Venture Capital’s Progress on Black Founders Is Slipping
About the author: Marguerite Pressley Davis is the founder and CEO of Finance Savvy CEO, a privately held firm that aims to improve business financial literacy for entrepreneurs and founders.
Black founders in the U.S. broke a record in 2021, raising $4.3 billion in venture capital. But that momentum didn’t last for long. In 2022, the amount raised by Black founders fell to an estimated $2.3 billion. Those figures from Crunchbase look even worse when you consider the total pool of VC money available. VC funding totaled nearly $330 billion in 2021 and $216 billion in 2022, putting Black founders’ shares at just 1.3% and 1%, respectively. The disparity is difficult to deny.
Somehow our progress is drifting backward. It appears investors are backing away from the gains made just a few years earlier in diversifying the pool of VC recipients. And even with those gains, we’re still dealing with funding levels well below 2%. This situation should be a reminder to investors to not step back but to continue stepping up to fund Black founders.
Inflation and recession fears may help explain the drop. In moments of economic scarcity, venture-capital firms behave much like consumers: They cut back on spending, they become more risk averse, and they focus on protecting existing investments. What they seem to be forgetting is that Black entrepreneurs are the investment. McKinsey found if existing Black-owned businesses reached the same average revenue as their white-owned industry counterparts (excluding publicly held companies), the result would be an additional $200 billion in recurring direct revenues. Funding diverse business owners not only benefits VCs, it contributes to the economic betterment of the nation.
To get us back on track, accessibility is part of the answer, especially for businesses in smaller areas. If aid is out there, we need to make sure people can easily find it. Take my home city of Atlanta, for example. Atlanta is an entrepreneurial hub with tons of accelerators, access to chief financial officers and universities with world-class business programs, and a nearly unlimited stream of networking events right at your fingertips. However, if you travel 250 miles west to Savannah, that’s a completely different story. There, business owners run into the barrier of proximity; there simply aren’t the same tools available. To eliminate this obstacle, larger organizations should prioritize partnering with diverse businesses in diverse locations. Without the appropriate capital or support from larger firms, we’ll continue to see Black businesses outside of urban areas fail.
As a Black woman entrepreneur, I’ve made knowledge-sharing an integral part of my practice and my company. Any success of mine is, in part, a credit to those who have helped me, and it’s now my responsibility to pay it forward. Investors and VCs should adopt a similar practice, sharing resources with those who need them, serving as a sounding board, and providing crucial information to business owners before they’re even aware that they need it.
We also need more Black individuals to become angel investors or start venture-capital firms of their own. When we have more investors of color, we’ll likely see greater funding and a broader network of support for businesses of color. A well-informed financial coach and peer network is key to thriving and surviving the stress of raising capital. These resources can strengthen a founder’s financial preparedness by providing tools to assess, address red flags, and mitigate the root causes of funding issues.
Finally, in addition to capital, we need consistency to complement the cash. Big banks have led the way with historic pledges toward racial equity and entrepreneurship, resulting in multi-million-dollar investments in the past several years. As of April, Goldman Sachs has deployed more than $2.1 billion in investment capital and over $23 million in philanthropic capital to 137 organizations, companies, and projects nationwide via its One Million Black Women initiative. My hope is that the VC community will finally hit its stride as opposed to these fits and starts. (The National Venture Capital Association made a commitment “to advance opportunity for women and underrepresented minorities in the entrepreneurial ecosystem” all the way back in 2015.)
When investors maintain the momentum for investing in diverse founders, we will see long-lasting, social and economic change become sustainable. We will see the racial wealth gap shrink. We will see Black generational wealth grow. We will see the country’s gross domestic product rise. When Black founders broke the 1% threshold, it proved what a groundswell of support makes possible. That milestone was a sign that the future will include more opportunities for all founders—one that we should revisit and climb above.
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