Samir Mirza, Co-Founder & Executive Director, & Francisco Martinez, Venture Associate & Head of Marketing Communications, Fifth Star Funds
This profile is part of #StartupsEverywhere, an ongoing series highlighting startup leaders in ecosystems across the country. This interview has been edited for length, content, and clarity.
Eradicating Chicago’s funding epidemic through equitable investments
Fifth Star Funds is a venture philanthropy fund that seeks to create a more equitable start-up ecosystem in Chicago, Illinois through early-stage investments. We sat down with Samir Mirza, Co-Founder and Executive Director, and Francisco Martinez, Venture Associate and Head of Marketing Communications, to talk about their organization’s mission, the racial funding gap, and how policymakers can provide much-needed support to help underrepresented founders scale their businesses.
Tell us about your background. What led you both to Fifth Star Funds?
Samir: I originally started my career as a software engineer here in Chicago and then I left to go to New York for business school over a decade ago. While I was there, I co-founded a startup called TapCommerce, a company very early in the mobile advertising space. There, I was the Co-Founder and CTO and we ended up raising Seed and Series A rounds with Bain Capital, NextView, and Eniac as some of our investors. Then in 2014, a few years after we built and scaled the company, Twitter approached us for an acquisition, and we sold the company.
As a part of that, I relocated from New York to San Francisco and spent most of those years building and scaling engineering teams at Twitter. But on the personal side, it was around that time that I started to reflect on the privilege I had in my background in terms of access to education, networks, and capital. To be Indian-American in America and benefit from the “model minority” myth, there were a lot of privileges I enjoyed. I became more intrigued with social impact and diversity within tech, particularly building pathways into tech for underrepresented individuals and communities. So I left Twitter and moved to Berlin, Germany, where I helped build a refugee coding school called the ReDI School. I taught there for two years and worked with other refugee initiatives across Europe while also advising early stage startups and venture capital firms in Europe. And then, after a couple years in Berlin, I decided to move back home to Chicago, luckily a few months before COVID, where I was able to re-integrate into the tech ecosystem and explore different opportunities. A few months after that, sparked by the tragic murder of George Floyd, a group of Chicago tech entrepreneurs and I engaged in conversations about privilege and challenged ourselves to see how we can battle inequities in tech. We became focused on dismantling the obstacles faced specifically by Black founders here in Chicago. Those conversations then morphed into what we're building at Fifth Star.
Francisco: I have lived in Chicago since the age of four when my parents immigrated to the U.S. from El Salvador. I briefly left for college to attend the University of Illinois, and from there, my trajectory took me into the nonprofit sector. As a grant writer and community advocate, I worked to empower the Latino-immigrant community in Chicago. In 2014 I began working at the Robert R. McCormick Foundation as a Communications Officer, helping over 400 grantee-partners and nonprofits strengthen their missions by effectively communicating their unique perspectives and stories. Being inspired by community building, racial equity, and capacity building for BIPOC communities, I decided to return to school and get an MBA with the goal of getting the tools to curve the wealth inequality in Black and Latino communities. When COVID hit, I sought to put my philanthropy background and capacity building for nonprofits into effect. I started working with Fifth Star Funds to help build a philanthropy venture capital fund focused on race equity and racial justice to level the field for Black entrepreneurs in Chicago.
Can you give us an overview of the work you all are doing at Fifth Star Funds?
Samir: At the beginning, there were nine of us in a group of local Chicago tech entrepreneurs that tried to pinpoint the problems that currently exist in the local tech ecosystem. We saw other diversity funds being created across the country, but we felt like no one was really focused on the friends and family disparity—that first check to support Black founders at the beginning of their journey. So we knew we wanted to build a fund, but we didn't want it to be just another VC fund where you have to be an accredited investor to contribute. We wanted to build it in a way where anyone in the city of Chicago can be the friends and family investors of Black tech founders. In our model, any individual corporation or foundation can donate to the fund with any amount. Our smallest donation is $5, and our largest is $250,000. We’ll then use those funds to invest in Black led startups, but what's also unique is that 100% of all the returns get reinvested into the fund. So we don't have limited partners or an external return structure. All the returns get reinvested, so the fund acts as an evergreen flywheel. As our founders succeed, all the proceeds go towards supporting more Black founders in the future.
Three of my co-founders are Black tech founders here in Chicago, and they bring the real-life experience of facing obstacles when they were trying to raise funding for their startups. At Fifth Star’s conception, we were very explicit that the startups we invest in have to have at least one Black co-founder on the team headquartered in Chicago. We're also industry agnostic. We just require that the startup has a software product as its core offering, with the potential for venture scale. So the goal is that these startups would raise subsequent rounds of venture funding in the future. Additionally, one of our core missions is to remove the racial biases that have confronted Black founders in the venture landscape. So we built a rubric (which is on our website), consisting of nine dimensions that we feel should be used to evaluate founders. One example of our dimensions is grit, which represents passion, perseverance, and how the founder battled through obstacles in their personal or professional lives. We're partnered with multiple organizations here in Chicago which have donated into the fund as well. We want to act as a funnel for diverse founders that VC firms can invest in.
