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Accelerating Access to Capital for Minority-Owned Businesses

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Disponible en anglais seulement.

The disparity in access to capital for Black and Brown founders is well documented, as is the low number of Black and Brown leaders in private equity and venture investing. But promising trends have and disruptive solutions are being put into play to drive change. This episode of Sustainability Leaders is from a recent BMO EMpower Summit, where leaders of color in the investment space share their thoughts on implementing innovative strategies to bridge the resource and capital gap for Black and Latinx entrepreneurs.

In this episode:

  • Why it’s important to understand that business owners of color receive roughly less than 5% of all capital deployed

  • Why one problem in the Latino community comes down to the average Latina earning $0.50 on the dollar

  • How conditions of the public school systems for Black and Brown students in major cities across the country are deteriorating

Sustainability Leaders podcast is live on all major channels including AppleGoogle and Spotify.   



Michael Torrance: Welcome to Sustainability Leaders. I'm Michael Torrance, Chief Sustainability Officer with BMO Financial Group. On this show, we will talk with leading sustainability practitioners from the corporate, investor, academic and NGO communities to explore how this rapidly evolving field of sustainability is impacting global investment business practices and our world.

Speaker 3: The views expressed here are those of the participants and not those of Bank of Montreal, its affiliates, or subsidiaries.

Michael Torrance: The disparity in access to capital for black and brown founders is well documented, as is the low number of black and brown leaders in private equity and venture investing. But promising trends have begun as disruptive solutions are put into play to drive change. This episode of Sustainability Leaders is from a recent BMO EMpower Summit, where leaders of color in the investment space share their thoughts on implementing innovative strategies to bridge the resource and capital gap for Black and Latinx entrepreneurs.

Levoi Brown: Good morning.  My name is Levoi Brown and I’m the Head of the Economic Equity Advisor Group of BMO Harris Bank.  I work alongside Vice Chair, Eric Smith with the BMO Empower Initiative.  I’m joined today by four incredible subject matter experts and industry executives to discuss disparity in access to capital for Black and brown founders.  The issue is well documented as is the low number of Black and brown leaders and private equity and venture investing.  However, promising trends have emerged and disruptive solutions are being put into play to drive change.

In this session, our panelists will share the innovative strategies they’re implementing to bridge the resource and capital gap for Black and Latinx entrepreneurs.  I would like to start the session allowing each panel member to introduce themselves and outline the measurable action items taken by the firm to address the lack of capital [where] diverse representation in their states.  Let’s start with [Andy] Zopp.

Andrea Zopp: Hey, Levoi, good morning everybody.  Happy to be with you.  My name is Andy Zopp and I’m currently the Managing Partner of the CAST US fund which is a Cleveland Avenue fund.  Cleveland Avenue is a [bank] investment firm founded by Don and Liz Thompson.  My background is I’m a lawyer, practiced law for a long time, but for the last ten years or so I’ve been really engaged in economic development here primarily here in Chicago in a wide variety of roles including Deputy Mayor for Economic Neighborhood Development and Community Engagement and CEO of the cities economic development organization, World Business Chicago.

Currently, like I said, I’m the Managing Partner for CAST US.  CAST US is a $70 million fund launched by Cleveland Avenue in March.  We invest in companies led by Black, Latinx and women-owned entrepreneurs.  We are in early growth stage fund so we hope our company’s been operating for a year or two, have typically around $250,000 to $500,000 of annual revenue and we are primarily focused in Chicago, although we are not limited to Chicago and we are not -- we are sector agnostic.  So, we’re there because here are not enough BC’s of color and there’s not enough capital for the businesses that we’re focusing on and we’re hoping to address that issue.  Really happy to be with you this morning.

Levoi Brown: Thank you for that, Andy.  Let’s move to Jennifer.

Jennifer Steans: Hi, good morning, everybody.  I’m Jennifer Steans and I run our family office, Financial Investments Corporation which we started in 1994 and also help oversee the Steans Family Foundation which we started back in 1987.  So, I’m participating in this space really both from a market rate and a philanthropic perspective and believe the key changes to both are required to help reduce the wealth gap and promote more equitable practices in Black and brown communities.

On our foundation side, we’ve been focused on the North Lawndale community for over 25 years and have recently started, what we’re calling the [Tulsa] 1920 Project, where we’re trying to attract dozens of businesses to come into the North Lawndale community.  And then on the family office side of the house, we helped launch, this year, 5th Century Partners which is a fund, not unlike what Charles will be talking about but in the lower middle market stage where it’s a completely Black owned private equity firm focused on supporting Black owned businesses and majority owned businesses that we convert over.  And they’re just going to be finishing their fundraising on that at the end of the year.

Levoi Brown: Thank you, Jennifer.  Let’s move to Adela.

Adela Cepeda:  Good morning and thank you very much for having us today.  It’s a very important topic.  I’m a full-time Corporate Director and I sit on the Board of BMO Financial Corp.  So, I’m very proud of BMO for highlighting this very important issue.  But I’m also the Chair of Angeles Investors which is focused on advancing capital to startups, mostly led, or what I call -- that have some Latino DNA all over the country.  We’re aiming to be 100 angels by the end of this year.  We’ve made some really fabulous investments, one of them a Latina, and the investment has almost ten times increased in value in a year in the communications sector.  But you ask, why is this important?  It’s important because people of color have very little, I mean, I think it’s less than 5% of all the capital that is deployed and yet we are the ones that need it the most.  We are the communities that don’t have friends and family to help us get started.

