February 28th 2024.
According to a recent report from tech research firm Crunchbase, funding for Black-founded startups has experienced a sharp decline. In 2023, the amount of venture capital dollars invested in these companies dropped below $1 billion for the first time since 2016, reaching just $705 million. This represents a staggering 71% decrease, which is significantly larger than the overall 37% drop in venture capital funding across all companies during the same period.
To put this into perspective, just three years ago in 2021, Black founders received a total of $4.9 billion in venture funding. This means that the current figure is a shocking 86% drop from that peak year. This decrease in funding is concerning as it hinders the ability of Black startups to launch and expand their businesses, as well as obtain the necessary working capital to survive. This is especially true for Black-owned women's small businesses, which continue to struggle in securing venture capital funding despite being one of the fastest-growing segments in their industry.
The total investment in Black startups nationwide is now at its lowest point since 2016, when these companies raised just $582 million. This is reportedly the lowest amount of funding they have received in the venture market since at least that year. Additionally, the data from Crunchbase shows that angel and seed funding for Black startups dropped by 51% in 2023, while early-stage investment totaled just $298 million, a significant decline from the peak of over $1.7 billion three years ago.
This decline in venture capital funding for Black startups comes after the industry promised to increase its investments in these companies in the wake of the national protests against systemic racism following the murder of George Floyd in 2020. However, many are questioning where these promised investments have actually been made. Paul Judge, chairman and managing partner of the Open Opportunity Fund, pointed out that with roughly 13% of the U.S. population being Black and over $140 billion in venture capital invested last year, it would be reasonable to expect Black funding numbers to be around $18 billion. However, the actual amount was less than $1 billion, indicating a $17 billion problem that needs to be addressed.
There is also evidence that investing in Black startups can be highly profitable. Minority-led companies have consistently outperformed their counterparts, providing investors with the returns they are looking for. However, there is a lack of awareness and recognition of this financial potential in the venture capital industry. William Michael Cunningham, an adjunct professor at Georgetown University and the owner of Creative Investment Research, believes that the decline in funding for minority businesses is a reflection of the overall economic climate and is exacerbated by anti-Black discrimination.
Cunningham's analysis shows that there could be 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 caused by anti-affirmative action lawsuits. In fact, he estimates that the anti-Black American Alliance for Equal Rights could make $32 million from such lawsuits, with the University of North Carolina agreeing to a $4.8 million settlement with this group just last month. Cunningham believes that these lawsuits are primarily filed to make money for these anti-affirmative action groups and not to truly promote equal rights.
In conclusion, the decline in venture capital funding for Black startups is a significant and concerning issue that needs to be addressed. It not only hinders the growth and success of these companies, but it also perpetuates systemic racism and discrimination. To truly support Black founders and entrepreneurs, there needs to be a collective effort to address and rectify this funding disparity.
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