Despite being one of the most diverse cities in America, Chicago has historically fallen woefully short when it comes to investing in minority-led startups. In 2020, Chicago Inno counted just nine active Black-led startups that raised at least $1 million in their lifetimes.
But over the last two years, that has started to change, thanks in part to the launch of several founder-led funding groups and other initiatives dedicated to backing Black and Latino startup founders at the earliest stages. And those efforts are beginning to pay dividends, according to a report from P33, a nonprofit civic organization working to boost Chicago's tech community.
The report found that in 2021, Chicago had the highest percentage of angel and seed-stage investment going to Black and Latino founders of any major tech hub in the U.S. Of the $294.3 million in all angel and seed funding raised in Chicago last year, $38.4 million went to Black and Latino founders, which was 13.1%. That was more than second-place Miami, which saw 8.2% of seed funding go to Black and Latino-led startups, followed by Washington, D.C. (7.4%), Atlanta (5.97%) and Denver (4.75%).
Largest percentage of angel and seed funding in 2021 for Black/Latino founders
- Chicago: 13.1%
- Miami: 8.2%
- Washington, D.C.: 7.4%
- Atlanta: 6%
- Denver: 4.75%
- New York City: 4.7%
- Los Angeles: 4%
- San Francisco Bay Area: 3.9%
- Seattle: 1.6%
- Boston: 0.9%
P33's report, which examined data from Crunchbase, one of the only venture data sources that includes founder race in its data collection, also found that Chicago nearly tripled its investment in Black and Latino founders since 2019.
"None of us did a very good job a decade ago of thinking about how do we make sure we’re leaving the door open wide enough for Black and Latino founders, and I put myself, as a Latina founder, in that guilty party," said Desiree Vargas Wrigley, a serial Chicago entrepreneur and the executive director of TechRise, an initiative from P33 that provides grants to founders of color in Chicago.
TechRise is one of several new organizations and funds that have launched in recent years to increase the amount capital that flows to minority founders in Chicago. Others include LongJump and Fifth Star Funds, two founder-led funds that invest in minority entrepreneurs in Chicago, as well as Cleveland Avenue's CAST US fund, which raised $70 million to invest in Chicago companies owned by Black, Latino and women entrepreneurs.
M25, another early-stage venture firm in Chicago, revealed in a report this year that nearly 50% of its current fund is invested in Black, Latino and women founders.
"Collectively as a city we’ve been working so hard to support the top-of-the-funnel founders," Vargas Wrigley said. "There's so much more attention going to founders of color than we’ve ever seen before."
The turning point for some Chicago tech leaders was the murder of George Floyd, which brought conversations about race and racism in America to the forefront for many during the summer of 2020.
"The death of George Floyd really ignited a lot of attention towards the inequities in a number of spaces," said Stella Ashaolu, the CEO of Chicago startup Wesolv and the co-founder of Fifth Star. "Here in Chicago, we really saw that in technology."
Fifth Star writes checks between $25,000 and $50,000 to startups led by Black founders. It invests at the earliest stages, typically in the "friends and family" round, and plans to ultimately deploy $5 million to Chicago's Black founders. Instead of operating like a traditional VC fund, Fifth Star funds startups via a philanthropic model where all the money it makes after a startup exits is put back into the fund to invest in more startups.
"We felt it was the best model to attack a fundamentally flawed system," Ashaolu said. "With the philanthropic venture model, it allows us to not only seek high returns, but to have other very important and critical metrics that we are working toward."
Some of the Black and Latino-led startups to raise seed funding last year include SupplyHive's $2 million, Clinify's $3.1 million and 86 Repairs' $5.3 million.
Ashaolu said the effort Chicago tech founders and other local leaders are making to improve funding for founders of color is "something to be really proud about."
"We’re definitely energized by it and really excited that there’s a lot of initiatives and focus and attention happening here in Chicago," she said.