What’s the impact?  Our startups don’t become of scale, don’t become national, because of the lack of capital early on.  We’re trying to remedy this with Angeles Investors but there’s so much to do.  So, thanks for highlighting the topic.

Levoi Brown: Thank you, Adela.  And let’s move to Charles.

Charles Corpening: Good morning, everyone.  I’m Charles Corpening, Senior Managing Director with Ariel Alternatives and Project Black.  Ariel Alternatives is a private asset management firm affiliated with Ariel Investments.  It is an enterprise, newly conceived for the times built on a 38-year foundation.  The firms initial initiative was Project Black, will have a mission to scale minority business enterprises that will serve as leading suppliers to Fortune 500 companies supporting their supply chain diversity.  Project Black Management Company is formed to invest in existing standalone businesses and corporate divisions in the middle market that are both minority and not minority owned as well as existing Black and Latinx businesses with revenues on the low end to $100 million to over a billion plus in revenue.  And we will pursue 6 to 10 platform companies and I’m very excited to join you today to talk about the need to dramatically increase minority business enterprises of scale in America today.  Thank you.

Levoi Brown: All right, thank you for that, Charles.  The theme of our summit is Accelerating Access to Capital: Building a More Inclusive Economy.  As we begin our discussion this morning, the sad reality is that the contrast between minority and majority startup founders is stark.  Access to capital is like water to a plant or a tree.  The absence of water, there is no growth.  Andy, can you set the stage by describing the racial equity gap that exists between Black, Latinx and women business owners and ultimately what does access to capital mean for Black or brown communities?

Andrea Zopp: Sure, absolutely Charles and Adela, I’ll begin to touch on it and we could start listing statistics all down the line around the amount, or disparities between capital that’s available for Black and Latinx founders and women founders; whether it’s the fact that 80% of the equity needs of Black and Latinx business founders go unmet compared to a much higher percentage for majority owned companies; whether it’s the fact that -- if you look at all of the venture money that was invested in 2020 or 2019, it was a small percentage, somewhere in the order of under 5%, as Adela said, went to Black and Latinx founders.  For the fact that, as I touched on, there are not a significant number of Black and Latinx and women investors.  That’s changing but challenge is a real, has a real, impact.

And then in terms of the needs, everybody on this call knows, if you’re a businessperson you know capital is a critical piece and available capital when you’re trying to grow your business.  This is particularly true when we look at some of the companies that we’re talking to or investing in.  You have a great idea.  Many of the companies, as Adela said, don’t even have that friends and family fund.  But, for those who are able to even get started, you have a great idea, you make some money.  You’re starting to grow your company and then you get, let’s just say you’re in Mariano’s and you’re in three stores and they go, you know what, we love your stuff.  We want you to go into 100 stores or a 400 stores.  You have to incredibly increase your capacity.  How do you do that if you cannot get access to capital and that is -- it’s that critical difference between a business that is moving along, the majority of Black businesses in Illinois have one or two employees, as opposed to what we’re trying to do, which is to grow strong multimillion dollar companies that have 20, 30, hundreds of employees and then can build wealth for their founders, which will then hopefully return into the communities where those founders come from and hopefully where their companies sit.

Levoi Brown: Got it.  Thank you, Andy.  Love to hear the cycle of money and how that works to our communities.  Jennifer, would love to hear your thoughts.

Jennifer Steans: On the same top -- well, I would just add that [tabs] and some of the stats they gave, 15% of white Americans have business equity versus the 5% that Adela and Andy were alluding to for the Black counterparts and I recently read in McKinsey’s study that said if you were just to get rid of that gap, you’d have $290 billion of additional dollars of business equity in MBE firms.  So, it’s a massive gap that we need to solve and every one of us on this call, I think, has a role to play.

Levoi Brown: Adela?

Adela Cepeda:  Sure, I mean, this is the critical question and the critical issue because this disparity, it plays out then in the income opportunity and the wealth opportunity for our communities and you see it already where Latina’s earn $0.50 on the dollar.  You see it, women that overall are $0.80 on the dollar, and that’s what drives the entrepreneur to try to build something, but without the capital, we can’t get there and this fosters the wealth gap which is horrible for everyone involved.  It’s creating tremendous social strains in this country and in the world and we have to do something about it by trying to alleviate the capital constraints of the communities that most need to grow and that are growing the fastest.

Levoi Brown: Thank you for that.  Charles, anything to add there?

Charles Corpening: Yes, I think that much of it was covered but what I found is, and I had this conversation with a partner, an African American partner of a New York Law Firm, we were talking about the differences in venture capital for people -- access to venture capital for people of color versus majority entrepreneurs.  And we talked about, people in the majority community can have a great idea and raise capital.  For minority communities, you have to have more than just a great idea, you have to bootstrap and come up with a prototype and you almost have to be in market for you to get anywhere near the ability to raise capital.  I’ve just -- I’ve talked about this with friends of mine about if you’re a venture capitalist of color, you actually have an advantage because you’re able to invest much further along the lines and get better returns because you’re backing projects that actually have already proven that they’re sustainable because of their ability to survive bootstrapping, and that’s what we see.  It is definitely an uneven playing field.  The playing field is tilted significantly against the (inaudible) of color [that want to raise] venture capital to start their ventures.

