Venture capital spending broke global records in 2021, but a relatively paltry sliver in the U.S. went to startups led by women and people of color.
“Making faster progress on economic inclusion in this region … requires sharper focus,” said Peter Frosch, chief executive officer of Greater MSP.
That focus is coming to St. Paul. Boosted by anchor investments from Allianz Life, Xcel Energy and Allina Health, the St. Paul-based economic-development partnership plans to put $50 million toward seeding Black, brown and women-led startup firms through partnering venture capital firms, which are still being selected.
The goal isn’t just to grow existing companies in Minnesota, but also to convince new startups to see the state as a promising place to relocate. Frosch said the new Equity Fund — a project of Greater MSP’s Forge North coalition — is the nation’s first known venture capital “fund of funds” focused on race, place and gender. But the initiative isn’t charity. Project partners expect a return on investment.
‘FUND-TO-FUND’ APPROACH
The Greater MSP Equity Fund will largely revolve around a “fund-to-fund” approach, said Al Cornish II, a general partner at gener8tor, a startup accelerator and venture capital firm heavily involved in the effort. That means the $50 million will be distributed among 10 to 13 venture capital firms, with the expectation each firm will then identify a series of emerging companies led by diverse talent in various sectors, from technology to agriculture.
“We have had discussions with a number of local and national funds that could be candidates for investment,” said Cornish, in an online discussion with news media on Wednesday. “We’re looking for funds with a strong cultural fit, and strong leadership and strong track record of returns, with the goal of investing in Black, brown and female-led startups.”
Matthew Lewis, vice president of strategic initiatives for St. Paul-based Greater MSP, said the fund-to-fund approach ensures a high level of expertise goes into backing a wide variety of startups, “so we get a diverse portfolio as diverse as Minnesota’s economy.”
“There are more than 25 active venture capital firms in our own back yard that are investing in startups,” Lewis added, noting that venture capital from outside of the state is increasingly looking to Minnesota as a promising landscape to back new companies.
ATTRACTING OTHERS TO THE FUND
Details are still being finalized, but Allianz Life has committed $10 million, on top of large commitments from Xcel Energy and Allina Health, which have not released their commitment totals in advance of a formal closing on the arrangement later this year, Cornish said.
Those are not grant donations. Each company’s investment committee reviewed prospects for a positive financial return on investment and found the premise compelling, Lewis said.
“Part of what we see as our role here is to help attract others to the fund,” said Chris Clark, regional vice president of Xcel Energy for Minnesota, North Dakota and South Dakota.
According to a written statement from the Forge North startup coalition, U.S. venture capital investment reached “a watershed level” of $300 billion in 2021. That money wasn’t spread evenly. Just 1.2 percent of U.S. funding that year went to Black entrepreneurs, 2.1 percent to Latino-led firms and 2 percent to women.
More information is online at MSPEquityFund.com.
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