Insurance company MassMutual announced Thursday the launch of a new impact investing MM Catalyst Fund of $100 million. The money will be used to continue investing in Massachusetts-based diverse-led companies. It’s close to finishing the deployment of its first MM Catalyst Fund of $50 million, which launched two years ago and has so far invested in 16 businesses throughout the state.
This second MM Catalyst fund will continue with the first fund’s mission of focusing on seed to Series B investments within Black-led startups as well as those from rural communities and other historically overlooked backgrounds. The fund will also selectively invest nationwide alongside fund managers at MassMutual’s First Fund Initiative, which focuses on investing in Black, Latino and Indigenous-led businesses across the U.S. and Canada.
The latest MM Catalyst Fund and the First Fund Initiative bring MassMutual’s impact investment pledge for overlooked founders to $300 million, the institution told TechCrunch+. The efforts of MassMutual are a case study on how LPs and other investors can adjust themselves to better commit toward backing diverse funds and fund managers.
Liz Roberts, the company’s head of impact investments, said that MassMutual looked at the facts: The Black, Indigenous and Latino communities make up more than a third of the U.S. population. Less than 5% of all VCs identify as Black or Latino, and, at the same time, less than 5% of all VC funds are allocated to Black and Latino founders.
Funding for Black and Latino founders within Massachusetts is particularly fraught. BostInno reports that Black startup founders raised $110 million, which was just 0.56% of the overall venture capital allocated in the state last year. The year before, the same founders raised 0.45% of all capital raised. Latino founders raised about 3.4% of the state’s venture capital in 2022, up from the 2% raised in 2021.
“There is a correlation between who gets the capital and who’s making the decisions,” Roberts said. “It’s often a systemic barrier and lack of access issue, not a traction issue, as to why these companies aren’t getting funding.”
MassMutual allocates money to diverse fund managers and to founders within the state in order to make the most impact. It announced in October an additional $100 million to use toward its First Fund Initiative, and after the success of its first founder-focused impact fund, the next step was naturally finding a way to combine the missions, giving diverse fund managers the opportunity to back diverse companies.
For the first MM Catalyst Fund, around 65% of the money went to Black CEOs; over half of the portfolio companies within the fund are either female-founded or female-led, and over 60% of the fund’s total investments are in women-led companies.
“Breaking barriers and advancing racial equity can only be achieved with innovative, agile approaches that will drive real change.” Jason Allen, portfolio manager
Roberts said Black founders, in particular, within the MM Catalyst portfolio have seen “incredible traction growth” because many of them were so capital efficient and really only needed a boost in capital to take them to the next level. When initially looking at launching the fund, Roberts said the team assessed the common myths as to why such founders do not receive funding: Was it a pipeline problem, or was it a supply problem? MassMutual concluded that it was a sourcing problem, and changes needed to be made internally in order to help level the playing field.
MassMutual redefined the way it did due diligence, adjusting its benchmarks and expected hurdles for founders and fund managers. Instead of looking at where or if they went to business school or previous exits, it looked at a founder’s ability to overcome adversity or if they are coachable. MassMutual has an open application on its website rather than relying solely on warm introductions.
“Our team’s status quo alternatives to sourcing, screening and selecting deals include intentional and broad sourcing to lower barriers for overlooked founders, taking a consultative, thoughtful approach to meet innovators where they are at, and prioritizing companies with scalable business models tied to social impact, which come in many shapes,” Jason Allen, a portfolio manager who works alongside Roberts, told TechCrunch+.
So far, MassMutual’s efforts are fruitful and, if adopted by many more power players, could lead to meaningful change in the industry. “We would like to have more peers investing alongside us with this sort of thesis and understanding,” Roberts said. “We’re very small in a large opportunity.”
Since the murder of George Floyd in 2020, people have called on those with power to wield it for good and eliminate the institutional discrimination that has kept communities back. Doing this means adjusting to the reality of where people are rather than where society has for centuries called on them to be.
“Breaking barriers and advancing racial equity can only be achieved with innovative, agile approaches that will drive real change,” Allen said. “And that’s what we’re aiming to do through the MM Catalyst Fund.”
This article was updated to reflect Liz Robert’s title at the company.