Minnesota corporations, a startup accelerator and the Twin Cities economic development agency have started a venture fund that will ultimately fund more of the metro's growing pool of startups led by women and people of color.

Greater MSP, in partnership with Wisconsin- and Minnesota-based startup accelerator Gener8tor, on Wednesday said the $50 million MSP Equity Fund plans to invest in at least 10 other venture capital funds across the U.S. Those funds in turn would agree to invest in companies led by people of color and women based in the Twin Cities.

The fund is being backed with major investments from Allianz Life, Xcel Energy and Allina Health.

"We think this is a product that's missing in the market," said Al Cornish, formerly of Medtronic and Target Corp., who will act as general partner of the fund. "Other states are already interested in the concept, but we need to prove it here in Minnesota first for a number of reasons. Given all the things that have happened in Minnesota, this is the perfect place to prove this concept, and then other states can adopt it."

Overall, venture-backed companies in the U.S. raised $329 billion in 2021, nearly double the $166 billion raised in 2020. Only about 5% of that funding goes to entrepreneurs who are Black, Hispanic or Latino or women.

In Minnesota last year, Minnesota companies raised $1.34 billion in venture capital, marking the third consecutive year investors committed more than $1 billion to rising and privately owned Minnesota startups.

"We recognize the importance of entrepreneurs and startups within our local community and see them as an important contributor to driving innovation, as well as in supporting job growth and attracting talent within our community," Jasmine Jirele, president and CEO of Allianz Life, said in a news release about the fund.

The MSP Equity Fund began as a priority of Forge North, a regional coalition of companies that operates through Greater MSP. The fund is leveraging Forge North and Gener8tor resources and networks, said Cornish, who previously managed Target's public policy and government affairs for the Midwest.

"Our vision for the greater Minneapolis-St. Paul region is to lead the world in inclusive economic growth," Peter Frosch, CEO of Greater MSP, said in the release. "Venture capital is a key driver for job creation and business growth, and this fund represents a major step forward."

The Equity Fund will target Minnesota-based venture funds; venture funds located around the country that are operated by diverse or emerging managers; equity-based accelerators; and revenue-based financing funds, which are funds that pledge money into small and growing business, in exchange for receiving a fixed amount of revenue of that business moving forward.

"There's a lot of funds that are interested in Minnesota, but just don't have connections in Minnesota," Cornish said. "We're hoping this will serve as a connection point for a lot of funds that have interest, but haven't taken the steps to invest in Minnesota"

Stakeholders in the equity fund want capital invested to reflect the metro's diverse population, said Cornish, who added the metro has more than enough diverse-led startups to sustain $50 million in investments.

"Building an equitable and diverse business climate is essential for our region to thrive," said Bob Frenzel, president and CEO of Xcel Energy, in a statement. "It benefits all companies and communities when we lay the groundwork to foster innovation and job growth in Minnesota."