Creating financial and social returns through impact investing

Last year, only 1.3 percent of the total venture dollars?raised by U.S. companies went to Black founders. What’s more, venture capitalists invested a record $34.8 billion in startups in Massachusetts, but only 0.4 percent went to startups with Black founders.

The MM Catalyst Fund (MMCF) has been working to change that equation. A year ago, MassMutual launched the MM Catalyst Fund, a $50 million commitment to invest in Massachusetts companies that are getting overlooked because of systemic barriers. MMCF addresses the way diverse and overlooked founders are selected for deals and dollars with two sleeves – one for Black-led businesses, the other for businesses based outside Boston to fuel innovation across the Commonwealth.

MMCF is focused on investments that seek to both deliver meaningful societal impacts and market rate financial returns. Taking an inclusive approach with our portfolio companies, MMCF brings equal parts financial capital and human capital – setting them up with funding and using MassMutual’s bench strength to provide mentorship, networking, and other guidance to bolster their success.

Since MMCF launched, I am proud to share that we have invested $7.25 million in 10 incredible companies across a range of industries – five with Black founders and five technology and sustainability investments in companies outside of Boston.

To understand first-hand the catalytic impact MMCF’s investments are making, Derek Canton, founder of the startup Paerpay, and Daniel White, co-founder of Clean Crop Technologies, both MMCF portfolio companies, share their experiences:?

"Being part of MMCF has not only been transformational for @paerpay, but also me personally. Over multiple rounds of funding and the ups and downs that come with running a growing startup, MMCF has been a true partner through it all. With MMCF leading our most recent round of funding, we have the resources to effectively scale our business and further support our growing customer base."

-Derek Canton, founder of Paerpay

“MMCF stepped up as a key anchor investor for our series A, giving us runway to hit several key milestones this year on our path towards commercialization. But more importantly than capital, their networks in Western Massachusetts are already helping unlock critical partnerships and talent pipelines to help us scale more quickly.”

– Daniel White, co-founder of Clean Crop Technologies

Breaking Barriers

So, how does MMCF identify these overlooked entrepreneurs? Our success in finding them is a result of reinventing key aspects of a traditional investment process – sourcing, screening, and due diligence – to find and fund companies in a more expansive way.?

We continue to develop strategies that address the gaps and barriers to funding, but some initial learnings and solutions we’ve identified include:

• A fairer, more accessible path to funding: MMCF’s online application lowers barriers for underestimated founders to access our funding. We don’t just rely on our internal networks. Over the last year, we have sourced more than 115 companies in 56 cities and towns and over 50% of companies we screened in 2021 had a Black founder.
• ‘Look Twice’: We take a consultative, thoughtful approach to meet innovators where they are at – ask questions that reveal traction and market position rather than only focusing on top-level metrics.
• Alternative metrics: We consider founders’ track records instead of relying on previous exits or what schools they attended to score founder tenacity, ability to overcome adversity, etc. This can be an upfront investment yet worth it as it’s often systematic barriers and lack of access that is the issue, not traction.

Reducing structural barriers and advancing racial equity can only be achieved with innovative, agile approaches that will drive real change and create impact within our communities. As I reflect on the past year since MMCF’s launch and look to the future, I strongly encourage other VCs and institutions to join us in investing in diverse and overlooked founders to create financial and social returns. Our growing, phenomenal MMCF team is eager and excited to build on the foundational work and success of the past year.

Looking ahead to this year, we plan to make around a dozen new investments, while supporting our 2021 portfolio companies. If you’re a Black founder in Massachusetts or company based outside Boston that’s fueling innovation – we want to hear from you. Contact us on the?MM Catalyst Fund website.