Levoi Brown: Got it.  Thanks for sharing that, Charles.  My next question, I would like to direct to Jennifer.  Jennifer, trillions of dollars were gained in personal wealth by Americans throughout the pandemic, but unfortunately this was not the case for the tens of millions with the least amount of wealth who face deteriorating economic conditions.  Can you describe how public and private stakeholders can address challenges and enable solutions that benefit minority business enterprises to unlock the next trillion dollars within the U.S. economic productivity cycle?

Jennifer Steans: All right, a big question and an important one and there’s many ways that public and private stakeholders can support MBEs.  I think to kind of frame it, I think about it as a two axis graph where you’ve got on the one axis, the public/public partnerships, one where you think federal/state partnerships, state/local working together down to a mix of there’s lots and lots of public/private partnerships right now.  Think the PPP program where the first two rounds might not have been as equitable as we’d like, the third round really was and it was a huge partnership between the federal government and the banks.  BMO, by the way, represented banks incredibly well with their initiatives going after the small MBEs in the program.  So there’s lots of different ways you can play the public/private down to a private/private.  And most of us on the call, whether we’re on a private equity or family offices foundations, etc., can be partnering with each other in a number of ways.  And then the other graph is the kinds of capital that you can bring to bear.  So, you’ve got everything from the pure philanthropic dollars, whether it’s grants or donations, to more concessionary capital up to market rate return; whether it’s debt or equity instruments that you can be investing in.

So, the key is kind of figuring out where on the graph you fit that plays to your strengths and to get going on figuring out how to partner.  So, BMO, for instance, you guys played all over the board.  You’re lending dollars, you’re giving straight donations like the $10 million you just gave to the Rush BMO Health Equity Institute to the support that you gave to 5th Century Partners that our family got in and launched.  And by the way, in 5th Century Partners, just like with CAST US fund, the State of Illinois has been playing a big role.  So, you’ve got a lot of public/private partners with our treasurers office and other states, I think, have very similar programs going on right now.

And you also have organizations in almost every city, like the Commercial Club here in Chicago that is trying to bring together large corporations, sort of like what Project Black and Ariel is doing, to get big companies supporting diverse suppliers; whether it’s through investments or really providing a lot more contracts to a diverse supplier set.  Key to all of these, as we’ve all been touching on, is the need to focus on scaling MBEs.  Closing a wealth gap, another interesting stat I’ve heard recently, if we actually close the wealth gap, we would increase our economy by $1 trillion to $1.5 trillion a year; and it’s a huge opportunity.  So, there’s many different ways.  I think the key is being intentional, action oriented and holding yourselves accountable for it and there’s really no excuse.  There’s, you know -- as we launched another private equity fund, I think it behooves all of us as investors to really put a stake in the ground and increase the targets you have of your actual capital allocation to different minority business opportunities.

And so, not only by the way do I think it’s good business, I think 5CP is seeing a lot of advantages right now because of their focus on Black-owned businesses, it’s really a responsibility to all of our parts.  And I will just add one other key thing, it’s an employee retention tool.  As we all know, employees care a lot about these issues, they want a sense of purpose and belonging and focusing on increasing your investments in minority-owned businesses provides this kind of opportunity for the employees and it’s just a great retention tool as well.

Levoi Brown: Yeah, thanks for those comments, Jennifer, and appreciate you giving BMO a shout out.  Just a reminder to the audience, BMO does have a $5 billion five-year commitment to lend and provide equity to Black, brown, Latinx businesses and we’ve had an incredible first year kind of launching that platform.

Now, I would like to segue to Charles, in talking about Project Black.  Private equity firms and their portfolio companies have an [outsize] ability to influence the status quo of the business community.  Globally, about 10,000 PE firms have more than $3.9 trillion in assets under management.  In North America alone, about 4700 firms owned more than 18,000 companies.  With that kind of influence, if PE firms would continue to reduce their gender and racial inequalities across the companies they control, they could change the face of the business.

Can you describe how this visionary approach to promoting diversity, equity and inclusion represents the cornerstone of Project Black’s strategy?

Charles Corpening: Levoi, thank you very much for this question and I’d like to take a step back because I want to highlight the power of private equity and the influence of private equity in the corporate landscape.  If we scroll back to the 80s and early 90s, private equity was tremendously focused on productivity, cost reduction, really focused on driving returns on capital deployed for investing and that found its way through corporate America and you’ve heard about it, as you’ve sort of looked at [GE] in terms of the management of their businesses.  That influence went like wildfire in corporate America and corporate America became much more efficient and became much more focused on driving and increasing shareholder value.  We see this as exactly the same thing.  Private equity, through their capital, through their portfolios, through their input, have a tremendous responsibility and opportunity to drive impact through their businesses.  And so we have that focus as part of our investment thesis.

