Wege Foundation’s $1M investment in minority-focused VC fund may attract more nonprofit giving

GRAND RAPIDS — The Wege Foundation’s $1 million investment committed to the New Community Transformation Fund comes from a shared vision to support greater economic diversity and inclusion in West Michigan’s economy.

It may also serve as a springboard for the emerging Grand Rapids-based venture capital fund to attract investments from similarly aligned foundations as it targets a $25 million fundraising goal.

COURTESY PHOTO

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The New Community Transformation Fund’s goal matches the private family foundation’s policy for ethical investing and a focus on environmental, social and governance issues that include advancing “wealth generation among entrepreneurs and business leaders of color” locally, Wege Foundation President and CEO Mark Van Putten told MiBiz.

“This latest opportunity fits well into an ethos of trying to advance the mission through the investments,” Van Putten said. “It’s not only about making grants in West Michigan that advance diversity and wealth generation and those values, but also making investments on the investment side of the organization that advance that mission.”

The Grand Rapids-based foundation, which awards $19 million in grants annually, also liked that the venture capital fund has an “explicit West Michigan focus,” he said.

Deploying capital

The Wege Foundation’s investment brings the New Community Transformation Fund “just a hair short” of reaching $10 million in commitments needed to begin making investments in companies, said Birgit Klohs, a fund director and the retired president and CEO of economic development organization The Right Place Inc.

“More importantly, it’s certainly appreciated that the foundation really saw the goal of what the New Community Transformation Fund is trying to achieve, and that is creating generational wealth in our entrepreneurs and our entrepreneurial communities of color,” Klohs said.

Citing a need to focus more on diversity, equity and inclusion and create economic diversity in the region, Klohs two years ago conceived the idea of forming a venture capital fund to support entrepreneurs of color. She assembled a team of founders in 2020 to create the New Community Transformation Fund, which aims to raise $25 million.

The New Community Transformation Fund recently hired a managing director, Ollie Howie, who came to Grand Rapids from global investment manager SoftBank Group. He was based in Atlanta with SoftBank’s SB Opportunity Fund, which has committed $100 million to backing Black, Latinx and Native American business founders.

The West Michigan-based fund will invest $250,000 to $500,000 in second-stage, minority-owned companies in advanced manufacturing, food and agribusiness, e-commerce and information technology, life sciences, and finance technology. The fund will also back entrepreneurs of color who are buying companies going through an ownership transition, including businesses based outside of the region who are willing to relocate to West Michigan.

Angling for foundations

The New Community Transformation Fund has several requests out to prospective investors as it pursues the $25 million fundraising goal, Klohs said. The Wege Foundation investment provides a showcase commitment that the venture capital fund can use to appeal to other foundations for support, she said.

The investment “really is indicative that we are onto something really positive and that other foundations may say: ‘If they can do that, let’s take a look at what we can invest,’” Klohs said.

“There are asks out there,” she added. “Certainly we anticipate that — with the Wege Foundation taking this step to invest — others will step up, and we will also reach out to other foundations. It does open an avenue for raising funds. Every dollar is important, but by taking this step, they are opening avenues that we haven’t explored to the fullest, and so that opens other doors for us.”

Foundations rank among large and small family offices, corporations and pension funds as the top sources of investments into venture capital funds.

Of the 23 Michigan-based venture capital firms that raised capital in 2020, nine received investments from charitable foundations, according to an annual report from the Michigan Venture Capital Association. In the prior year, 11 of the 27 Michigan venture capital firms that raised capital secured foundation investments.

New direction

The commitment to the New Community Transformation Fund is the Wege Foundation’s first investment in venture capital, Van Putten said.

The foundation, with assets of about $380 million, presently holds about $22 million in investments in private equity funds, Van Putten said. Many of the private equity investments have a mission aligned with environmental goals and advancing gender and racial equity, he said.

When first approached last spring about investing in the New Community Transformation Fund, the foundation’s early response was a “strong endorsement of the goal and vision, and the only question was evaluating it from an investment perspective and then processing it internally,” Van Putten said.

Investment advisers conducted due diligence on the request and an investment committee approved the investment last month, he said.

In reviewing the New Community Transformation Fund’s request to become a limited partner, the Wege Foundation took the same approach as other prospective investments, Van Putten said.

“All investments involve risk, so this is no different,” he said. “But in assessing risk, undertaking due diligence and looking at the goals, it seemed like a strong fit for the foundation. We view this as a good investment as much as advancing the mission of the foundation.”