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February 20, 2023 Portfolio Diversification

CT Innovations’ $50.5M Future Fund seeks out startups led by underrepresented groups

PHOTO | CONTRIBUTED Tech executive Oni Chukwu (shown right) at a Connecticut Innovations networking event. Chukwu was the CEO of events management software provider etouches, a former CI portfolio company that was acquired in 2017.

Over the past three years — driven in part by pandemic-related challenges and downsizing — there has been a sharp uptick in startup businesses founded by women and minority entrepreneurs.

Women accounted for 49% of new businesses in the U.S. in 2021, up from 28% in 2019, according to data from the World Economic Forum. Three times more Black-owned businesses were founded over the same time frame. 

Despite those positive trends, both women and minority groups remain largely underrepresented when it comes to receiving venture capital. 

It’s a challenge that Connecticut Innovations (CI), the state’s quasi-public venture investment arm, is hoping to address. 

CI last month launched its Future Fund — a $50-million capital pool designed to invest in high-growth potential startups and increase and support leadership diversity throughout the state.

The goal is to increase investment in venture capital-backed startups led by underrepresented groups including women, Black, Indigenous, and people of color, LGTBQ, veterans and the disabled. 

“We have a lens on diverse founders, but we’re [also] looking for disruptive tech-enabled companies that have a clear competitive differentiator,” said Alison Malloy, Connecticut Innovations’ managing director of investments.  

Alison Malloy

Targeted sectors include technology innovation within medical, financial and property markets. Investment sizes will range from $250,000 to $1.5 million.

“We understand how challenging it can be to raise funds as a founder of a startup,” said Gov. Ned Lamont in promoting the new fund. “It is even more difficult for underrepresented founders to access the capital they need to grow and succeed.” 

Diverse founders

Historically, Black entrepreneurs receive less than 2% of venture capital funding annually, and venture financing to Black-owned businesses fell 45% last year after an uptick in 2021, according to Crunchbase. 

Despite the greater difficulty underrepresented groups experience in accessing venture capital, there is evidence that more diverse founding teams generate higher investor returns. 

According to the Kauffman Fellows Research Center — which analyzed more than 260,000 startups — diverse founding teams produced a return on investment that was 30% higher than companies with white founders when cash was returned to investors through an acquisition or IPO. 

Over the past 10 years, Connecticut Innovations' investments in women- and minority-led startups generated $52.7 million in returns for the state, following IPOs or acquisitions, according to the quasi-public agency.

Those deals included private equity firm HGGC’s 2017 acquisition of Norwalk-based events management software provider etouches (now called Aventri), formerly led by CEO Oni Chukwu, and TransUnion’s 2020 purchase of Stamford data company Tru Optik, formerly led by Andre Swanston. 

Andre Swanston

Etouches and Tru Optik were CI portfolio companies at the time of their deals. Terms of their acquisitions weren’t disclosed. 
Swanston is now a member of CI’s board of directors. 

Meanwhile, minority groups still comprise only a small fraction of startup executives, Kauffman Center research found. While 79.2% of VC-backed startup executives are white, less than 3% are Latinx or Black.  

By comparison, 13.6% of startups in CI’s portfolio have minority representation at the executive level, Malloy said. Connecticut Innovations itself has been prioritizing its own diversity, she added, with 52% of its 29 full-time employees female and 10% Black.

Malloy said she hopes the Future Fund encourages more companies seeking CI funding to diversify their leadership.  

“First and foremost, we are looking for diversity at the management and founder level,” Malloy said, “but it [would be great] to have it at the board level as well.”
Fund awareness

To promote the Future Fund, CI will host informational events this spring across the state — including in Hartford, New Haven and Bridgeport, which will feature investors and entrepreneurs, thought leadership panels and networking opportunities. 

CI is also working closely with startup accelerators across the state to make diverse populations aware of the fund. 

Sarah Bodley, executive director of Hartford-based reSET, which offers entrepreneurial programs including incubator space, workshops and mentor networks, said the increased focus on serving diverse communities is needed. 

Sarah Bodley

“Over 80% of Hartford’s population is non-white and we [at reSET] want to prioritize working with folks who are already here, and giving them access to opportunities and growth,” she said.  

Since 2013, reSET has helped its startups secure more than $17 million in outside capital, including grants, loans and investments, Bodley said.

Tori Brown, founder of Breakfast Belles, a consumer packaged goods company that sells hot sauce and food seasoning, is one of reSET’s recent successes. 

Brown, who is Black, said the increased focus on diversity, equity and inclusion in the state has been helpful, as have the networks — and business planning expertise — that she’s accessed through reSET.  

Through Connecticut’s startup resources, Brown said she’s received grants, loans and a cash award for top placement at a pitch competition hosted by CTNext, an affiliate of Connecticut Innovations. 

She said her annual sales are up nearly 20% from last year.  Revenue has largely been driven through social media channels and on Amazon, where Brown had an opportunity to participate in the online retail giant’s Black business accelerator program. 

Despite the progress, Brown said, she still needs more capital to grow her business. In time, she would like to manufacture her products herself; currently she outsources her packaging to a production facility in Waterbury. She also wants to expand her product line. 

Michelle Cote, director of Hartford-based Launc[H], which promotes startup activity in Greater Hartford, said that increased resources in the state over the past five years — including funding and accelerator spaces — has led to a steady increase in the number of startup ventures.  

Michelle Cote, director of Launc[H]artford.

One of the most valuable aspects of the state’s entrepreneurial resources — especially for underrepresented groups — is access to networking, she said. 

“It can be hard for [new] entrepreneurs to tap into networks of people that they need to be successful,” Cote said. “We try to make information accessible for first-time entrepreneurs and surround them with mentors.”  

Those networks can help entrepreneurs find talent, technical expertise and funding. 

Tracking funds

As CI’s new Future Fund gets underway, there is a cautionary note: meeting the criteria to secure venture capital can still be challenging. 

Amid the hundreds of new business funding requests Connecticut Innovations receives annually, less than 10% receive investment, Malloy said. 

As it sharpens its focus on diversity and representation, Malloy said CI has begun to track applicants’ demographic data earlier in the application process across all its funds.  

“We’re always trying to improve ourselves so we can understand more specifically the (proportion) of dollars being invested (in underrepresented groups) in comparison to how many applicants we see,” Malloy said. “So, if we’re investing in 5% to 10% of applicants, hopefully we’ll be investing across all demographics.”  

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