💰 The State of VC Funding for Black Founders in 2024

Toby Egbuna
March 21, 2024

Hello! Welcome to my newsletter - Finessing Funding💰. Every other week, I’ll be sharing stories, strategies, and ideas about funding for your startup. Get Finessing funding delivered to your inbox every week 👇🏾

This past weekend, I read reports from the likes of Crunchbase, Inc.com, Columbia University, Forbes, and more. From there, I extracted a few overlapping themes from each of these reports, and finally, I thought back to my own experiences fundraising to add some color to each of these points - I hope you like pie 🥧

1. Black founders get a smaller slice of the VC pie

2. There aren’t enough Black founders asking for a slice of the pie

3. The people saving some of the pie for Black founders are under attack

Black founders get a smaller slice of the shrinking VC pie

In 2023, funding for all startups declined by 37%. Two years ago, everyone was raising VC money quickly and doing it at crazy-high valuations. As of 2023, those days are gone.

While funding for all startups is down, funding for Black founders is down even more. 2023 saw a 71% decrease in funding to Black-founded startups, the lowest point since 2016. Black founders received just 0.5% of all VC dollars last year.

Think about that. Black people make up 13% of the U.S. population but obtain less than one percent of VC money. Another way to put it: for every 1000 founders who get VC money, just five of them are Black.

How can VCs be better?

Clearly, what VCs have been doing isn’t working. So, how can we get VCs to invest in more Black founders? A few ideas:

1. Diversify the pipeline

   Most VCs get their deal flow (i.e., the companies they are considering investing in) from personal connections and referrals. We’ve seen this before. People’s networks are almost always comprised of people with similar backgrounds and experiences. So, if you’re a White VC with a Harvard degree living in SF, naturally, much of your deal flow is going to come from other VCs with Ivy League degrees who live in the Bay Area.

   VCs need to find ways to diversify their pipelines by tapping into networks of underrepresented founders. Consider partnering with an organization like Goodie Nation.

2. Make it easy for founders to contact you

   VC investing runs on warm introductions. I won’t go into detail on why this is a bad practice (if you want the explanation, though, read this), but it’s unfair because Black and underrepresented founders don’t have the same social capital to ask for intros that other founders do.

   This is a business, and investors can’t afford to completely ban warm introductions as they’d miss out on hot deals. So, instead of asking for that, I suggest that every VC fund create an open application on its website for people to apply for funding. Have someone on your team read through the applications 1-2 times a week, follow up with the founders you’re interested in hearing from, and send polite decline emails to those who you don’t. Sure, this will cost you a few hours a week, but it’s a small price to pay if you’re genuinely trying to invest in underrepresented founders.

There aren’t enough Black founders asking for a slice of the pie

While the proportion of funding tells part of the story, we also need to look at the quantity of deals made. The number of funding rounds, aka the deal volume, for Black-founded startups saw a nearly 50% decrease, hitting an eight-year low.

This is bad on the surface, but there are some potential downstream impacts. Assuming most of the deals made were early-stage, a reduction in early-stage funding means there will be even fewer Black founders raising late-stage funding. It’s really hard to get to the point where you’re scaling if you don’t have the money to start.

Getting more Black founders to seek funding

The proportion of total funding and number of rounds to Black founders is dropping, but let’s ask ourselves - how many Black founders sought out funding?

Only 3.47% of companies pursuing VC funding last year were Black-founded.

Starting a company requires a mix of self-belief (almost to the point of arrogance) and access to resources. I can’t imagine that many Black founders feel confident in their ability to start a company based on our current funding numbers. This means that things will become cyclical:

I can’t say that this is an inflection point (things could theoretically get worse), but I do think it’s more important now than ever for Black folks to start companies so more of us go after VC funding.

The people saving some of the pie for Black founders are under attack

There’s good news and bad news.

✅ The good news is that some funds and organizations are working specifically to help get Black and underrepresented founders funded.

❌ The bad news is that some of these organizations are under attack from individuals and groups who think that programs dedicated to funding diverse founders are discriminatory.

In 2023, organizations like Fearless Fund and Hello Alice, which have dedicated their missions to supporting minority-owned businesses, were sued by Edward Blum and America First Legal, respectively, under claims that focusing on women and minority-owned businesses isn’t fair to other identity groups.

Imagine that! Discrimination in funding to founders!

Despite all of the facts and stats that demonstrate the discrepancies in funding for Black founders, there are people out there who think these founders have too many resources.

I won’t go into detail about how they conveniently overlook all of the other structures powering VC funding that work against or disadvantage underrepresented founders. Instead, let’s focus on the utopian society that the people filing these lawsuits want to see. I assume that they want the best founders to get funded.

On its head, this isn’t a bad idea. The problem is that the people determining which startups are the best are looking at a very select group of companies and these people often don’t represent the diversity of all the startup founders out there.

Here’s a breakdown of the VCs by identity (this is from 2021, but we can assume the numbers are similar)

Unsurprisingly, most VCs are white men. It’s human nature to be drawn to ideas and people that you identify with. So, if most of the people writing checks are white men, they’re going to determine who the best founders are, and those founders will almost always be white men.

So sure, let’s make sure that the best founders get funded, but let’s also make sure that the people making this determination are being objective about it.

I can dream, can’t I?

Moving forward

Funding to Black founders is close to an all-time low, and it’s only getting worse. I’ve outlined a few proposals on how to improve these numbers, but as always, I’m open to your thoughts. What do you think? Reply to this email; I’d love to hear from you!

💰 Funding opportunities closing this week

1. LearnLaunch Fund + Accelerator: Breakthrough to Scale 2024

   The ultimate goal of the Breakthrough to Scale Program is to help entrepreneurs develop scalable strategies. We believe that a successful scale-up journey begins with four fundamental blocks: (1) product-market fit, (2) a resourceful team, (3) well-defined funding pathways and (4) demonstrated impact.

   Our Program is a unique mix of an initial capital injection, expert-led masterclasses, milestone-based follow-on funding, 1:1 Venture Partner support, and access to a deep set of mentors that help companies achieve business objectives.

   Apply here: https://learnlaunch.com/our-program-2/

2. State Fair of Texas Grant (Texas only)

   The State Fair of Texas supports the following: Economic Development, Capacity Building for Nonprofits, Educational Programming and Social and Racial Justice. We support initiatives that are working in the aforementioned areas in 75210, 75215, 75223, and 75228 with some limited support for work in the Southern Sector of Dallas that impacts residents in the South Dallas/Fair Park neighborhood. Organizations within a ten mile radius of the Fair can apply but know that our priority is the South Dallas/Fair Park community and organizations that are offering services in this area.

   Apply here: https://bigtex.com/supporting-texans/community-involvement/grants-sponsorships/

Is there anything about funding that you’re curious about or struggling with? Let me know! Reply to this email and I’ll try my best to help.