Local non-profit economic development group Greater MSP says it is furthering its commitment to entrepreneurs from diverse backgrounds.
On Wednesday, the organization announced that it is partnering with startup accelerator group Gen8tor to launch an MSP equity fund, which will be distributed to venture capital firms focused on various founders. Higher MSPs will not provide funding directly to the founders; Instead, the organization will provide the money to 10 venture capital fund managers, who in turn will pass it on to entrepreneurs.
Some Minnesota corporate giants are providing financial support for the venture. To start, Allianz Life will commit up to $10 million to the MSP Equity Fund, while Xcel Energy and Allina Health are each providing their “seven-figure” commitments for the fund. Those three organizations will serve as “anchor” investors in the new fund. Greater MSP officials say the overall goal for this fund is to reach $50 million.
In a press conference Wednesday morning, Greater MSP CEO Peter Frosh described the new fund as a “bridge between the Fortune 500 and the Future 500.” The comparatively large number of Twin Cities are the Fortune 500, Frosh said, “the superpower of the region.”
“We know we have a headquarters economy,” Frosch said. “It is a competitive advantage. The MSP Equity Fund combines the resources of the large corporations in our region … with the rapidly growing companies in our region that will drive the growth of our economy in the coming generation.
During the call, executives from Greater MSP, Allianz Life and Xcel repeatedly touted the new fund as a way to fund diversified entrepreneurs, boost the region’s economy and bring more venture capital dollars to Minnesota. That said, the goal is to specifically target Black, Brown and women founders. This is a demographic that is often excluded from the venture capital game. The same held true during 2021, which was generally a “blockbuster year” for venture capital, said Al Cornish, general partner at Gen8tor. He said US-backed venture capital firms raised about $330 billion in 2021, almost double the earlier record in 2020.
“Although venture capital investment was at an all-time high in 2021, it is clear that funding is not being evenly distributed,” Cornish said. “Black-, Brown- and women-led managers face barriers to raising funds. Similarly, Black, Brown- and women entrepreneurs face many challenges.”
He said only 1.2 percent of US venture capital went to black entrepreneurs in 2021.
Who will get money from MSP Equity Fund? Cornish said the fund will go toward four main types of organizations: equity-based accelerators, local fund managers committed to diversified founders, national fund managers, and revenue-based financing funds.
“As a community, we are a net exporter of venture capital dollars,” Cornish said. “To reverse that trend, for every dollar invested by MSP Equity Funds in the underlying venture capital fund, those funds are at least dollar-for-dollar in Minnesota by investing in black-, brown- and women-led startups.” Committed to developing the economy, in industries in Minnesota, or those wishing to relocate to the state.”
For the fund to reach its $50 million goal, Greater MSP says it will continue to seek financial support from other institutions. Although funding for black, brown and women entrepreneurs is lacking, some local organizations are trying to fill the gap. For example, Brown Venture Group is a new Minneapolis-based venture fund investing exclusively in BIPOC (Black, Indigenous and People of Color) entrepreneurs. Groove Capital, launched by Beta MN veteran Reid Robinson, is also working to get venture capital funding into the hands of historically underrepresented groups.