In addition to partnering with the Fortune 500 to help them address their supply chain diversity initiatives, it is our strong desire to partner with management teams of color who are committed to both operational excellence.  It is absolutely a given that we have to drive excellence in terms of the products and services that we offer to the Fortune 500.  But in addition to that, we have an extremely strong desire to drive dramatic impact through the organization and through the community.  So, we’re going to have boards of directors that are majority/minority.  We’re going to have CEOs, CFOs, COOs who are people of color.  Latinx individuals, African American individuals that are tremendously successful in their fields of endeavor before they joined us, now are focused on having really a clean blackboard where they can drive growth in the businesses while focusing on impact so they can take that growth and target it to underserved communities and underserved people that are seeking to drive wealth going forward.

So, we’re extremely focused on driving impact in the board room and the C suite through all through the entire levels of the organization as well as meeting our supply chain initiatives.  You’re going to find that we’re extremely focused on Tier 2 supply, so we want to make sure that we are generating success for others.  We want these minority business enterprises that are a little bit smaller that can’t get to the Fortune 500 today to come work with us, to be successful, to get their sea legs, if I will, and then they can come and [able] to deal directly with the Fortune 500.  We’re looking to help graduate those businesses and help them be successful.

I heard a very interesting story as I was at a board meeting the other day and I’m going to leave the exact names out.  But there was a group of majority filmmakers and one of the filmmakers said, I need your help in terms of finalizing this great film.  And he got the group of filmmakers together and they all worked together and they actually traded points, equity in each of their businesses, and each of their films they were making and the films were all tremendously successful but the one that invited them was the most successful.  And I want to see that.  I want to see us work together, collaborate and drive this dramatic wealth creation and success, the opportunity that’s there before us now.  We want to change how corporate America thinks about minority business enterprises.  We want to take away their view that we’re subscale, that we don’t have the talent.  We have tremendous talent.  The real issue is access and opportunity.  So, it’s both customers as well as capital and we’re here to help fill that gap.

Thank you, Levoi.

Levoi Brown: Yeah, thanks, Charles.  I mean, the thesis of Project Black is truly transformative and we love to see all the success you guys are having to-date.  We spent the last several minutes talking primarily about private equity but I would like to segue and talk a bit about the venture space.

Adela, many may not know that venture capital plays a unique role in assisting early stage companies with access prior to qualifying for traditional bank debt.  Great concepts may go unfunded in the absence of investors willing to take a calculated risk.  What role does Angeles Investors play in this space and as a follow-on, how did you evaluate opportunities to include in your portfolio?

Adela Cepeda:  Thanks for that because this was born out of a strong compelling desire to do more for the community.  We -- getting together as professionals and highlighting individual accomplishments to make Chicago more aware of the existence of Latinos all across the spectrum of professional skills and then we thought, you know, the real problem is there isn’t enough capital in our community and we have a lot of people in the technology fields and other fields that were accredited investors willing to put money behind respective startups that could make a difference in wealth for the community if you do enough of them, if you grow enough and, again, trying to fill that gap, that lack of capital that comes to the same statistics on private equity are the case for venture capital, if not worse.  I mean, just women and people of color are basically unseen in terms of ideas that need funding.

So, a strong desire to remedy them and then you have to be careful in selecting obviously.  And our criteria is early so seed and even -- we don’t say, not A and not B, but [max] valuation of [$15] million, some revenue already in place, a product already created.  We won’t fund a concept before it gets the product done and then we look for participation by the overall community, a lead investor, to help guide the process.

One of the things I love about this industry is there is a lot of sharing and I am optimistic that with enough of us focused on the minority startup community that the larger community will start taking a look at these opportunities more carefully.  I’m really hopeful of that and that will make a huge difference for society in the long-term.

Levoi Brown: -- Adela.  Any industry in particular you’re primarily focused on?

Adela Cepeda:  Well, we look for disruption because those are the opportunities that are going to succeed.  And disruption is occurring at an accelerated pace in the technology, digital area.  So, those opportunities come up across industries and we’re very focused on them.  We have a lot of expertise internally to also evaluate them but those are particularly successful.  And, as the chair, I’m very focused on women founders because the problem in the Latino community comes down to the Latina earning $0.50 on the dollar.  Just think what a difference if Latina’s would earn $0.75 on the dollar, what impact that would make on family income.  So, we’re very focused on trying to improve the status of Latina’s overall.  So, we’re seeing a lot and that’s where a lot of the entrepreneurship is happening; women.

Levoi Brown: Got it.  The business leaders hear a lot about disruption, but clearly the last 18 months has redefined the term.  As demographics shift and a U.S. economy evolves post-COVID-19, what are the attractive growth sectors where you see minority and women entrepreneurs driving transformative change?  Adela, you started on that topic but clearly you may have an additional thought or two you’d like to share.

Adela Cepeda:  Yeah, no, it really is -- everything that can be digitized across industries is powerful.  There’s an interest in investing there because what the pandemic did was show us that we need that effectiveness, that ability to communicate when everything else is shut down.  So, that has a lot of interest and we’re seeing the [creativity] of the founders in trying to remedy issues, resolve a problem, by accelerating their technologic prowess and we’re focused on that.

Levoi Brown: Got it.  Andy, would love to hear your thoughts on disruption and also driving transformative change.

