Startup Funding for Black Founders Plummets in 2023

The year 2023 witnessed a stark reversal of progress for Black entrepreneurs in the venture capital landscape. After a period of heightened awareness and pledges of increased support following the racial justice movement of 2020, funding for Black-founded startups in the United States plummeted.

Data from Crunchbase reveals that in 2023, venture funding for Black-founded startups in the US totaled only $705 million. This marks the first time since 2016 that the figure failed to even reach $1 billion. This represents a staggering 71% decrease compared to 2022, far exceeding the overall decline of 37% observed in US startup funding. 

Let’s take a look at the decline in investment and how recent trends have impacted startup funding for black founders. 

National Trends and Backlash Against Diversity Initiatives

While 2021 saw a peak in global startup funding with $643 billion invested, the subsequent year witnessed a correction, with a notable drop to $285 billion in 2023. However, the challenges for Black-led startups extend beyond market corrections. The backlash against Diversity, Equity, and Inclusion (DEI) initiatives in the corporate world is exacerbating the situation. Influential figures like Bill Ackman and Elon Musk, along with conservative groups, are championing efforts to curtail DEI initiatives, undermining the progress made in response to the social upheaval of 2020.

Despite commitments to support Black founders, venture funding to Black-led startups has been on a steady decline since 2021, indicating a loss of interest or focus from investors. In 2023, Black founders in the U.S. secured a mere 0.48% of all venture dollars, totaling around $661 million out of $136 billion. Legal challenges, such as the lawsuit against business mentoring platform Hello Alice and Fearless Fund by conservative groups, highlight the uphill battle Black founders face in accessing funding and the consequences of such legal battles on their growth trajectory.

Regional Disparities in Funding

The funding decline wasn’t uniform across the US. Major venture hubs like the San Francisco Bay Area, Atlanta, and Boston witnessed even steeper drops for Black-founded startups:

San Francisco Bay Area: Funding for Black-founded startups here plunged 78% in 2023. This represents the lowest total since 2017, despite being the top region for such funding historically. The Black founder funding share in the Bay Area shrunk from 1.3% in 2021 and 2022 to a meager 0.3% in 2023.

Atlanta: Atlanta, historically strong for minority-led companies, saw a 79% decline in funding for Black-founded startups. This translates to the lowest amount since 2017, with only $23 million invested. The Black founder funding share in Atlanta dipped to 1.5% in 2023 from a high of 8.9% in 2021.

Boston: Boston experienced a 72% decline in venture dollars going to Black-founded startups. The 2023 total of $23 million represents 2.6% of the region’s venture market, the highest percentage share but still a significant drop from previous years.

Other significant venture markets, including New York and Los Angeles, also experienced declines in funding to Black-founded startups. New York witnessed a 51% drop, falling from $375 million in 2022 to $185 million in 2023. Similarly, Los Angeles saw a 43% dip, decreasing from $301 million in 2022 to $173 million in 2023.

A Multi-Stage Squeeze: Funding Declines Across All Stages for Black Founders

The lack of large funding rounds significantly impacted Black-founded startups. In 2023, there was only one $100 million+ round compared to 17 such rounds in 2021 and 2022 combined. Large funding rounds are crucial for scaling companies and achieving significant growth. Without them,  Black-founded startups struggle to compete with well-funded counterparts.

All funding stages for Black-founded startups saw declines. Angel and seed rounds dropped 51%, while early and late-stage rounds plummeted by 74% and 73% respectively. This suggests a potential pipeline issue –  fewer startups are securing early funding, which could lead to a shortage of viable late-stage investment opportunities in the future.

Deal volume also painted a concerning picture. The 173 rounds funded in 2023 represent a 48% drop from 2022 and the lowest volume in at least eight years. This low early-stage deal flow indicates a potential lack of future late-stage funding opportunities.

The downturn in venture capital funding for Black-founded startups in 2023 represents not only a regression from the progress seen in previous years but also a concerning trend that threatens to widen the racial disparity in entrepreneurship. The data paints a stark picture of the challenges faced by Black entrepreneurs, with funding dropping precipitously across all stages and regions, far outpacing the overall decline in startup investment.

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