The Alarming Trend of Reduced Funding for Black-Founded Startups
Black founders in the United States have long struggled to secure venture capital funding, with a recent report from Crunchbase revealing that they raised only 0.48% of all venture dollars allocated last year. This number represents around $661 million out of a staggering $136 billion, marking the lowest figure in recent history.
The past two years had seen Black founders securing at least 1% of venture capital funding, but the market cooling has taken its toll on this community. In Q1’23 and Q2’23, Black founders raised 0.74%, while in Q3’23 and Q4’23, they struggled to secure mere 0.13% and 0.20% respectively.
This decline in funding is not a new phenomenon; it has been a consistent yearly trend since the murder of George Floyd in 2020. That fateful event saw a record-breaking amount of capital flow towards Black founders as the tech industry vowed to better support them. However, any progress made during that time has "completely stalled," according to Gené Teare, senior editor at Crunchbase News.
The Great Rollback: A Worrying Trend
The percentage of funding allocated to Black founders remained below 1% in 2023, with the lowest totals coming in the latter half of the year. This worrying trend is not limited to individual companies; it also extends to venture capital firms and their commitment to diversity, equity, and inclusion (DEI).
Crunchbase data shows that only four Black-founded funds announced they raised capital in 2023, compared to 13 in 2022 and 2021. The bear market’s impact on the industry is evident, with deal counts overall being low. This decline in funding may be part of a wider trend of tech’s decreased support for the Black community.
"The Great Rollback" – A Growing Concern
Black founders have started calling this phenomenon "the Great Rollback," as companies continue cutting their DEI initiatives and critics of DEI become more mainstream. The Congressional Black Caucus is also worried about the recent spate of tech layoffs disproportionately affecting the Black community, writing to the Department of Labor to start an investigation into how Big Tech companies are conducting these dismissals.
A Lack of Surprise – Black Founders Were Prepared for This
Black founders and fund managers were not surprised by the dips in funding. They knew that the bear market’s venture pullback would disproportionately affect them. Monique Woodard, founder of Cake Ventures, was one of the Black-led firms to announce last year, although the firm technically completed fundraising in 2022.
Woodard is optimistic about this year, citing her "complete faith" in the resilience and adaptability of the startup ecosystem. She believes that with the right strategies, companies can navigate even the most challenging market conditions.
The Impact on Diversity and Inclusion
The decline in funding for Black-founded startups is a worrying trend, not only because of its impact on individual companies but also because of its broader implications for diversity and inclusion in the tech industry. As venture capital firms continue to prioritize returns over impact, they risk perpetuating systemic inequalities.
The Call to Action – A More Supportive Ecosystem
The tech industry must recognize that the current state of affairs is unacceptable and take concrete steps to address this issue. This requires a fundamental shift in mindset, with venture capitalists prioritizing impact alongside financial returns.
Black founders are calling on investors to be more proactive in their support, providing mentorship, resources, and networks that can help them navigate the challenges of fundraising. By working together, we can create an ecosystem that is truly inclusive and supportive of underrepresented groups.
Conclusion
The Great Rollback represents a worrying trend that threatens the very fabric of diversity and inclusion in the tech industry. Black founders are calling on investors to be more proactive in their support, providing resources and networks that can help them navigate the challenges of fundraising.
As we move forward, it is essential that we prioritize impact alongside financial returns, recognizing that the current state of affairs is unacceptable. By working together, we can create an ecosystem that is truly inclusive and supportive of underrepresented groups.