Funding To Black-Founded Startups Slows Dramatically As Venture Investors Pull Back

Access to cash is the lifeblood of a growing business and often comes in the form of venture capital. Black-founded startups in the U.S. received $324 million in the second quarter of this year—a steep drop from prior quarters when investment to those companies had just started to show hopeful signs of progress according to Crunchbase.  

Although funding to Black startup founders in the U.S. has always been disproportionately tiny—at single-digit percentages—last year set a record in terms of dollars invested in those companies, Crunchbase data shows. Quarterly funding in the five quarters before this was much higher, ranging between $850 million and $1.2 billion, according to Crunchbase’s Diversity Spotlight data.

This year’s funding decline comes amid a general pullback in venture dollars invested this year, a troubling sign that as venture investors become more cautious, underrepresented entrepreneurs may be among those to feel the retraction most acutely.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Startups with at least one Black founder have received 1.9% of deal counts and 1.2% of overall venture dollars invested in the U.S. so far this year, Crunchbase data shows.

That’s in line with the tiny sliver of funding that has typically gone to startups with Black founders: Dollars invested have fluctuated between 0.8% and 1.3% since 2017 per year as a proportion of U.S. funding, according to Crunchbase data. Deal counts since 2017 have ranged slightly higher, between 1.8% and 2.6%.

The peak year for funding to Black founders was 2021, which mirrors the dramatic rise in venture funding to U.S.-based startups overall that occurred last year.

More than $4.3 billion was invested in 2021 to Black-founded companies in the U.S., with just over $1.9 billion, or 44%, of that at seed or early-stage funding.

While that represented a highwater mark in terms of overall dollars invested, Black-founded startups still received just 1.3% of all venture and growth equity financing to U.S. startups last year.

So far in 2022, $100 million has been invested in Black-founded U.S. startups at seed, $591 million at early-stage, and around $876 million at later stage to 100 startups.

Black-founded startups were already struggling to get past single-digit percentages for funding last year, and that was a peak year for VC funding. In an uncertain venture environment in 2022, where investors are focused on their portfolio companies’ survival, that is not likely to improve.

What are your thoughts on the challenge for Black founders to access capital?

 

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