The Milky Way Tech Hub Fund has its sights on raising $50 million for a venture capital fund by 2021, but the fund managers say only $2 million is needed to operate.
To launch the fund, Jet Constellations and its social impact arm, The Milky Way Tech Hub, has partnered with New York-based IP Zone, an information technology and services company spinoff from American Express.
Jet Constellations chief executive officer Nadiyah Johnson and IP Zone CEO and patent attorney Tracey Thomas, a Milwaukee-native, will manage the fund. The fund will invest in scalable tech companies with substantial intellectual property and a willingness to relocate, invest or partner with Milwaukee.
A core tenet of the fund is to transform Milwaukee by leveraging public and private capital to benefit an inclusive group of entrepreneurs, said Johnson, who also works at GE Healthcare. In a press release, Johnson referenced a Silicon Valley Bank study, which suggests that only “1 percent of Black businesses are backed by venture capital further widening the digital divide and the vast economic disparities that presently exist.”
“I definitely think there’s enough capital here and I definitely think there’s enough power and brilliance here that can make this happen if they truly want it to,” Johnson said. “One of the biggest barriers that has plagued Milwaukee in progressing in this space is excuses and this fund removes that excuse. If you’re looking for a reason to support black people in tech, create socioeconomic change in Milwaukee, here’s your chance.”
The Milky Way Tech Hub Fund will have two integrated portfolios – one that will invest in nascent companies and a second that will invest in research-based companies. Both portfolios will focus on companies in the artificial intelligence, Internet of Things and 5G space, although nascent companies will focus on mobile technology rather than 5G due to the complexity of 5G technology, Johnson said.
The fund will invest an average of $100,000 to $500,000 into each company in the nascent portfolio. Johnson expects that these companies will require significant incubation to build out management plans, business strategies and marketing plans, she said.
“At the other end of the spectrum, we are working with companies in the mobile and chip spaces, for example, whose plans and projections viably have them requiring Series A funding within a year,” Johnson said.
The Milky Way Tech Hub is focused on Milwaukee-area startups and will incubate and fund as many viable home-grown companies as resources allow, Johnson said, adding that she and Thomas have had positive preliminary discussions with companies about locating some central aspect of their operations or business in Milwaukee.
“As we get more feedback from our portfolio companies, advisors and investors we will solidify our plans, policies and metrics on this issue,” Johnson said. “We want to be held accountable.”
The fund will also make investments of $5 to $10 million during series A rounds of companies in the research-based portfolio. These companies, who are in the IoT, 5G and AI space, will be intellectual property-rich businesses, some of which already hold patent portfolios valued at as much as $300 million, Thomas said.
The Milky Way Tech Hub Fund has exclusive funding rights to invest in some of these portfolio companies, which will use the capital raised by the fund to generate value by creating new companies built around their patents, and if necessary, selling or licensing intellectual property and/or by enforcing the intellectual property rights associated with the patents held by these companies, Thomas said.
“One of the companies we’re working with, they’ve got hundreds of disclosures around 5G capabilities that can be turned into very valuable intellectual property and they already have a track record,” Thomas said. “And we (IP Zone) already have a track record generating substantial value.”
Although a $50 million fund is the goal, Johnson says Milky Way Tech Hub fund could launch its seed funding plans with an initial close of $2 million.
“To fully execute our current plans —based on the exclusive funding rights we have, the startup pipeline and the diligence we have performed to date—the initial target raise is $50 million,” Johnson said in a statement. “Additionally, based on the positive investor feedback we have received to date and the funding opportunities we see in our pipeline; we are not ruling out raising additional funds, especially to support the research-based portfolio companies.”
However, Johnson says investors have already made financial commitments to fund, including a commitment from a “top 5 automotive company of several million,” she said in a statement.
“We can operate with less than ($50 million),” Thomas said. “But to accomplish the social impact goals that we would like to achieve, we’ve got to be focused, nimble and well-capitalized.”
The most immediate and tangible connection between portfolios, Johnson said, will be internal knowledge sharing. However, companies selected in the nascent portfolio may be driven by research and trends uncovered by research-based portfolio companies.
Nascent companies will also benefit from programming through Johnson’s concierge accelerator at Milky Way Tech Hub. Twelve startups have completed the accelerator program, but Johnson has plans to scale the accelerator in 2021, she added.
The goal of the fund is to have 10 to 25 startups in the next 5 to 10 years ready to reach a Series A round and well-positioned for an exit in the near future, Johnson said. As far as returns, Johnson and Thomas have billed their fund as a long-term investment, with returns being generated within five to seven years, Thomas said.
Thomas and Johnson say they are working to build local partnerships and have plans to reach out to area accelerators, entrepreneurship programs and organizations. When asked about raising $50 million in such a short time-frame, Thomas said the goal was very attainable considering IP Zone’s track record of creating value for companies and based on the assets of the companies that Milky Way Tech Hub Fund has exclusive rights to fund.
“I am a first-time fund manager and I understand the challenges of raising a fund,” Johnson said. “Now is the time where many people are waking up to the disparities that exist in the tech industry and I’m hopeful that institutional investors like endowment funds, state pension funds and corporations understand the impact of investing in a fund led by a black woman,” Johnson said in a statement.
