business, startup, VC funding, black startups

VC Funding Of Black Startups Drops Below $1B For 1st Time Since 2016

The drop in VC funding to Black start-ups is a big deal as those firms need the capital to launch businesses and expand.

New data show that venture funding for Black-founded startups remains dreary.

For the first time since 2016, backing for those companies in 2023 fell below $1 billion to $705 million, according to a new report from tech research firm Crunchbase.

The eye-popping 71% decline for Black startups was much larger than the 37% drop in combined venture capital (VC) dollars invested in 2023 as the market retreated. The latest numbers also reflect Black founders last year getting over $300 million less in those dollars than seven years before that.

During the peak funding year of 2021, Crunchbase shared that $4.9 billion was invested in Black founders. The 2023 figure represents an 86% drop from 2021 for those entrepreneurs.

The drop in VC funding to Black start-ups is significant as those firms need the capital to launch businesses, expand, and gain working capital to help them survive. Further, Black-owned women’s small businesses continue to struggle to land VC funding even though they’re among the fastest-growing segments in their space.

The entire investment in Black startups nationally represents the lowest amount since those firms raised just $582 million in 2016, according to Crunchbase. That also reportedly was their lowest take in the venture market since at least that year.

Further, the Crunchbase data showed angel/seed funding to Black startups plummeted 51 percent from 2022, finishing at $148 million. (That funding reached a high of $343 million in 2021.) Early-stage investment totaled $298 million last year, much less than the peak of just over $1.7 billion three years ago.

The funding shortfall comes after the venture capital industry in 2020 vowed to boost its investment in Black firms after the murder of George Floyd ignited national protests on the systemic racism.

Still, observers have and continue to question where such investments have been made.

“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.”

In addition, it has been reported that Black startups often can offer investors bullish returns and provide them performance they are looking for.

“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.

Using a brief he attempted to file in a federal case involving the Edward Blum-led American Alliance for Equal Rights versus Fearless Fund Management, LLC, Cunningham highlighted the detrimental effects of anti-Black racial discrimination on market efficiency.

Using a proprietary analysis tied to the Fearless Fund case only, Cunningham calculated a total macroeconomic decline of $7.15 billion in Black and other minority businesses over the next year due to legal costs, declining donations, and negative investment perceptions.

He estimated that the anti-Black American Alliance for Equal Rights stands to make $32 million. For example, he noted the University of North Carolina agreed to a $4.8 million settlement last month with the same anti-affirmative action group.

“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.”