Andrea Zopp: Yeah, so obviously just to piggyback on what Adela -- look, the truth is pretty much everything is a tech company in some way or shape or form.  And I really want to piggyback on what Adela said but also highlight something Charles said, I think it’s really important in this space, one of the things I think we’re all trying to do is to change the perception that somehow Black, Latinx and women founders are somehow different; like they’re broken, like they need help, like they’re some small sector.  They are innovating, they are driving change, they are disrupting.  They are no different.  The only difference is they get a higher barrier when they walk into a room because there is an underlying presumption that somehow they’re not the same.  That they are not as technologically smart but they’re not as business savvy and I think one of our objectives and roles is to change that.

So, whether it is providing services, so creating techno -- using technological advances to enhance how you provide certain services, everything.  We have a company that is changing the way restaurants order and [supply] services, repair services, for their companies.  We have -- whether it is -- there’s a women, Black-led women-owned firm, that is changing the way corporate or event organizers that are organizing the event using technology.  There’s a women, a Black women founder who is a platform providing cyber security services to small businesses because, guess what, they have cyber security issues too but they can’t sometimes access some of the bigger companies.  So, she’s creating a platform for them to be able to access those services.

So, there is -- you name the sector, there are Black, Latinx and women-owned business, whether it’s AI, whether it is some other form of technology or (inaudible) to services, there is a space there.  We also, of course not surprisingly, have a lot of companies in the food space which is terrific, but they’re also innovating there.  They’re innovating in taste, in flavor, in recognizing the move towards plant-based foods.  We have -- working with a company, talking to a company, that’s taking cassava flour and turning it into, which is a mainstay in Africa, something that should be, can be, widespread here in the United States.  You name the trend or whether it is a personal trend or a people trend or a technological trend, there is minority or women-led business who’s leading in that space and simply needs support to grow.

Levoi Brown: Thank you, Andy.  Jennifer, would love to hear your thoughts on disruption and driving change?

Jennifer Steans: Well, I will just add a little different twist because I agree with what everybody said so far about all the different sectors and everything’s technology-based at some point.  As you’re seeing on this call, I think there’s a huge opportunity to be backing more asset managers of color.  So, I’m going to just add that twist to it, and if you think about reducing the wealth gap, trying to get more asset managers of color with proper resources is another way of playing it, because not only are you going to enhance their net worth, but all the companies they’re going to focus on and do hopefully a much better job and a very good job at finding lots of talent within the Black and brown communities to be backing.  And I will just share, you know, interesting on the fundraising for our 5th Century Partners Fund, one of the biggest challenges you have to overcome as a first time fund is typically looking to back people who have worked together before.  But, if you’re Black or Latinx, you really haven’t had a chance to work with anybody in the industry before because that doesn’t exist.

So we have to think differently about how to be supporting new asset managers of color across all fronts, and there’s many new businesses being formed and so I just think that’s another area of focus that we all should have.

Levoi Brown: Got it.  Charles, would you like to add anything?

Charles Corpening: No, I think we’ve covered all the points.  I thought it was a very good discussion.

Levoi Brown: Okay, very good.  Let’s segue a bit to talk about returns.  The ability to generate above average returns for LPs is predicated on your ability to make solid investments that are built on partnership, collaboration and, most importantly, trust.  Jennifer and Adela, can each of you discuss the value that your firms will seek to provide in your portfolio companies?  Let’s start with Jennifer.

Jennifer Steans: Yeah, is -- as we all probably know, in any company’s ability to scale you’ve got market, business model, capital, technology issues you have to deal with.  But in a sense, everything gets back down to management talent within the organization.  I think that’s kind of 80% of what every company needs.  So, we tend to start with once you’ve got the CEO to back, it’s really helping them with the right board representation; so getting independent diverse board candidates.  I’m with Charles, you’ve got to have -- you’re not serving anybody well if you don’t have a very strong and diverse set of members on the board, and then really helping add to the talent in the C suite.  And more than that, the CEOs need mentorship and networking opportunities.  And so trying to find out what networks, well, really trying to get everybody different kinds of sponsors and mentors, but ways to support access to different kinds of customers or understanding more about the markets that they’re serving, that’s critically important and, of course, as we’ve already talked about, everything is being digitized today.  So, you have to get the companies the right resources they need to make this happen and to execute it well.

So the key thread through everything, and what we tell our management teams, is we are really backing management teams.  We don’t go in, like a lot of funds have to with the set timeframe for our investment, we’re kind of in our investments as long as the management team wants to be in.  So, if you can align your interests and kind of support them throughout the holding period that they want to have, you can really have a big impact in every step of the journey that they have on scaling.

Levoi Brown: Thank you.  Adela, love to hear your thoughts.

Adela Cepeda:  Yeah, that’s a great question because, of course, this is a business in asset management that measures everything.  And return is like the most basic measurement and that is key.  I mean, it’s a risky business in venture capital so we are -- we do have return goals and we assess opportunities that we think can result in above average growth.  But what do we bring to the table, as Angeles Investors?  We bring so much more than that initial capital investment because I’m struck by something that Andy said about how minority entrepreneurs -- they’re not so different.  They’re not lacking basic abilities, but we do lack something in a very significant way.  We lack network.  We do not have the access to the networks that result in excess investment opportunities for our businesses.  And one of the things that we try to do, as Angeles Investors, is to expose those companies that we’re interested in, and even those that we’re not, to greater opportunities for them.

