VC Funding of Black Startups Falls Under $1 Billion For The First Time in 2016

VC Funding of Black Startups Falls Under $1 Billion For The First Time in 2016

Venture investment for Black-founded firms continues to be bleak, according to new research.

According to a new study from digital data firm Crunchbase, funding for those startups dropped below $1 billion in 2023 for the first time since 2016. The amount was $705 million.

The staggering 71% reduction in venture capital (VC) dollars invested in Black firms in 2023 was far more than the 37% decline in VC dollars invested overall as the market declined. The most recent figures also show that Black founders received almost $300 million less in total last year than they did seven years prior.

According to Crunchbase, Black founders received $4.9 billion in investment in 2021, the year of highest fundraising. For those entrepreneurs, the 2023 number indicates an 86% decrease from 2021.

The decline in venture capital funding for Black start-ups is noteworthy since these companies require funding to establish themselves, grow, and acquire working capital to ensure their survival. Furthermore, while being one of the fastest-growing market sectors in their industry, Black-owned women’s small businesses still have difficulty obtaining venture capital funding.

According to Crunchbase, the total amount invested in Black companies nationwide is at its lowest point since those businesses only raised $582 million in 2016. According to reports, it was also their lowest venture market take since at least that year.

Additionally, according to Crunchbase data, angel and seed funding for Black entrepreneurs fell by 51% from 2022 to $148 million. (In 2021, that funding peaked at $343 million.) Compared to the peak of little over $1.7 billion three years ago, early-stage investment was substantially lower last year, at $298 million.

The lack of funding occurs despite the venture capital industry pledged in 2020 to increase its support in Black-owned businesses after George Floyd’s murder sparked widespread demonstrations against institutional racism.

Nevertheless, some have questioned where these investments have been made and they still do.

“Given roughly 13% of the U.S. population is Black and over $140 billion in venture capital was involved in the U.S. last year, it should be reasonable to expect Black funding numbers to be around $18 billion,” Paul Judge, chairman and managing partner of the Open Opportunity Fund, told Crunchbase.

“Funding was less than $1 billion a year,” he said. “That means we have about a $17 billion problem. People understand money, so they should understand that. Now we need a $17 billion solution.”

Furthermore, it has been observed that Black businesses frequently deliver the performance investors seek and promise bullish returns.

“People just haven’t realized the financial rewards of investing in startups with diverse leadership,” Judge told Crunchbase. “Minority-led companies consistently outperform.”

“We think the data accurately reflects current macroeconomic conditions and is reflective of the general decline in funding for minority businesses,” William Michael Cunningham, an adjunct professor at Georgetown University and owner of Creative Investment Research, said regarding Crunchbase’s data.

Cunningham used a brief he intended to submit in a federal action pitting the American Alliance for Equal Rights, led by Edward Blum, against Fearless Fund Management, LLC, to emphasize the negative impact of racial discrimination against Black people on market efficiency.

Cunningham computed a total macroeconomic drop of $7.15 billion in Black and other minority firms over the following year due to litigation fees, declining donations, and unfavorable investor attitudes using a proprietary approach connected to the Fearless Fund case alone.

He calculated the potential earnings of the anti-Black American Alliance for Equal Rights to be $32 million. He mentioned, for instance, that the University of North Carolina last month settled for $4.8 million with the same anti-affirmative action organization.

“It is my belief that these anti-affirmative action lawsuits are being filed primarily to make money for groups like the incorrectly named American Alliance for Equal Rights.”