Hartford Business Journal

14 HARTFORDBUSINESS.COM | FEBRUARy 20, 2023 Portfolio Diversification CT Innovations' $50.5M Future Fund seeks out startups led by underrepresented groups By Matthew Broderick Hartford Business Journal Contributor O ver the past three years — driven in part by pandem- ic-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 busi- nesses 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 compa- nies that have a clear compet- itive differentiator," said Alison Malloy, Connecticut Innovations' managing director of investments. Targeted sectors include tech- nology 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 experi- ence 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' invest- ments 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 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. 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 repre- sentation 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 entre- preneurs, thought leadership panels PHOTO | CONTRIBUTED Andre Swanston

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