Black startup founders broke records in 2021, raising $4.72 billion worth of venture capital, but what went up in the wake of protests over the murder of George Floyd came down in 2022. So far this year, Black founders have raised a little more than $2 billion in venture capital.
The third quarter alone produced just $187 million in venture capital for Black founders from 32 deals. That represents 0.12 percent of the $150.9 billion in venture capital raised in the third quarter — a “staggering decline,” wrote Dominic-Madori Davis, quoting numbers from Crunchbase and Pitchbook in a report for TechCrunch.
These numbers are not necessarily surprising, TechCrunch reported. “Investors often retreat to their networks amid economic downturns, taking fewer risks on (Black-owned)” startups.
However, this year’s funding decline is a troubling sign that as venture investors pull back, Black and other underrepresented entrepreneurs may feel the retraction most sharply, Crunchbase reported.
“’I hope future venture capital funding for Black founders matches the cultural impact Black Americans have on American life,’ one investor told me” Davis wrote in a tweet.
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Recent chaos in the venture capital market has taken a disproportionate toll on VC-backed startups, with Black leaders wiping out fundraising gains made in the wake of protests over George Floyd’s murder.
Black U.S. entrepreneurs raised record venture funding amounts in 2021. In the second quarter of 2021, Black founders took in $866 million according to Crunchbase data — almost double the previous year’s U.S. total. But in Q2 2022, Black-founded companies raised just $324 million, a 63-percent drop, according to Bloomberg.
While the VC industry as a whole saw a decline, it was not nearly as dramatic as the one facing Black founders. By comparison, overall VC funding in the US fell by 23 percent in the same period.
Declining funding for Black founders means fewer opportunities for entrepreneurs to break out in an industry known for being inaccessible to Black people. Of the 1,000 unicorn startups valued at $1 billion or more, only a handful have at least one Black founder or senior executive listed on their website, Bloomberg found in an analysis of companies compiled by CB Insights.
The percentage of funding going to Black founders has never exceeded 3 percent in the U.S. since Crunchbase started tracking the numbers.
Most venture capitalists don’t actually have “access” to the groups to which founders belong who are most likely to outperform, tweeted venture capitalist Del Johnson. “The lack of access is usually the fault of VCs who construct their funds to find low performing archetypes,” Johnson added.
In a recent Twitter thread, Johnson painted a picture of “a venture outperformer that is quite different than the standard VC archetype—one that skews much older, more female, and more Black, Latin and Asian than the current VC and founder class.”
“The best entrepreneurs (and investors) sit outside of current VC networks,” Johnson wrote. “They are disproportionately NOT the wealthy Stanford wiz kids we’ve been taught to envision…”
Johnson’s Twitter bio reads, “The Father of Modern Venture Capital. VC, Angel, LP. prev: @Google @Oracle @ucberkeley @Columbialaw Follow to learn how venture capital actually works.”