Startups

Black founders are seeing a decrease in funding amid economic downturn

Comment

Image of three stacks of coins with blocks atop with downward arrows
Image Credits: patpitchaya (opens in a new window) / Getty Images

It’s confirmed — Black entrepreneurs saw a dramatic decrease in funding this year as investors continue to pull back.

So far, new Crunchbase data shows Black startups received $324 million in VC funds in the second quarter, a steep decrease from the $1.2 billion received in Q1 this year and substantially below the $866 million the founder cohort raised in Q2 last year. Overall, Black founders have received more than $1.5 billion in capital so far this year, compared to the over $2 billion received this time last year. Funding at all levels is tracking below 2021.

Sadly, this isn’t surprising; valuations are falling and deal volume is shrinking this year as investors pull back from 2021’s excesses.

It is not a new concern that in times of economic distress, some investors may retreat to their respective networks to fund what is considered safe and familiar to them — and those networks are often not filled with vast amounts of Black founders.

“People tend to default to what they know and what is safe,” RareBreed Ventures founder McKeever Conwell told TechCrunch. He added that the decrease in funding is concerning but not surprising during this economic downturn. “Investing in founders of color, as we’ve seen over decades of venture capital, is not what is deemed to be the safe thing to do.”

The situation compounds when looking at the fact that Black founders were already disproportionately receiving small amounts of funding, meaning the overall funding decrease was likely to have an outsized impact on the community.

Overall, U.S. startups received about $75 billion in VC funds in Q1 and about $50 billion in funding so far in Q2, according to Crunchbase data, though second-quarter data is incomplete. If the trend of falling funding for Black founders continues, it could indicate a step back after last year’s record-breaking progress, which saw Black founders raise more than $4.3 billion in VC funds (even though that equated to just 1.3% of all VC funds given out last year).

Marceau Michel, founder of Black Founders Matter and the 25 by 25 Pledge, also told TechCrunch that he isn’t shocked by such a dramatic decrease.

“It’s not surprising when venture tightens its belt that we are the first to be pinched,” he said. “Choosing to ignore the obvious advantages of equitable investment is like choosing to ignore the transforming power of electricity.”

The silver lining in the matter is the changing climate may feel like business as usual for many diverse founders and investors, as TechCrunch previously reported. These entrepreneurs are used to operating leanly without the promise of substantial venture funding and statistically still manage to outperform their white counterparts. In fact, Black founders received 1.2% of the VC dollars this year, which is nearly on par in proportional terms with what usually goes to Black founders around this time, Crunchbase found.

It’s ironic, then, that in this economic downturn, investors stated they are looking for founders that can operate with a focus on profitability while strapped for cash. The decrease in funding, however, shines a light on precisely the type of founders they were seeking such requirements from.

“Black founders uniquely understand how to stretch the dollar and how to survive shifts and downturns,” Michel said. “It’s a great time for funds to set themselves up to make good on the promises many of them made to the Black community.”

Conwell said this is also a good time for the venture funds already backing Black founders to double down on helping them grow. But he added that the overall problem in the VC landscape remains the silence from many institutional LPs, endowments and pension funds with the power to make a change.

“We need to see LPs continue to fund and back the fund managers who are going to have unique networks and unique perspectives that are going to lead to more funding for diverse founders,” he said. “We need to see more of that. But do I think that’s going to happen? No, I don’t.”

More TechCrunch

After Apple loosened its App Store guidelines to permit game emulators, the retro game emulator Delta — an app 10 years in the making — hit the top of the…

Adobe comes after indie game emulator Delta for copying its logo

Meta is once again taking on its competitors by developing a feature that borrows concepts from others — in this case, BeReal and Snapchat. The company is developing a feature…

Meta’s latest experiment borrows from BeReal’s and Snapchat’s core ideas

Welcome to Startups Weekly! We’ve been drowning in AI news this week, with Google’s I/O setting the pace. And Elon Musk rages against the machine.

Startups Weekly: It’s the dawning of the age of AI — plus,  Musk is raging against the machine

IndieBio’s Bay Area incubator is about to debut its 15th cohort of biotech startups. We took special note of a few, which were making some major, bordering on ludicrous, claims…

IndieBio’s SF incubator lineup is making some wild biotech promises

YouTube TV has announced that its multiview feature for watching four streams at once is now available on Android phones and tablets. The Android launch comes two months after YouTube…

YouTube TV’s ‘multiview’ feature is now available on Android phones and tablets

Featured Article

Two Santa Cruz students uncover security bug that could let millions do their laundry for free

CSC ServiceWorks provides laundry machines to thousands of residential homes and universities, but the company ignored requests to fix a security bug.

