Black founders are seeing a year-over-year decline in Q1 funding, according to new Crunchbase data that looked at seed, venture, private equity and corporate venture capital funding allocated to Black entrepreneurs. This might be a good time to look for alternative funding avenues, according to founders TechCrunch+ spoke with.
The dataset shows that in Q1 2023, Black founders raised an estimated 0.69%, or $312 million, out of the around $45 billion Crunchbase totaled for the quarter. Per Crunchbase numbers, Black founders saw a decrease in year-over-year funding from Q1 2022, when Black founders raised 1.5% — or $1.26 billion — out of the $81 billion allocated in private funding.
That’s a 75.2% drop in funding.
It’s not all bad news, though: Although funding dipped in the early half of 2022, it steadily increased from $191 million in Q3 to $279 million in Q4, jumping again to $312 million in the first quarter of this year.
Last year Black founders raised $2.254 billion or 1% out of the $215 billion in funds allocated to U.S. startups. Black founders typically raise around 1% of total funding, no matter what the total allocated sums are to startups, give or take a point percentage. If the Q1 2023 numbers continue at a steady pace or even dip slightly, this year could spell bad news for Black founders. Granted, all founders have experienced a winter in this market, but for founders who start out anyway in the cold ranks, it has been especially glacial.
James Oliver Jr., the founder of the co-founder matching app Kabila, told TechCrunch+ the abysmal numbers for Black founders are “baked into the cake” and “no longer evoke my emotional response.” He expects venture funding for Black founders to remain at 1% for the foreseeable future, although he hopes a new social awakening is on the horizon.
“Affirmative action will likely be struck down this summer, and that could cause 18 to 24 months of some investors pretending to care about Black founders,” he said, adding that “the Black founders who are being strategic and creative right now will be positioned to benefit long term from any temporary increase in VC funding for us.”
The continued steady decline of capital to Black founders is a good reason to start looking away from solely depending on traditional investors, including instead looking at CVC funds and emerging firms in the Middle East, said Felisha Booker, founder of investment platform Falcon.
“When investors say ‘no,’ they love to follow it up with ‘just not right now.’ As a founder, I think we should take the same stance when looking away from traditional investors. It’s not a never situation; it can be for just later,’” she told TechCrunch+, adding that not pitching as many traditional investors frees up her time to actually run a company.
“If founders aren’t beating down their doors, maybe investors will increase their risk tolerance and take more early bets without constantly moving the goal post.”
Onyinye Balogun, the co-founder of Mission Driven Tech, is taking a similar approach. “We will continue to approach investors,” she told TechCrunch+. “But we will also diligently seek other funding sources including foundation and government grants.”
Afterall, this is not the first time Black founders have faced what she called a “seemingly insurmountable challenge.” But she, like others, remain somewhat auspicious that “in the near future, Black founders and others from minoritized backgrounds will be able to thrive and receive similar level of funding as their white counterparts.”
Perhaps hope is on the horizon. The year isn’t over yet.
This piece was updated to clarify Felisha Booker’s quote and what Kabila is.