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Report: Investment in Black Business Startups Dwindle As Investors Become More Cautious With Their Funding

Venture funding allotted to Black startups has dropped significantly from previous quarters. The decreased capital available is revealing that as investors are becoming even more cautious in their funding, diverse entrepreneurs may feel a long-term sting. 

At present, an estimated $100 million has been poured into 100 Black-owned startups at the seed stage; $591 million at early stage; and another $876 million at later stage, according to Crunchbase. This funding is less than investments made in 2021, when it peaked at $1.2 billion. 

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Yet as Black-owned startups were already diligently working to push past single-digit investment funding, various global socio-economic factors have made venture capitalists wary of taking on new investments, making it hard for Black startups to see continued growth. Globally, venture capitalists decreased funding by $52 billion between February and March of 2022 citing inflation, an unstable stock market and Russia’s invasion of Ukraine. 

Although funding to Black startups has always been lower than white startups, the marked decline is a reflection of an overall dip in venture investments in 2022. In February 2022, Crunchbase reported signs of venture capital slowdown as investors were funding $10 billion less than the previous month. 

In the second quarter of 2022, funding awarded to Black-owned startups dwindled to $324 million. This reveals a significant decline in funding when compared to the last five quarters as data compiled by Crunchbase’s Diversity Spotlight shows investments in Black-owned startups averaging between $850 million and $1.2 billion.  

A Look At Investment Increases and Decreases In Black-Startups 

Venture capital funding to Black-funded startups has been historically lower than its white counterparts. In 2021, venture capital investments jumped to $643 billion — a 92 percent increase from the previous year. Yet Black-funded startups received 1.3 percent of all venture and growth equity financing awarded to U.S. startups in 2021. In total, venture capitalists invested $4.3 billion in Black-owned startups with 44 percent allotted to seed and early-stage funding. 

From 2020 to 2021, funding to Black startups saw a stark increase. In the first quarter of 2020, $146 million in venture capital investments was awarded. Venture capital investments continued to rise, peaking at $1.2 billion in quarters one and four of 2021 and the first quarter of 2022.

While some analysts point to socio-political unrest for the increase in Black funding between 2020 and 2021, Crunchbase argues that it is a reflection of increased venture funding overall. In 2021, venture funding in the U.S. experienced a 61 percent surge, surpassing the peak of $179 billion for the third and fourth quarters of 2020. 

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