20 Jun New Majority Capital Fund I LP
New Majority Capital Fund I LP
Interview with Havell Rodrigues; CEO/Co-Founder of New Majority Capital Management Inc.
Jen: How was the New Majority Capital Fund Created?
Havell: George Floyd’s murder compelled us as founders to think about what we can do to address racial injustice and inequities. Given our backgrounds in entrepreneurship, private equity and hedge funds, we decided to use the capital market tools we were familiar with but in a way that is non-extractive and 100% impact oriented. We chose to focus on helping close the wealth gap by enabling BIPOC and Women become small business “asset” owners by providing free technical resources and access to capital to buyout businesses from retiring owners. We are majority BIPOC-owned and led. I am a first generation immigrant, my cofounder Kris is married into a Black Haitian family and we both met 20 years ago at Babson College. We started to collaborate with 2 other co-founders, Allegra, who is of Jamaican accent, worked at JPM, and graduated from MIT and Harvard, Darryl is a Black military vet from MIT and Harvard Kennedy School.
Jen: How are your investment funds catalytic in a way that is different from other funds?
Havell: We use a revenue based financing model to fund the buyouts of these acquisitions for the entrepreneurs we work with. This allows for flexibility and patience in how the fund is paid back, removing pressures of monthly fixed payments and extractive dividend payments typically associated with PE/Buyout funds. This is a first of its kind fund. We are also unique in our approach to entrepreneurship and business ownership focusing on a lower risk model since the businesses being acquired have cashflows, operations, customers etc. We only focus on businesses whose EBITDA is $0.5-$2M and on businesses whose owners are retiring. Given the silver tsunami of baby boomer owners who are retiring we are taking advantage of this generational wealth transfer to make sure BIPOC and Women have a fair chance of small business asset ownership and wealth creation. We are also ensuring these businesses continue to operate in their local communities and retain and grow good jobs. Our funding decisions are based on their skills and character and not on their credit score or their ability to bring capital to the table. Furthermore, we use a pay it forward model where the entrepreneurs we back invest 10% of excess cashflows from distributions in their business into an evergreen fund to continue to back new entrepreneurs in a flywheel model. This is transformational in the way wealth is created and in the way we create more diverse LP investors.
Jen: How do you describe the kind of non-financial returns the fund offers?
Havell: We are creating more awareness of “Entrepreneurship through Acquisition” so more BIPOC and Women entrepreneurs and mid-career professionals get exposed to the idea of small business ownership as a path for wealth creation and to gain greater control of their destinies. Our back office services for our entrepreneurs and their employees include wellness programs and at scale health care coverage. The capital that we deploy is regenerative in the sense that with the pay it forward model, a portion of the wealth created for our entrepreneurs goes into backing new entrepreneurs in a sustainable regenerative manner.
Jen: Can you describe how you use integrated capital to do your work?
Havell: We intentionally remove barriers to becoming a business owner by BIPOC and Women pursuing “entrepreneurship through acquisition”. We offer non-profit sponsored free awareness and skills-training programs to make as many under-represented entrepreneurs aware of the opportunity and give them the tools to act on it. We use a character based lending approach to provide the down payment required for the acquisitions. & we have partnered with a CDFI and a leading small business acquisition financing bank to complement our resources for the funding of these transactions through a non-extractive, flexible and patient revenue based financing model. We then provide back-office support services to all portfolio companies. We raised our operational capital through a crowdfunding campaign made up of mostly impact oriented investors. They serve as sources of referrals for us for businesses coming up for sale and for entrepreneurs to back. Our exit options from these investments include employee-ownership vehicles or through local community based investors
Jen: How do you address racial justice, income inequality, and/or gender justice through your products and services?
Havell: We focus exclusively on BIPOC and Women entrepreneurs. We make this low risk path of entrepreneurship through acquisition (as opposed to the traditional method of starting a business from scratch) more accessible to them via partnership with local community organizations. We remove the barriers of knowledge, and access to capital, recognizing that there are systemic reasons that have led to very low asset ownership rates among BIPOC and Women entrepreneurs.
bETA Event; Photo Credit: NMC
Jen: Can you share with us an example of an investment?
Havell: We are providing pre-acquisition financing support in the form of a 0% loan to a BIPOC entrepreneur to acquire a healthcare services business in Atlanta, GA.This is a business that generates > $500K in net income selling at a 3.5x multiple, So, the roughly $3M acquisition deal is funded 90% with a SBA 7(a) loan, with the rest coming from seller financing and our investors. . Other transactions all with BIPOC entrepreneurs that are further in our pipeline include 1) a plastic manufacturing company in NJ 2) a insurance agency in NJ 3) a sign and awning manufacturing company in RI 4) a HVAC company in NY, 5) a landscaping company in MA 6) a refrigerated structured manufacturer in MA 7) a moving and storage company in CT 8) a roofing company in FL 9) a catering and event planning business in GA, 10) a tree removal service in RI
Jen: What do you tell people who think your fund is risky?
Havell: Our success is measured by the no. of BIPOC and Women entrepreneurs we back to become business owners – the wealth created for them and the Good Jobs created for the employees in the businesses they acquire since we mandate a minimum of 10% of annual profits go to employees as bonuses and benefits. Given the patient capital that we deploy, we can withstand recession risks. The risk of not investing in the fund is that it does not change the status quo of how wealth is created for BIPOC and women. This is a new model that helps with transfer of assets using the cashflows of the assets to fund the transition removing the notion of you need money to make money. Every investment goes through 3 layers of due diligence, 1 from the entrepreneur, 2 from us and 3 from a bank if we use a bank to complement the funding. Every deal is structured to de-risk it for the entrepreneur, employees and our investors.
Investment Thesis/What is your rationale for your approach to investing?
We finance buyouts of profitable cashflow generating businesses, whose owners are retiring using a revenue-based(cashflow) financing. The buyouts are led by Black and Brown and Women entrepreneurs who receive technical assistance, 100% of the funding and post-acquisition support to ensure the small business “asset” transition and ownership is successful in enabling wealth creation for the entrepreneurs and good jobs for the employees.
Geography: USA
Year Founded: 2023
# of Investments: 1
# of Investors: 85 (individual investors, impact fund-of-funds, family offices, RIAs, Foundations, Banks)
Funds Raised: $2.1M since inception
What’s on Havell’s Mind?
Book: The Purpose of Capital – Jed Emerson
Song: What the world needs Now – Dionne Warwick
Podcast: The ownership beat, ESG on the chopping block , and new tools for system-level investing – Impact Alpha