Racial Equity in Venture Capital: The Rise of the New Community Transformation Fund

The venture capital world has long been criticized for its lack of diversity—both in terms of who receives funding and who controls the capital. But a new model is emerging that challenges the status quo. The New Community Transformation Fund (NCTF), based in Grand Rapids, Michigan, is proving that targeted investments in underrepresented founders can deliver both social impact and market returns. By focusing on businesses owned by people of color, NCTF is not only addressing systemic inequities but also tapping into a growing ecosystem of innovation and resilience.

A Strategic Approach to Inclusion

The NCTF's thesis is simple but powerful: invest in scalable, early to mid-stage companies led by entrepreneurs from historically marginalized communities. Since 2020, the fund has raised nearly $12 million and expanded its portfolio from three to nine companies in just seven months—a testament to its ability to identify high-potential ventures. These companies span industries like financial technology, health care, and advanced manufacturing, with a shared emphasis on solving real-world problems.

Consider Honeycomb Credit, a crowdfunding platform that supports small business owners from Black, Indigenous, and other communities of color. By providing access to capital that traditional lenders often deny, the platform not only empowers entrepreneurs but also fills a $200 billion funding gap in the U.S. Similarly, RiseKit, a workforce development platform, uses AI-driven tools to connect job seekers with opportunities, addressing systemic employment barriers while creating a scalable SaaS business.

The fund's managing director, Abid Ali, emphasizes that these investments are not charity—they're calculated bets on businesses with strong unit economics and market potential. “We're not just funding diversity; we're funding innovation,” he says. “These founders are solving problems that the broader economy has ignored for decades.”

The Financial Case for Racial Equity

Skeptics might argue that ESG (Environmental, Social, and Governance) investing is a moral imperative, not a financial one. But the NCTF's performance tells a different story. Since aligning with Michigan Capital Network in late 2024, the fund has accelerated its deal flow and operational efficiency, enabling it to deploy capital at a faster rate. This partnership has also attracted institutional investors like Mercantile Bank of Michigan and Corewell Health, who recognize the fund's alignment with broader economic development goals.

State-level backing further validates the fund's approach. In June 2025, the Michigan Strategic Fund Board approved $9.8 million in support for NCTF's second fund, which aims to raise $20 million. This funding, part of the federal State Small Business Credit Initiative 2.0, reflects a growing recognition that inclusive capitalism isn't just socially responsible—it's economically necessary.

Lessons from the Portfolio

The NCTF's portfolio offers a blueprint for how targeted investments can generate both impact and returns. Take Functional Fluidics, a health tech company tackling red blood cell health. Its bridge-round funding from NCTF is expected to accelerate FDA biomarker qualification, opening pathways to a $1.5 billion market. Meanwhile, Opnr, a concert-organizing platform, is leveraging pre-seed capital to expand its digital tools, demonstrating how niche markets can scale with the right support.

These companies share a common trait: they address unmet needs in their communities while building defensible business models. For investors, this duality is a win-win. A 2024 study by the Global Impact Investing Network found that impact-focused funds outperformed traditional peers by an average of 12% in net returns, underscoring the financial viability of this approach.

A Call for Broader Adoption

The NCTF's success isn't an anomaly. It's part of a broader trend toward blended finance, where public and private capital collaborate to scale solutions to societal challenges. For investors, the lesson is clear: diversity in entrepreneurship isn't just a moral imperative—it's a source of alpha.

However, the road ahead isn't without challenges. Impact-driven funds often face higher due diligence costs and longer time horizons. But as the NCTF's experience shows, these hurdles can be mitigated through strategic partnerships and state-backed programs. For institutional investors, this means rethinking traditional metrics and prioritizing long-term value creation over short-term gains.

Final Thoughts

The New Community Transformation Fund is more than a venture capital vehicle—it's a paradigm shift. By centering racial equity in its investment strategy, it's proving that the best businesses are those that solve problems for the communities they serve. For investors seeking to align their portfolios with their values, the message is straightforward: the future of capitalism is inclusive.

For those willing to bet on it, the rewards—both financial and societal—are within reach.