We have what we call pitch events and we show three or four opportunities there but we’ve seen, you know, 40, 50, before we’ve selected those.  Many of those, we try to direct to the right place.  We try to keep an open door and clearly the ones that are in our portfolio, everything we can do, and we’re fortunate in that the Angeles Investors are across the United States, across industry.  They are professional leaders and we can bring revenue opportunities in the way of potential contracts, investment opportunities in the way of other investors, even corporate investors.  It’s just so much more than just the dollars and cents and I think it’s an important approach because we have to make up for that lack of network that exists in our communities and Chicago is -- there’s no better place to talk about it.  This is a city that has grown up extremely segregated by ethnic community.  So, we have to change that.

Levoi Brown: Yeah, Adela, you hit on some great points, particularly talking about the lack of exposure to people of color to the venture capital and the private equity space.  But I would also like to segue into the role of education in this process.  A large portion of minority communities will never hear the word private equity, let along understand how a waterfall works.  To provide a data point, in 2019, and according to, 26% of blacks ages 25 and older obtained a Bachelors degree as compared to 36% for non-blacks.  Although not a data point, it’s worth noting the condition of the public school systems for Black and brown students in major cities across the country are deteriorating.

Andy, in your role as Chair of the Board at Chicago State University, are you also seeing similar trends, and if so, what steps can be taken to help increase enrollment and retention of Black and brown students?

Andrea Zopp:    Yeah, that’s a great point Levoi.  You know, the numbers currently for Black and brown students, and Black students in particular, in higher education are discouraging.  The number of enrollment particularly of Black males in college and secondary programs has declined annually for the last five years.  In the last year, if anybody has been paying attention, there’s been several reports about it recently, around college enrollment for community colleges, for four-year colleges, significantly down in 2021 versus 2020 and, of course, since 2019.

So, we have some work to do and obviously there’s a whole host of reasons for that.  But you are right, if we’re talking about engaging people in the business sector, education becomes critically important.  Then there’s a couple of pathways, first, obviously as you’ve pointed out, paying attention to our high school and promoting and encouraging development of our high school.  We, in Chicago, the public school, high schools here have improved dramatically up until the pandemic with enrollment, just for example on graduation rate went from 50% to 80%.  And if you just think about that for a second, we had 50% of our students who were not graduating from Chicago Public High School.  What does that mean?  That’s changed and we also have more students enrolled in dual degree programs, but then the pandemic hit and we are going to pay for that.  That was a huge impact for students, particularly students on the margin to take those students and say, all the sudden you’re going to go and be facing a screen for students who have that community and that support it’s critically important.  So, I think that [CPS] is very focused on addressing that issue but there’s a real gap there.

For colleges, at Chicago State, we’re doing a number of things.  We have a program for first-year students where tuition is free.  They are supported, they have counselors and teachers and all aimed at retaining our program.  We have programs to support students who are staying in, who are facing financial challenges.  We have a lot of students who get in, make it through the first year but have to reenroll, they have a real challenge.  So, we’ve been eliminating debt for students to make sure -- if they are close to graduating, we have a program to eliminate their debt.  More importantly, we started the last year under President Scott’s leadership at Chicago State.  We had a state-wide panel put together to look at equity and addressing disparity in education and part of this is making sure that we start addressing enrollment and retention and we’re going to have an institute at Chicago State focused on addressing disparities for students of color so that we can continue to put some of these programs in place.

Lastly I just want to say for people to know because I just found this out the other day that I thought was so powerful from Juan Salgado, the Chancellor at City Colleges of New York.  They now have a program for adult learners for certificate programs where they can go in and then move to get a job.  It’s free.  City Colleges is free now for those students and that’s on top of their Star Scholarship which is for any student who graduates from the Chicago Public Schools with a B average or plus.  City Colleges is free.  So, addressing this cost of education is, of course, important.  We are working on that here in Chicago, which I think is important to do, and going to be critically important because if you can’t get that entry level education, it’s really hard o then go on to get that secondary level that you need and, frankly, you need some level of education for almost any job of real, of middle income salary.

Levoi Brown: Thank you for your insights there, Andy.  Jennifer, would love to hear your thoughts on the role of education.

Jennifer Steans: Well, I’ll bring in -- I think it’s just critically important on all fronts too.  So, we’ve got the North Lawndale College Prep High School that we had started where we are now with the Phoenix Pact program on it, if a student graduates with a B average or above, we give them the total last-dollar scholarship.  So the goal is, per Andy’s point, it’s so expensive, you’ve got to address the cost of college so the goal is they’re going to come out of college with $10,000 or less of debt if they go to a school that’s very good at graduating students of color.  So they have to go to what we call a success college.

So, I think if you start tracking all the way through, it’s key to get these students through school.  And coming back more to the finance and private equity world, there are a lot more programs out now, hopefully geared towards getting more women and students of color into the areas of finance.  So, one national program I’ll highlight is Management Leadership for Tomorrow that was started by [Susan] Rice’s brother, John Rice.  If you’re not familiar with it, I encourage you to become a member.  We’re now a full fledged member.  We’re trying to broaden them in the Midwest because they’re more East Coast-based but they take all sorts of women and students of color, mostly Latinx and Black students who are interested in finance all the way through; whether it’s at the high school level, college or even graduate program levels and really partner them up and get them on to a much better career path opportunity.  Highly recommend that for involvement if you’re trying to look for more folks of color in your business.

