An impact investment firm just pledged $5 million to diverse Chicago founders who want to grow their startups without giving up control.
On Friday, Founders First Capital Partners announced its first local investment: OnShore Technology Group, a verification software startup. The San Diego-based impact investment company did not name how much it invested in the Chicago company. But CEO Kim Folsom said the announcement represents just one investment Founders First plans to make in Chicago, after the venture capital company raised $100 million in late December.
“We plan to continue to grow strategically in Chicago to become the leading resource for underrepresented founders in the region,” Folsom said in a statement.
Founders First offers revenue-based financing to businesses led by underrepresented founders, including women, veterans, those who identify as LGBTQ+ and ethnic minorities. Its revenue-based model generally requires entrepreneurs to pay Founders First a percentage of their revenue up to a certain point, which the company said allows its diverse founders to keep full ownership of their startups while receiving funding that is more flexible than a bank loan. The company also operates a startup accelerator.
The impact investment company believes empowering underrepresented founders creates jobs in low- to moderate-income areas — particularly important for Chicago, which holds the record for the largest racial wealth gap in the country. Founders First also believes it plays a role in helping fund startups that are usually overlooked in the traditional VC scene, and aims to invest in service-based companies located outside New York City and Silicon Valley.
Folsom founded the company in 2015 after reflecting on her own experience as a Black woman entrepreneur.
In 1998, she estimated she was one of three women of color across the United States to receive more than $1 million in venture funding. Ten years later, she watched the list of women of color who raised at least $1 million grow to 34 — a number still far below what would at least be equal, never mind equitable, investment in this demographic.
Funders’ unwillingness to invest in founders without a traditional tech background or startups with less potential to drastically scale up keeps investment from diverse founders, Folsom said. The lack of representation of women of color in the venture capital industry exacerbates the problem, she added.
She started Founders First to address this, and other systemic problems in the tech industry.
“Let’s see the practice of funding billions of dollars in businesses led by Black women founders as normal, common and expected, as is access to Wi-Fi at Starbucks,” Folsom wrote in a 2018 Medium post.