The Minority Business Development Agency (MBDA) has awarded a $1.4 million grant to the National Association of Investment Companies (NAIC), backing a project that will raise about $1 billion for new investment into minority-owned businesses.
The action comes as access to capital remains the most important factor limiting the ability of many of the nation’s 11 million minority- and women-owned business enterprises (MWBEs) to increase in scale. The $1.4 million grant recognizes the obstacles faced by minority asset managers and the prioritization toward addressing the many challenges faced by these businesses, officials say.
The NAIC plans to use the landmark MBDA grant to launch the Minority Growth Equity Funds Initiative, which aims to boost the amount of capital available for MWBEs poised for growth. The NAIC’s goal is to begin to deploy capital to MWBEs by 2020.
Consisting of 75 member firms representing over $150 billion of assets under management, the NAIC calls itself the largest network of diverse-owned private equity firms and hedge funds in the United States.
In a joint news release issued this month, MBDA national director Henry Childs II and Robert L. Greene, the president and CEO of NAIC, talked about the initiative.
The NAIC — as part of a key goal of the initiative — will quantify the demand for and current supply of capital focused on MWBEs. The NAIC will leverage its extensive expertise and broad network to attract and invest growth capital in innovative businesses owned by women and ethnically diverse entrepreneurs.
The outcome is intended to empower MWBEs to drive substantial job and wealth creation and to make a significant economic impact in historically underserved communities and in the nation.
The NAIC says the capital will originate with institutional investors and be deployed by private equity funds of funds (FOF). The FOFs will allocate the capital to the growth firms, and the growth firms will invest in the MWBEs. The FOFs will be required to write a set of rules to manage the funds. While NAIC will give each of its FOF member firms an opportunity to participate, the process will also be open to non-NAIC member firms.
“According to the U.S. Census Bureau, the number of minority-owned small businesses in the U.S. is growing much faster than the overall small business growth rate,” Childs said in a press release. “But, despite their growth rate, minority-owned firms are still having a much harder time accessing capital. MBDA is committed to getting more minority-owned businesses growth capital through forward-thinking investments like the Minority Growth Equity Fund initiative.”
The NAIC’s Greene added, “The importance of minority-owned businesses to our nation’s economy cannot be overstated, but the entrepreneurs who run them are often overlooked in the growth equity market, substantially limiting their ability to scale. With the support of the MBDA and the efforts of our member firms and others, the Minority Growth Equity Funds initiative will help position many of these businesses for enhanced contribution to the American economy of the future.”