A man with an entrepreneurial mission
Ex-McDonald’s CEO Don Thompson wants to bring South, West side businesses to table
When Don Thompson stepped down from his role as the first Black CEO at McDonald’s in 2015, he launched Cleveland Avenue, a Chicago-based venture capital firm that has invested millions in fast-growing food startups such as Beyond Meat and Farmer’s Fridge.
In April, Thompson will begin seeding a new crop of entrepreneurs — minority-owned businesses on Chicago’s South and West sides.
“From our end this is a very fertile environment, and a group from which great ideas come and we can make great investments,” said Thompson, 57.
Cleveland Avenue, named for the street where Thompson grew up near what was then the Cabrini-Green housing project on Chicago’s Near North Side, is leading a $70 million initiative to fund Black, Hispanic and female entrepreneurs traditionally overlooked by venture capital firms.
It is a departure for Thompson’s firm, which has leveraged his restaurant industry knowledge and 25-year career with McDonald’s to invest in early stage food and beverage companies. But the mission to boost minority-owned businesses in some of Chicago’s most underserved communities reflects Thompson’s own improbable journey from Cleveland Avenue to the C-suite of the world’s largest burger chain.
The challenges Thompson faced in navigating institutional racism have not gotten any easier. Despite renewed vows by corporate America to embrace diversity and inclusion, there are only five Black CEOs at Fortune 500 companies, including Rosalind Brewer, who took the helm of Deerfield-based Walgreens Boots Alliance on Monday.
“Some things have changed and some things have stayed the same,” Thompson said. “And some things have gone backwards.”
Just as Black executives remain scarce in C-suites, entrepreneurs of color are often cut out of early stage venture capital funding, which can be key to successfully
launching and growing a new business, Thompson said.
A form of private equity, venture capital firms fund startups and early stage businesses, seeking high returns for potential breakout growth. The funding source has long been a staple in high-tech Silicon Valley, the nexus of venture capital investing in the U.S.
Black startup founders received less than 1% of venture capital funding in the U.S. last year, according to data from Crunchbase, which tracks startup investment. That racial disparity is “not an unfamiliar reality” for Thompson.
Thompson, who was raised by his grandmother, moved to Indianapolis when he was 11 in an effort to escape growing gang violence in and around Cabrini-Green, a crime-ridden public housing project that has since been demolished. His future wife and business partner, Liz, grew up in Cabrini-Green, but they didn’t meet until both were studying engineering at Purdue University in West Lafayette, Indiana.
After six years at defense contractor Northrup Grumman, Thompson joined McDonald’s in 1990 as an engineer designing food transport and cooking systems. He steadily worked his way up the corporate ladder, becoming CEO of the company, then based in Oak Brook, in 2012.
During his three years at the helm, the fast-food giant grappled with declining
sales and fresh competitors, putting increased pressure on Thompson, who announced his resignation in January 2015.
One of those competitors was Chipotle, a Denverbased burrito chain whose early growth was funded by McDonald’s. Cleveland Avenue was inspired by Chipotle’s success, Thompson said.
In 1998, McDonald’s invested $50 million in Chipotle, taking a minority stake in the promising 5-year-old restaurant with 14 locations in Denver. McDonald’s supplied capital and industry know-how, and by 2005 had acquired more than 90% of Chipotle, helping grow it into a national chain with 500 locations.
In 2006, Chipotle went public and McDonald’s sold its stake in the chain, which flourished out from under the Golden Arches. Last year, Chipotle generated $6 billion in revenue with more than 2,750 company-owned restaurants in North America and Europe, according to financial reports.
“When I was leaving, one of the things I wanted to do was create the same model,” Thompson said. “That was the notion behind Cleveland Avenue, that we were going to support entrepreneurs and amazing things would happen.”
