In Q3, Black entrepreneurs secured a mere 0.13% of the total capital invested in U.S. startups, according to data from Crunchbase. This equated to approximately $39.7 million out of the $29.9 billion available. Notably, this figure reflects a substantial year-over-year decline.
To provide some context, in Q3 2022, Black founders managed to raise around $1 billion from a pool of approximately $81.7 billion in venture capital, representing about 1.2% of the total. The contrast between these two quarters reveals a significant quarter-over-quarter decrease. Just the previous quarter, in Q2, Black entrepreneurs secured $212 million out of a $29 billion pool, and in Q1, they secured $352 million out of $45 billion. This Q3 downturn aligns with a broader trend of diminishing venture capital funding for Black founders since 2020.
Gené Teare, the senior data editor at Crunchbase, expressed her concern, stating that the venture capital industry is moving in an undesirable direction. While it may be tempting to attribute this to a larger market correction, the data tells a different story. Not only are the funds to Black founders decreasing, but the overall percentage of funding allocated to them remains low, dropping to some of its lowest levels. She continued to emphasize that despite the efforts of many firms and organizations, there is still much work to be done in addressing biases within the ecosystem.
For many Black founders, this decline in funding was anticipated. A significant number of the promises made in the name of diversity, equity, and inclusion after 2020 have been left unfulfilled, and some conservative activists have taken aim at grant programs intended to support marginalized communities. In light of this context, Teare questioned whether there is now an abundance of caution in the ecosystem, discouraging investors from taking risks on first-time founders, particularly those from diverse backgrounds.
As for changes on the horizon, Teare mentioned the possibility of a new California law having an impact, but she recognized that it would take time for it to be implemented and even longer to see results.
On the ground, Black founders are feeling the consequences of this funding dip. Yves Perez, co-founder of Workbnb, described 2023 as “the year of smoke and mirrors for Black founders seeking funding.” He cited broken commitments and shared stories of the challenges he and his peers faced. Perez mentioned that several Black founders turned to artificial intelligence to help them raise funds or adjusted their valuations significantly to expedite the fundraising process.
Arian Long, founder of the period care company Femly, acknowledged that access to capital has been “often impossible” this year. She shared her approach of focusing on profitability, maintaining a lean operation, leveraging grants, and participating in pitch competitions to overcome the funding challenges.
Black founders are also increasingly turning to their own networks rather than relying on traditional investors who have shown limited support. Despite the grim statistics, there are emerging funds and a growing segment of the ecosystem comprising individuals passionate about supporting diverse talent.
Perez and Tinia Pina, founder of agtech company Re-Nuble, found support within their respective networks. Pina pointed out that she has cultivated connections with investors who are mission-driven and committed to eliminating biases in the investment landscape.
