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Investment Funds Named for Underserved Entrepreneurs

Investing monitor

(Lorenzo Cafaro, Pixabay)

17 July 2020. A foundation project identified its first five investment funds providing capital for start-up businesses founded by people usually overlooked by venture investors. Among the funds taking part in Capital Access Lab, an undertaking of the Ewing Marion Kauffman Foundation in Kansas City, Missouri and Rockefeller Foundation in Washington, D.C., is Anzu Partners that backs life science and engineering start-ups.

Capital Access Lab, begun last year by the Kauffman Foundation, aims to provide investment capital for start-up companies that do not meet the usual criteria for venture investments or bank loans. Recent data collected by the Kauffman Foundation show the vast majority of start-ups, 83 percent, do not get access to venture capital or bank financing, relying instead on personal savings, funds from friends and family, or credit cards. Venture capital supports only 0.5 percent of entrepreneurs, those starting companies expected to have an outsized market impact.

The initiative also aims to redress disparities in access to capital experienced by start-ups founded by women, people of color, and in regions other than the main technology hubs. Capital Access Lab cites data showing companies founded by all-women teams raise only two percent of all venture capital funds, and account for only nine percent of proposals submitted to angel investors. Moreover, men are 60 percent more likely to receive funding than women, even when pitching the same businesses.

Race also plays a role in investment decisions. Loan requests from Black entrepreneurs are three times less likely to be approved than requests from white start-up founders, even when controlling for net worth and credit scores. Outside equity finances only 1.5 percent of Black-owned start-ups compared to 17 percent for new white-owned businesses. As a result, Black-owned start-ups begin with three times less capital as white-owned businesses, a disparity that continues well after start-up.

In addition, geography is a key factor in securing venture capital. Nearly 80 percent of recent venture capital funding in the U.S. went to five main regional technology hubs: San Francisco, Silicon Valley, New England, New York City metro, and Los Angeles/Orange County in California. In October 2019, Science & Enterprise reported on Revolution, an investment company in Washington, D.C. that invests in companies outside of the main tech centers.

“Your gender, where you live, or the color of your skin should not determine whether you can start a business,” says Philip Gaskin, vice-president for entrepreneurship at the Kauffman Foundation in an organization statement. “The Capital Access Lab is non-traditional by design because the status quo for how people secure capital is no longer an option.”

Capital Access Lab aims to break down these barriers by focusing on new companies that do not fit the profile of founders most favored by traditional financial sources. The Kauffman Foundation is putting in $3 million of its own money, with another $500,000 from Rockefeller Foundation. In addition, the project is lining up other investors with comparable targets, with the first five of those funds announced yesterday.

Among the first investors joining Capital Access Lab is Anzu Partners in Boston. Anzu Partners backs life science and industrial technology companies, with those industries working in materials, measurement, monitoring, modeling, artificial intelligence, and manufacturing. The company identifies prospective technologies in university and national labs, including recent spin-off enterprises from labs in Nebraska and Minnesota.

Other funds taking part in Capital Access Labs are 1863 Ventures, Capacity Capital, and Collab Capital that support minority and women-owned start-ups, and that provides seed funding for start-ups that do not scale large or fast enough for traditional venture investors.

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