19 hours ago
Two Santa Cruz students uncover security bug that could let millions do their laundry for free

OpenAI’s Superalignment team, responsible for developing ways to govern and steer “superintelligent” AI systems, was promised 20% of the company’s compute resources, according to a person from that team. But…

OpenAI created a team to control ‘superintelligent’ AI — then let it wither, source says

TechCrunch Disrupt 2024 is just around the corner, and the buzz is palpable. But what if we told you there’s a chance for you to not just attend, but also…

Harness the TechCrunch Effect: Host a Side Event at Disrupt 2024

Decks are all about telling a compelling story and Goodcarbon does a good job on that front. But there’s important information missing too.

Pitch Deck Teardown: Goodcarbon’s $5.5M seed deck

Slack is making it difficult for its customers if they want the company to stop using its data for model training.

Slack under attack over sneaky AI training policy

A Texas-based company that provides health insurance and benefit plans disclosed a data breach affecting almost 2.5 million people, some of whom had their Social Security number stolen. WebTPA said…

Healthcare company WebTPA discloses breach affecting 2.5 million people

Featured Article

Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Microsoft won’t be facing antitrust scrutiny in the U.K. over its recent investment into French AI startup Mistral AI.

21 hours ago
Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Ember has partnered with HSBC in the U.K. so that the bank’s business customers can access Ember’s services from their online accounts.

Embedded finance is still trendy as accounting automation startup Ember partners with HSBC UK

Kudos uses AI to figure out consumer spending habits so it can then provide more personalized financial advice, like maximizing rewards and utilizing credit effectively.

Kudos lands $10M for an AI smart wallet that picks the best credit card for purchases

The EU’s warning comes after Microsoft failed to respond to a legally binding request for information that focused on its generative AI tools.

EU warns Microsoft it could be fined billions over missing GenAI risk info

The prospects for troubled banking-as-a-service startup Synapse have gone from bad to worse this week after a United States Trustee filed an emergency motion on Wednesday.  The trustee is asking…

A US Trustee wants troubled fintech Synapse to be liquidated via Chapter 7 bankruptcy, cites ‘gross mismanagement’

U.K.-based Seraphim Space is spinning up its 13th accelerator program, with nine participating companies working on a range of tech from propulsion to in-space manufacturing and space situational awareness. The…

Seraphim’s latest space accelerator welcomes nine companies

OpenAI has reached a deal with Reddit to use the social news site’s data for training AI models. In a blog post on OpenAI’s press relations site, the company said…

OpenAI inks deal to train AI on Reddit data

X users will now be able to discover posts from new Communities that are trending directly from an Explore tab within the section.

X pushes more users to Communities

For Mark Zuckerberg’s 40th birthday, his wife got him a photoshoot. Zuckerberg gives the camera a sly smile as he sits amid a carefully crafted re-creation of his childhood bedroom.…

Mark Zuckerberg’s makeover: Midlife crisis or carefully crafted rebrand?

Strava announced a slew of features, including AI to weed out leaderboard cheats, a new ‘family’ subscription plan, dark mode and more.

Strava taps AI to weed out leaderboard cheats, unveils ‘family’ plan, dark mode and more

We all fall down sometimes. Astronauts are no exception. You need to be in peak physical condition for space travel, but bulky space suits and lower gravity levels can be…

Astronauts fall over. Robotic limbs can help them back up.

Microsoft will launch its custom Cobalt 100 chips to customers as a public preview at its Build conference next week, TechCrunch has learned. In an analyst briefing ahead of Build,…

Microsoft’s custom Cobalt chips will come to Azure next week

What a wild week for transportation news! It was a smorgasbord of news that seemed to touch every sector and theme in transportation.

Tesla keeps cutting jobs and the feds probe Waymo

Sony Music Group has sent letters to more than 700 tech companies and music streaming services to warn them not to use its music to train AI without explicit permission.…

Sony Music warns tech companies over ‘unauthorized’ use of its content to train AI

Winston Chi, Butter’s founder and CEO, told TechCrunch that “most parties, including our investors and us, are making money” from the exit.

GrubMarket buys Butter to give its food distribution tech an AI boost

The investor lawsuit is related to Bolt securing a $30 million personal loan to Ryan Breslow, which was later defaulted on.

Bolt founder Ryan Breslow wants to settle an investor lawsuit by returning $37 million worth of shares

Meta, the parent company of Facebook, launched an enterprise version of the prominent social network in 2015. It always seemed like a stretch for a company built on a consumer…

With the end of Workplace, it’s fair to wonder if Meta was ever serious about the enterprise

X, formerly Twitter, turned TweetDeck into X Pro and pushed it behind a paywall. But there is a new column-based social media tool in town, and it’s from Instagram Threads.…

Meta Threads is testing pinned columns on the web, similar to the old TweetDeck

As part of 2024’s Accessibility Awareness Day, Google is showing off some updates to Android that should be useful to folks with mobility or vision impairments. Project Gameface allows gamers…

Google expands hands-free and eyes-free interfaces on Android