Fifth Star Funds: A Data-Backed Solution to the Racial Wealth Gap

CHICAGO–(BUSINESS WIRE)–Fifth Star Funds, a Chicago-based venture philanthropy fund focused on investing in Black tech founders at the earliest stage of funding, released a report today highlighting their recent findings on the least-researched stage of startup funding: the Friends & Family (F&F) round.

Fifth Star Funds has been working closely with industry thought leader Professor Lynnise E. Pantin of Columbia Law and prominent organizations, such as 1871 and Winston & Strawn, to develop a new statistic, the liquid wealth gap, which offers a more realistic view of the systemic racial wealth gap.

Some of the findings this new study highlights include:

  • The liquid wealth gap removes home equity from the equation, turning the 8:1 ratio of median net worth of a white family compared to a Black family to a staggering 22:1.
  • In order to raise the average F&F round of $23K, a Black entrepreneur would need to secure the ENTIRE liquid wealth of six Black families.
  • White families’ liquid wealth compared to Black families’ is 21.8x. White founders raise 21.2x more in the F&F round than Black founders. This is no coincidence.

While others are approaching the funding racial gap seen by Black startup founders, Fifth Star is taking a unique approach, focusing on not only the funding gap but offering a data-backed solution to shrinking the racial wealth gap as a whole. They are raising a $150M fund in order to invest in 6,000 ready-for-investment Black startup founders per year, leading to $5.2B in annual Black wealth.

Fifth Star was founded by nine Chicago entrepreneurs and industry leaders, in hopes to help transform Chicago’s entrepreneurial landscape to create more opportunities for all founders, regardless of race.

Since its inception, Fifth Star Funds has invested in 20 Black-led Chicago tech-startups. Fifth Star has proven the success of their investment thesis and evaluation rubric, as their portfolio companies are outperforming standard F&F startups by over 10x. Where typically, 1 in 42 (2.4%) of F&F startups matriculate to the next fundraising round, 1 in 4 (25%) of Fifth Star portfolio companies have raised more than $100K subsequent to Fifth Star’s investment.

About Fifth Star Funds

Fifth Star Funds is a venture philanthropy evergreen fund seeking to address the funding epidemic in America where only 1% of venture capital is awarded to Black founders. Fifth Star invests in Black tech founders in the United States at the early stage “Friends & Family” round. Upon liquidity, all returns remain within the fund to invest in future Black tech founders.


Fifth Star Funds

Christine Concepción