Fifth Star Funds is a nonprofit that invests $25,000 in Chicago founders at the Friends & Family round, on the same terms for every company.
A tax-deductible contribution to a 501(c)(3). More than a hundred individuals, family foundations and companies have contributed since 2021. Every contribution goes into the same pool, the one that writes first checks.
Every quarter we open a window. Founders apply, everyone who meets our criteria records a screening interview, the strongest meet a member of the committee, and the committee evaluates each against the same ten-dimension rubric. It's a founder-attribute rubric, so it asks who the person is and what they've done, not where they went to school.
A standard post-money SAFE with a $4 million valuation cap and a 20% discount. Same terms for every company. We don't take a board seat or a say in the business. We invest on the same terms a family would.
The $25,000 buys the first version of the product, the first customers, and sometimes just the months of rent that let the founder work on it full time.
When a company raises a priced round, our SAFE converts to shares. If the company is later acquired or goes public, the proceeds come back to the fund and go out again as someone else's first check, which is what makes us an evergreen fund. Nothing comes back to a contributor, and nothing comes back to us.
In our current budget, about $20 of every $25 goes to founders: $17 as the first check and $3 as LongJump's support. The other $5 runs the fund, and our financials page shows how we count it.
Say a founder in Bronzeville applies in the spring window. She's been building out of mHUB, and her friends and family can't write the check. A member of the committee interviews her, the committee evaluates her against the rubric, and votes yes.
In June we wire $25,000 to her company on our standard SAFE. She spends it on the first working version of the product and three months of full-time work. LongJump's coaching starts the same month.
Eighteen months later she raises a $500,000 seed round from Chicago angels. Our SAFE converts into a small share of the company. Years after that, if the company is acquired, that share comes back to the fund, maybe $50,000 or $75,000 after dilution. That's two or three more first checks for the next founders.
Why a nonprofit? Because capitalism breaks down at the Friends & Family round. The companies are too early and too risky for any fund that has to return money to investors. A family writes the check anyway, because the return comes back to the family. We built a fund that works the same way for a whole city.
We built the rubric to reduce bias in the room. Every founder we evaluate is scored on the same ten things, and the committee's discussion is about the evidence for each, not about who the founder reminds anyone of.
At the Friends & Family round there's usually no revenue to read and no traction to extrapolate from, so the founder is most of the evidence there is. We still ask the business questions, about a company that mostly doesn't exist yet.
Grit is the one people ask about. We mean a founder's passion for the idea and their perseverance, shown in what they've already done in their work and their life, because at this stage there's rarely a company to look at yet.
Every founder we interview hears back from one of us, with our reasons, and can apply again in any later cycle. It isn't a no. It's a no for now.
LongJump is our operating partner and a pre-seed fund. Every founder we back gets their founder-led coaching, structured programming and investor introductions, from people who've raised this round themselves.
Fifth Star grew out of the 1871 community, and our founders are part of it. Workspace, events, other founders a desk away, and the people who send us applicants in the first place.
AWS credits through Fifth Star, and through LongJump, access to TechNexus office space, its perks platform, and quarterly events with investors, operators and other founders.
When a company is ready for its next round, we introduce the founder to Chicago's angels and the funds that write it. They send founders to us when someone's a little early for them.
Companies take years to reach an exit, and our check comes in early. Our oldest companies are five years in, and a raise of $100,000 or more is one of the steps a company takes on the way to an exit.
Funds built this way have precedents with published numbers. Acumen has recovered $36.8 million of $115 million invested across 123 companies. Evergreen Climate Innovations, here in Chicago, reports five portfolio exits from a fund capitalized the same way we are. When our first returns come, we'll publish every dollar and where it went.
Legal name, EIN, 990s, the board and how we count, on one page.
Financials and governanceChicago-based, at the Friends & Family stage, with at least one co-founder who has faced material barriers to accessing capital due to racial discrimination.
ApplyUpdates on the founders we back and the work behind the checks.
