February 28, 2024

Venture Funding For Black Founders Falls Below $1 Billion For First Time Since 2016

Paul Judge

Recent data from Crunchbase reveals that there has been a disproportionate decline in venture funding for Black-founded startups in the United States.

A Fall Below The $1B Threshold

Last year, these startups secured only $705 million in funding, marking the first time since 2016 that the figure fell below the $1 billion threshold.

This sharp decline of 71% in funding to Black-founded companies starkly contrasts with the 37% decrease in overall U.S. startup funding, highlighting a widening gap in investment allocation.

This drop signifies a declining share of Black-founded startups in the venture market, receiving less than 0.5% of the total $140.4 billion venture funding for U.S.-based startups last year. 

The situation starkly contrasts with previous years – in 2021, Black-founded startups received 1.4% of all U.S. venture funding, dropping to 1.1% in 2022.

“The fact it is not trending in the right direction is certainly a problem,” said Paul Judge, who took over the Open Opportunity Fund from SoftBank last year with Marcelo Claure.

A Contrast To Previous Promises

The numbers contrast what several VC firms and strategic investors promised almost four years ago after the killing of George Floyd.

Judge pointed out that given Black Americans constitute 13% of the U.S. population, a more proportional venture capital distribution would allocate around $18 billion to Black-founded startups. 

“Funding was less than $1 billion a year,” he said. “That means we have about a $17 billion problem. People understand money, so they should understand that. Now we need a $17 billion solution.”

Despite the significant underrepresentation in funding, Judge highlighted the potential financial rewards of investing in startups with diverse leadership. 

He noted that minority-led companies often excel in areas currently prioritized by investors, such as cash efficiency and low burn rates. 

An All-Around Downturn In Funding

All stages of funding for Black-founded startups experienced downturns last year, with angel and seed rounds decreasing by 51%.

Additionally, both early-stage and late-stage rounds saw even sharper drops.  Late-stage funding was particularly affected, constituting 0.3% of all late-stage funding in the U.S.

Last year’s largest rounds for Black-founded startups included Juniper Square’s $133 million venture round and Macro’s $90 million round.

However, such large late-stage growth rounds are rare and challenging to secure.

This decline in early deal volume indicates that fewer companies will be ready to raise larger late-stage growth rounds in the future, perpetuating the downward trend in funding levels.

Several high-profile consumer-facing startups with Black founders, like Calendly, Savage X Fenty, and Cityblock Health, have not raised new financing for over two years.

Sara Keenan

Tech Reporter at POCIT. Following her master's degree in journalism, Sara cultivated a deep passion for writing and driving positive change for Black and Brown individuals across all areas of life. This passion expanded to include the experiences of Black and Brown people in tech thanks to her internship experience as an editorial assistant at a tech startup.