Impact Investments That Support Companies Affecting Positive Change
By Raymond Guthrie, Chief Investment Officer and Head of Capital Deployment at Momentus Capital
In 2022, a Fast Company piece by Porter Braswell released new statistics that painted a telling picture: in 2021, only 1.4% of Black founders received venture capital funds. That’s a stark number when you consider that more than 13 percent of the U.S. population is Black or African American. It is not surprising, however, given that Black investors only make up 3% of the venture capital industry. The numbers are similarly poor for women-led startups, which only receive 2.3% of venture capital funding, and whose leaders only make up 5.7% of venture capital partners.
When you think that racial inequality, specifically as it relates to Black Americans, has cost our economy over $16 trillion over the last 20 years, it’s clear that our approach to investing in diverse entrepreneurs needs to change.
Companies serving historically disinvested communities, especially those led by entrepreneurs of color, often face barriers to securing the investments that they need to grow. This may include business knowledge that is limited as a result of not having a formal education or not being able to pursue an advanced degree. Limited networks and lack of access to family wealth can create obstacles to securing basic startup costs or working capital. Seeking traditional financing has been an ongoing barrier to success for generations due to systemic biases.
While local leaders are best positioned to drive community-driven solutions, they still consistently butt up against systemic barriers to accessing capital. It is often confusing for business owners to know where to start or who they can turn to. This situation often forces entrepreneurs to rely on extractive capital or on the onerous requirements of debt like putting up collateral or personal guarantees that are often predicated on and exacerbate an inequitable system. Generations of inequality have made it harder for entrepreneurs of color and women to accumulate wealth that could be leveraged for investment. Having less existing wealth means one receives less favorable terms of financing, putting at risk the disproportionately smaller amount of wealth one does have.
Momentus Capital aims to interrupt this vicious cycle. We envision an economic system that respects and uplifts all peoples’ right to achieve the dreams they have for themselves, their communities, and generations to come by changing the way community-centric businesses secure capital.
Turning Traditional Venture Capital On Its Head
Led by a diverse team of experts, Momentus Capital’s approach is fundamentally different. Starting with a listen-first approach, our focus is on social impact and on growing companies in a culturally respectful manner.
We are uniquely positioned to grow mission-aligned companies by acting as a single source with the ability to provide them with a continuum of financial, knowledge, and social capital.
To us, this takes many forms:
We provide financial capital through flexible financing options – a range of debt and equity products to meet our partners’ needs, as well as access to new markets and investors.
We provide knowledge capital through business advising, assistance, and training.
We provide social capital through connections to networks and people that can help our partners succeed.
In addition to this holistic approach, where we truly differentiate ourselves from traditional venture capitalism is through our philosophy on equity. It is our intention that any impact investment we make is designed to be regenerative or non-dilutive. Our end goal is focused on helping companies grow while also ensuring that profits primarily stay with the entrepreneurs, employees, and community members.
Investments That Support Community-Focused Companies
Our impact investments team also takes a unique approach that begins by getting to know the company from the inside. This helps us understand what impact the company wants to have on its community; what unique solutions it is seeking to deliver that support equitable outcomes for health and wealth building; and what challenges the company has faced in raising capital as a result of being led by an entrepreneur of color or of serving a disinvested community.
Armed with that knowledge we can develop a flexible and patient approach that is first and foremost designed to help businesses achieve their growth visions sustainably.
We do this by offering three primary investment vehicles:
- non-dilutive preferred equity whereby cash flow positive businesses pay a fixed payment and dividend
- mezzanine debt that helps companies bridge between rounds of equity;
- revenue/profit-sharing structures that can be used standalone or in combination with the above.
Our Sector and Geographic Focus
We put these tools to work by engaging with diverse entrepreneurs focused on building healthy, inclusive, and equitable communities. This includes companies that:
- Create economic opportunities to support intergenerational wealth-building
- Improve access to affordable, healthy food
- Improve access to healthcare and insurance
- Grow cooperatives
We’re further helping to fuel economic growth and opportunity by fostering deep connections in our communities. Currently, the Momentus Capital impact investments program target geographies include Atlanta, Ga.; California; Detroit, Michigan; the Washington, D.C. metropolitan region; Miami, Florida; New York Tri-State area; Seattle, Washington; and the Texas Triangle (Austin, Dallas, and Houston).
We’ve already demonstrated the positive impact that our approach is creating with and for community-minded companies.
Take, for example, Abner Mason the president and CEO of SameSky Health. Mason launched SameSky in 2013 to advance health equity for Americans who are marginalized or under-resourced by helping them better navigate the complex health care system.
To grow his company, Mason needed investors but has long been frustrated by those who either would not invest in him as a Black CEO, or were not supportive of his solutions that focused on disinvested communities.
Where others saw risk, we saw an opportunity. Through our impact investing program, we provided SameSky Health with a $5 million venture debt bridge loan to support the growth of the company as they progress to raise Series C funding.
You can read more about our partnership with SameSky in this Q&A with Abner Mason.
We also worked with Obran Health, a unique company that operates worker-owned health care companies designed to give decision-making processes and capital back to caregivers, operators, and health care workers. A lot of Orban’s affiliates are managed by worker-owners who are women of color, and so this was an excellent opportunity to make an investment that supported wealth building in a way that would stay with the employees in their communities.
When Obran Health sought to acquire Physicians Choice Home Health, a home health care provider in Los Angeles, we provided a $1 million preferred equity investment. This allowed Obran to avoid the traditional route of syndicated loans and debt which would have hampered their long-term growth.
Our continuum of capital is built to allow diverse entrepreneurs to think about what’s possible and allow them to achieve that. We do that in a way where our interests in generating positive social impact in communities are aligned with your business growth goals. So my pitch to entrepreneurs is if you have a dream, and you want to achieve it, we can support you with the financial, social, and knowledge capital to do so.