said. “It demonstrates the Consumers Energy Foundation’s unwavering belief that West Michigan’s continued success must be collective and inclusive of everyone.”

Two tragedies to face

Shortly after the fund launched, the COVID-19 pandemic forced businesses to temporarily close, and a few months after COVID, the death of George Floyd put a spotlight on racial murders and social inequity.

“We had to pivot all our major in-person presentations to Zoom,” Welch said. “Not one potential investor canceled on us during that time. It wasn’t about our presentation; it was our theory of supporting diverse businesses that got the attention of our investors, and perhaps the tragedy of George Floyd helped some to understand the need for more substantial and equitable investments into entrepreneurs of color.”

Although the fund’s initial goal was to raise $15 million to $25 million by the end of 2020, the onset of the pandemic necessitated the goal be lowered, according to Anku.

Investment focus

When it starts investing later this quarter, NCTF intends to invest between $250,000 and $500,000 in second-stage, people of color-owned companies involved in advanced manufacturing, food and agribusiness, e-commerce and information technology, life sciences, and finance technology, as well as legacy and transitioning succession businesses.

The fund will focus on West Michigan-based companies, but it will entertain investments in nonlocal companies if the company pledges to move most of its operations to the region.

A template for success

Welch said he likes to use programmatic templates that help drive efficiency. In the case of NCTF, there was not a template to replicate, so he created one that drives the mission and vision of the fund and is having success with it. So much, in fact, that as Welch, Anku and Klohs share with others across the country about what NCTF is doing, they are being asked to replicate the model in other cities such as Miami, Denver, and Sacramento, California, according to Tabben.

“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 Transformational Fund in major cities.”

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