And finally, the reason we're called Fifth Star Funds. The Chicago flag has four stars on it; each represents a specific moment in Chicago's history, like the World's Fair, the Chicago Fire, etc. We believe that if a fifth star was ever added, it should be the moment the city came together to support its underrepresented founders and the impact they're having on our city now and in the future.
What are some of the common barriers to capital access you notice that prevent startups in your city from securing funding?
Samir: As a bit of background, in the US, Black founders only receive approximately 1 percent of venture capital funding. But what we found specifically was that at the “friends and family” stage, there's an even larger gap. So this term, which is shorthand for being able to have a network where you can get $25,000 or $50,000 to start a company, has become a term of privilege in the tech world.
Another barrier would be the wealth inequality gaps that exist in Black communities that traditionally have prevented businesses from starting. And once Black founders actually connect with an investor, there are all of these conscious and unconscious biases that exist in the room. Traditionally, venture has been a game of, “Did you go to Stanford or MIT?” or “What high growth tech companies have you worked at in the past?” Black entrepreneurs are also likely not seeing a person like them across the table—there's a lack of Black venture capitalists in the country. I think equity comes down to how you evaluate founders, especially if you're an early stage investor, because it should really be about the team. There are certain qualities we feel can be learned, like how to effectively pitch or how to set up a financial model, but things like a deep understanding of a problem space come with the founder and team. So how founders are being evaluated right now is one of the major issues we see.
Francisco: Along with what Samir stated, when companies are in the friends and family stage, it's not only about the network of whom you can ask for startup capital; it also needs to be about how to structure and scale your company. There are many aspects to starting up that Black business owners may not know. For example, do they know if they're looking to structure their companies as an S Corp or LLC? How should they go about creating an LLC? How should they be paying taxes? Our internal conversations at Fifth Star center around setting the founder up for success; providing them with the tools and resources to problem-solve. It is about giving them the infrastructure to execute their dreams. We're very cognizant of the educational components related to the tech ecosystem's infrastructure on the policy side. Policy influences educational outcomes in minority subsets, and by providing an effective policy, we are setting the foundation for individuals to become successful entrepreneurs from the onset. We create the right atmosphere for minority businesses to think big, seek outside capital, and grow to scale.
Has any federal, or state legislation recently passed been of considerable assistance to acquiring funding?
Francisco: There are programs in the state and in the city attempting to close the digital divide, mainly in the South and West Side communities. Community organizations and centers are also providing digital literacy and access to the internet. We see many founders trying to create solutions to problems in their communities that have stemmed from decades worth of systemic racism and a lack of access to resources. One of the founders we invested in, Dr. Christine Izuakor, is the first Black female to earn a Ph.D. in cybersecurity in the country, and has held senior roles at companies like United. Her startup, Cyber Pop-Up, helps companies hire well-vetted, on-demand cybersecurity talent. She had all these credentials and paying customers for her product, and yet, because she is a woman of color, she, unfortunately, faced obstacles fundraising for her startup. Now, she has institutional backing from Fifth Star Funds, has raised capital from P33 TechRise, and is now closing a large Seed round. That's what we're seeing, and she is the type of entrepreneur we're trying to invest in because it's not only the wealth gap that we're trying to close but also the digital divide and remove the systemic barriers present for minority entrepreneurs in the long run.
Additionally, I would mention that the work policymakers are doing at the Federal level and the efforts by the Small Business Administration had a considerable influence in growing or starting startups during the pandemic. Illinois had a record breaking year with a 69 percent increase in startups in 2021 compared to pre-pandemic times. It will be essential to continue that type of funding provided during the pandemic and allow access to capital for minorities to scale their ventures or even start a business. Without access to capital, there will not be many funds like ours or companies with capital funds like this to prove their worth and then sell a product or even create jobs in the African-American community. We must maintain policies that make stable forms of funding from the government to tech startups, small businesses, and even nonprofit organizations helping create said companies.
What are your goals for Fifth Star Funds moving forward?
Samir: First, we want to hire our first paid staff this year, so we're expanding our fiscal sponsor partnership with Tides Foundation. The current 9 co-founders of Fifth Star Funds have been bootstrapping building the fund up to this point so we’re excited to expand our team to increase our investment and support operations, and really build our initiatives for scale. Second, we want to do a lot more investments this year. We've done ten in our first year, which is wonderful. But there are so many other founders out there—we want to increase the number of interview meetings that we conduct so we can find more opportunities. And third, we want to increase our investment check sizes as well. Right now it's around $25,000, and we'd love to increase that as we raise more donations for the fund.
For long term goals, right now we are Chicago-focused, but we could expand to other geographical areas. We are laser-focused on having an impact here and building our operations before we scale and potentially support other underrepresented founder groups in the future. Additionally, we currently only do equity investments, but we could also explore revenue-based financing in the future which would allow us to support different kinds of businesses. We’re excited at what’s to come in the future as we work to build a more inclusive tech ecosystem for all founders.
All of the information in this profile was accurate at the date and time of publication.
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