Early investment successes at Cleveland Avenue include Farmer’s Fridge, the Chicago-based startup that sells salads at vending machines. The firm has invested “between $100 million and $500 million” through two funds in fast-growing food startups such as Beyond Meat,
Red Bay Coffee and Bartesian, a Chicago-based maker of home cocktail machines.
Its newest venture is a $70 million fund called CAST US, which is industry-agnostic and focused entirely on minority entrepreneurs from Chicago’s South and West sides. The Illinois Treasurer’s Office is investing $16 million of taxpayer dollars in the initiative, which will be led by Andrea Zopp, the former CEO of World Business Chicago, who stepped down in December to join Cleveland Avenue.
“If you’re giving your money to all the same type of people with the same upbringing, the same educational background, they’re going to tend to look for opportunities in the same places,” State Treasurer Michael Frerichs said. “We’ll find overlooked gems, and we think Don is well-positioned to do that.”
While there is no direct connection, the mission of the fund dovetails with Chicago Mayor Lori Lightfoot’s Invest South/West initiative, a three-year program to invest $750 million to spur development in 10 neighborhoods on the city’s South and West sides. In early March, Lightfoot announced proposals for the first three developments to be built in the Austin, Auburn Gresham and Englewood neighborhoods.
One of the first beneficiaries of the CAST US fund will be Chicago-based AYO Foods, which produces frozen West African entrees such as Jollof Rice, Cassava Leaf Stew and Puff Puff, sold locally at Mariano’s supermarkets. The business was
started in July by husband and wife Fred and Perteet Spencer, based on their Liberian family recipes.
Terms of the investment were not disclosed.
“It is a game-changer,” said Perteet Spencer, 42. “I think it is the difference between our product coming to market and not.”
Spencer, a food industry veteran who lives in the Hyde Park neighborhood, said she and her husband poured their personal savings into the venture, which operates out of a co-working space downtown and a kitchen in south suburban Harvey. The CAST US funding provides the resources to create what she hopes will become a national business, Spencer said.
Last year, venture capital firms invested a record $156.2 billion into startups, with nearly 40% of the funding going to companies in Silicon Valley, according to a report by PitchBook and the National Venture Capital Association.
Chicago ranked sixth among U.S. markets in total
deal value last year at $2.8 billion, or about 1.8% of total funds invested, according to the PitchBook report.
Waverly Deutsch, professor of entrepreneurship at the University of Chicago’s Booth School of Business, said 70% of venture capital funding goes to white male startups, with Blacks, Hispanics and women underrepresented.
In large part, that reflects the lack of diversity among venture capital firms, which tend to invest in early stage businesses where the founders look like them, she said.
“It’s such an insular network,” Deutsch said. “There is a tendency in the venture capital world to see yourself in a white, male entrepreneur.”
The lack of regulatory scrutiny around the venture capital industry, a relatively small part of the private equity universe, contributes to entrenched institutional bias that leaves many minority entrepreneurs out of the money for early stage funding, Deutsch said.
While Deutsch applauded the effort to close that funding gap, she questioned whether the limited scope of the CAST US initiative was the best way to reach them.
“I don’t think narrowing in on the South Side and West Side of Chicago is a way to do that,” Deustch said. “If we really want to open up our portfolio to minorities, we ought to be looking at the historically Black colleges and universities that have great business schools and great entrepreneurship programs.”
In addition, Deutsch said, venture capital may not be the best platform to fund and grow businesses in such a specific geography, where the kind of moonshot opportunities favored by the industry are likely few and far between.
“Lending may be a much better vehicle for that,” she said. “Because lending is what helps small-business owners get started. And lending is what helps small-business owners grow.”
Thompson is confident the Cleveland Avenue model, from rigorous due diligence to supplying funding and guidance to startups, will both foster diversity and produce good investment returns in Chicago neighborhoods far from Silicon Valley.
“That model of collaboration can support our entrepreneurs and it can support all of them,” Thompson said. “So we’re going to prove it by supporting our Black and brown and women entrepreneurs. We’re in the game for everyone, not just a small group.”