The 2020 murder of George Floyd spawned marches, calls for change and countless movements across the country aimed at dismantling racism and creating a more equitable world for people of color in America. It also gave birth to a group of local tech founders who wanted to see more Black entrepreneurs succeed in Chicago.
Launched in February 2021, Fifth Star Funds has created a unique venture capital fund specifically dedicated to backing Black founders in Chicago. It's writing checks at the earliest stages of a startup's life — the "friends and family" round — providing investments between $25,000 and $50,000 for each startup. It has so far raised just under $1 million, with plans ultimately to deploy $5 million to Chicago's Black founders.
But Fifth Star doesn't operate like a traditional VC fund. It doesn't take money from limited partners who are looking for a return on their investment. The fund operates on a donation model where all the money it makes after a startup exits is put back into the fund to invest in more startups. This way, co-founder Samir Mirza said, Fifth Star allows anyone to invest in Chicago's Black founders. Its donations range from as little as $5 to upwards of $250,000. Its larger donors include Jennifer Steans, Mike Gamson, the Yagan family and Salesforce. Traditional VC funds like MATH Venture Partners, Chicago Ventures and Lofty Ventures have also donated.
"With our model, if any Black founder succeeds, it will go on to support more Black founders in the future," Mirza said.
Mirza, a startup founder whose previous business TapCommerce was acquired by Twitter, is one of nine Chicago tech leaders behind Fifth Star. Its team also includes WeSolv CEO Stella Ashaolu, Verve Romance COO Kyle Backer, 1440 Media CEO Tim Huelskamp, S2G Ventures VP Audre Kapacinskas, GYst Audio founder Osayanmo Osarenkhoe, Aloa co-founder David Pawlan, Clinify CEO Nate Pelzer and Verce Romance CEO Tracey Suppo.
The minuscule amount of funding that makes its way to Black founders in the U.S. has been well documented, with just 1% of venture capital raised going to Black entrepreneurs. The historical inequity of venture capital, combined with Floyd's tragic death, spurred Fifth Star's founders into action, Mirza said.
"There are four stars on the Chicago flag, each representing a moment in Chicago’s history," he said. "We believe if a fifth star was ever added, it should belong to the moment that the city came together to support its underrepresented founders."
Fifth Star has invested in a total of 10 startups to date. Its investments include Cyber Pop-up, a cybersecurity startup led by United Airlines veteran Christine Izuakor, and Eventnoire, a startup from Jeff Osuji and Femi Masha that created an event ticketing platform for the Black community.
The fund aims to remove the biases, both conscious and unconscious, typically found in startup investing through a rubric it created to evaluate entrepreneurs. The rubric takes into account things like total addressable market, unit economics, how the company plans to use the funds and the founders' experience.
Fifth Star is among several new investment groups in Chicago that aim to back founders of color, including LongJump and Tech Rise. Mirza said these groups often work together to source deals.
Fifth Star's goal is to be the first check a founder receives and to allow the community to contribute to the success of Chicago's Black startup founders, Mirza said.
"We want to allow the city of Chicago to come together to be the friends and family [round] of Black tech founders," he said.