Levoi Brown:      Got it, thank you, Jennifer.  MLT, for sure, is a great program.  Adela, would love to hear your thoughts on the role of education?

Adela Cepeda:  So, for me education is everything.  I’m not sure if you know but I’m an immigrant to the United States and my parents brought me here as a six-year-old and the oldest of five for one sole purpose, to get education that would enable me to be a professional, whatever that meant.  Not exactly clear.  And our family was focused on every enhancement that would enable us to be college educated.  So, there’s nothing that I think is more essential to success in anything than education.  And because of that, I’m now on the Board of Arrupe College which as part of Loyola, they have a two-year program really focused on kids; Black and Latino kids and trying to give them the skills to enter a four-year college.  And they provide every kind of service besides education and we have a 75% success rate in terms of getting them to a four-year program.  That’s extremely high.  And now this program has gone national with a college being started in New York and I think there’s one planned for California.

These are the things we have to do because if we don’t address the education gap, that’s just going to exacerbate the financial income gap that already exists.  So, they go hand-in-hand.  We have to do everything we can for our young people to understand that they have to try to stay through a college education.  As Andy says, everything now requires reading the manual and learning the technology behind it.  That’s education that’s required and this is a major problem in our communities.  We have to be front and center trying to address it.

Levoi Brown: Thank you, Adela.

Andrea Zopp: Hey, Levoi, I just want to add on because I do think, absolutely, we’re talking about education, but the other part of that is, when you get them in, they stay in, it is then access through internships and job opportunity, summer job opportunities that will help them expand their careers.  In Chicago we have the Apprenticeship Network, the Illinois Venture Capital Association has an internship program, but I think you talked, we talked a while ago, about what can companies do?  I think be intentional about making sure that those opportunities you have are expanding to broader communities because we know how critical those jobs are and a lot of times, particularly recently, post-pandemic, a lot of those internships don’t pay.  Well, these students need money.  These students are the ones who are going home in the summer and working so they can pay for the next year of school.  So, paid internships, apprenticeship opportunities, opportunities where they can get credit at school.  Wherever you can support that, particularly for diverse students is really, really important.  And I can’t underestimate that.  Because we all had them.  We all had them and so but for students of color like our students at Chicago State, finding those internship opportunities for them is a lot of work and we’re focused on it but this is a place where I think the corporate and business community can really step up.

 Levoi Brown: Got it.  Thank you, Andy, for underscoring those points.  As we begin to bring our panel to a close, I want to ask each of the panelists to address the next topic which has to deal with industry access to private equity and also venture capital.  In the media, it’s pretty well known that private equity struggles with its diversity problem.  Firms in the [rarified] asset management investment sector have a dismal record on diversity.  A growing awareness of this issue is prompting efforts to closing this glaring gap.  Providing minorities and women with more robust career opportunities in private equity and venture capital is critical, however, having them pay back six figures in student loan debt greatly slows the narrowing of the wealth gap.

I’ve got two questions that I would love to hear all of the panelists respond to.  Number one, have you seen examples of private equity or venture capital firms working to reduce the racial and gender disparities that exist, and number two, how can we encourage others to take on this challenge?  I would like to start with Charles.

Charles Corpening:  Levoi, thank you.  And if I may, the issue isn’t competency or critical mass of African American or Latinx professionals that can drive and generate attractive returns.  It is frankly the level of comfort or lack thereof with inclusion in these extremely lucrative private equity partnerships.  There is a certain way that people are recruited for these opportunities and let me tell everyone, it’s not via  The private equity industry needs to be pushed by the providers of capital for private equity to be more inclusive.  So, it’s the pension funds, it’s Fortune 500, it’s ultra high net worth individuals, it’s family offices, need to dramatically push private equity to be more inclusive and so, we can talk about being aggressive in terms of ideas.

If you look at the NFL, to try to increase hiring for head coaches, they came up with the Rooney Rule.  Andy Rooney said that you can’t hire someone unless you interview a person of color.  And I would tell you, at certain partnerships, they need that kind of push.  They need for the pension funds to ask them very pointed questions around how many people of color did you interview for your associate class, for your vice president class, for your [principle] class?  Because if you don’t get into those positions and you don’t prove yourself by having excellence in execution and thoughtful idea generation that drives returns, you’re never going to have the opportunity to get the partners that run these firms comfortable with you to bet millions, if not tens of millions, of dollars on you to become a partner in their firm.

And what was fortunate for me in how I got into private equity was I worked for a person at the Rockefeller Group 35 years ago and he spun out and started his own firm and I got experience by joining him so he was comfortable with me.  And then I joined Citicorp Venture Capital because the head of the group, the Chairman, Bill Comfort, was teaching a seminar in leveraged buyouts and he decided that the smartest person in the class happened to be a person in color and he was going to hire that person.

The interesting thing though, is even though he hired me, he was still uncomfortable.  And so he told me that I always had to travel with a -- and this is a 100% true story, he told me I always had to travel with a Caucasian person because they would be uncomfortable hearing how to better run their business or growth opportunities with me in the lead.  That’s the level of discomfort that was in private equity in 1993, 1994.  So, I don’t want everything to think that they’re going to move on their own.  They’re going to move because CalPERS says we want you to drive towards having 15% of your associates and vice presidents and principles being people of color to the majority firms.  They’re going to change because CalPERS isn’t saying we’re going to invest 10% of our capital with people of color who have started their own firms and those firms driving tremendous success, and so the partners of these firms see that success and say, I want them on my team; that’s how we change.

Levoi Brown:      Got it, thanks, Charles, for your insight and sharing a personal story there.  Jennifer, would love to hear your thoughts on industry access.

Jennifer Steans: Yeah, I could not agree more actually with what Charles was saying and I think we have to, as an industry, as a family office, be much more creative in broadening the funnel of talent because the talent is there and it’s just a lot of times, you know, we don’t know about it.  I do think, by the way, many firms are focusing on DEI initiatives with their hiring training retention.  As one of my partners always says, it’s really a heart condition, not a head condition.  You have to -- people have to have a shared purpose and sense of belonging at the firm and you’ve got to get people wanting to be much more inclusive.

And so I mentioned MLT, Andy alluded to, there’s the IVCA Scholar Program which we’re participating in.  We’re also starting an analysts program and I’m seeing a lot of other private equity firms do that because, again, you’ve got to get outside the normal career path and we’re starting an analyst program just for women and people of color to come in and start learning about the industry.  One of the things, to the point Charles made, is we’re in positions where we can be demanding private equity firms to be doing more.  There’s an initiative out there started by the Institutional LP Association, the ILPA.  They have a diversity in action pledge that folks can now take.  Up to now, and it’s geared towards both LPs and GPs and to take the pledge, you’re committing to four foundational elements which includes having a DEI statement or strategy.  You have to internally track your hiring and your promotions to make sure you actually have a target and you’re working towards hitting targets and seeing improvement there as well as some other things.

About 175 firms have signed on to-date.  We’re signing -- we’re in the process of signing on right now and that’s something we can all be working to do.  And then I think besides the internal focus, you have to have an -- you have to go through the internal journey yourself and then you’ve got to be bringing it to portfolio companies as well.  So, I think all of us on the panel are probably very focused on the companies we back and what’s their own governance structure like and where are they on their own sort of commitment to their DEI journey because a lot of the companies we partner with are really missing out on opportunities as well from improving their businesses if they can broaden their own funnel of hiring talent and thinking about it from a board perspective and in their own C suite.

So, we’ve got to be looking.  I think you’ve got to first do the internal work and then you’ve got to be turning it externally as well.

Levoi Brown: Thank you, Jennifer.  We are running a bit short on time but I want to allot 60 seconds to Adela to address industry access and then I’ll hand it over to Andy to close us out. 

Adela Cepeda:  Thanks so much.  Yeah, my answer to your question, have you seen examples of PE/VC firms working to reduce the racial and gender disparities?  No.  The answer is no.  Where is it?  The statistics are compelling.  There is almost -- there’s negligible participation of minorities in this industry.  And I think that it’s upon the VC and PE firms to say what are they doing, because they’re not doing very much.  And it should be the investors, i.e., government pension plans, corporates that are putting money into these funds to say, how are you addressing the fastest growing market in America, which is Latinos, where are they represented in your group of employees, in your group of companies?  It’s incumbent that before you put money in, you should be demanding these.  Believe me, money talks and this is where the money is coming from.

So, I think that there should be a follow-up here and have them address what are they doing?  Because I’m not seeing it.

Levoi Brown: Thank you, Adela.  Andy?

Andrea Zopp:    I just want to add a follow-on on that really, I think Adela and Charles both focused on the fact that the investors, potential investors, who are using these money management firms have to make demands.  But I also think the next step there is, there has to be accountability.  I sat on the Chicago Teachers’ Pension Fund Board and I cannot tell you how many times majority investment firms came in and we would ask them the question, we would look at their statistics and year-over-year nothing changed.  And I think in those instances, those pension funds and people who are putting money into funds have to say, you know what, we’re going to prioritize putting our money in places that clearly who’s commitment aligns with ours.  And when that starts happening in real ways, you will start seeing some change because, I agree with Adela, there’s not great examples of people really in this sector really making a change because they haven’t had to because year-over-year people still continue to give them hundreds of millions and billions of dollars to invest without them making real meaningful change and providing access.  And let’s face it, we all know that’s where real wealth is built inside those firms and they have the opportunity to really grow change by increasing their diversity and they need to start doing it.

Levoi Brown: Well, we have officially exhausted our time and I would like to thank each of our panelists for their contributions to this robust discussion.  Accelerating access to capital is truly the catalyst to building a more inclusive economy and I look forward to the continued progress in the coming months and years.

Speaker 3:

The views expressed here are those of the participants and not those at Bank of Montreal, its affiliates, or subsidiaries. This is not intended to serve as a complete analysis of every material fact regarding any company, industry, strategy or security. This presentation may contain forward-looking statements. Investors are cautioned not to place undue reliance on such statements as actual results could vary.

Speaker 3:

This presentation is for general information purposes only and does not constitute investment, legal or tax advice, and is not intended as an endorsement of any specific investment product or service. Individual investors should consult with an investment, tax and/or legal professional about their personal situation. Past performance is not indicative of future results.

Michael Torrance Premier directeur de la durabilité

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