Venture capital funding for African-American startups plummeted in the United States last year, with metro Atlanta seeing one of the worst declines, according to data released Thursday by the data company. Basic Crunch.
Venture capital funding for Black-owned businesses fell 71% nationally in 2023 compared to 2022. In the Atlanta area, such funding was down 79%, Crunchbase found.
Investment in new technology companies has generally declined over the past two years due to rising interest rates, recession fears that have cooled investment as companies conserve cash, and turmoil in the technology sector . Investors, in part, have prioritized immediate profits over backing promising companies that aren’t yet making money.
Yet overall venture capital funding declined 37% last year, about half the rate of decline seen among African American startups.
Black-owned businesses typically attract only about 1% of venture capital funding, even though African Americans make up about 14% of the U.S. population. In 2021, the year after the police killing of George Floyd and as companies pledged to invest in more Black-owned businesses, venture funding for African American businesses reached an all-time high. record level nationally and in Atlanta.
Venture capital investments in Black-owned startups reached nearly $5 billion in the United States in 2021. That figure fell by more than half to $2.4 billion in 2022. Crunchbase found in 2023: just $705 million in venture capital funding has flowed to Black-owned startupsthe first year the figure was below $1 billion since 2016.
In the Atlanta area, Black-owned businesses raised $467 million in 2021, which fell to about $110 million a year later and just $23 million last year, Crunchbase found .
“The decline has been worst in many metro areas that have historically been strong pillars of investment in Black entrepreneurs,” Crunchbase found. “This includes the Atlanta, Boston and San Francisco Bay areas. …The decline in these regions is significant not only because they are among the largest venture capital investment markets in the United States, but also because they have historically seen some of the highest funding figures for minority founders.
The Crunchbase report did not identify the causes, but the slowdown also coincides with a retreat by many companies from diversity, equity and inclusion initiatives launched in the wake of Floyd’s killing, as some companies prepared to a possible recession and, as such, were attacked, particularly by conservative groups and lawmakers. For example, Atlanta-based venture capital firm Fearless Fund, which focuses on black female entrepreneurs, was sued last year by a conservative group. alleging that a grant program he runs is racist.
Since 2021, there has been a decline in interest and institutional support for Black-led businesses and diversity, equity and inclusion programs, said Sherrell Dorsey, CEO and founder of Plexus Information Services, a black innovation research and reporting company.
“There’s a general feeling that has changed dramatically,” Dorsey said. And with the overall decline in venture capital funding, she said, unfortunately, Black startups are “really bearing the brunt of these market changes.”
Venture capital is a key form of financing and business support, but there are others. Michael Baptiste, vice president for diversity, equity and inclusion at the Metro Atlanta Chamber, said that while last year’s venture funding numbers “show a gap from previous years , our research tells us that businesses in metro Atlanta remain committed to supporting Black-owned businesses through a variety of strategies.
“Through focused efforts and strategic partnerships, we remain optimistic that the metro Atlanta business community will over time help reduce access challenges for Black-owned founders of our region,” he said.
The Russell Innovation Center for Entrepreneurs (RICE) in Atlanta trains and helps Black founders raise money to grow their businesses. On Thursday, RICE announced a $2 million donation from the philanthropic arms of Charlotte-based Truist.
“Organizations like ours that stand up and provide access, opportunity and visibility to entrepreneurs who need it most are more critical than they have ever been,” said Jay Bailey, CEO of RICE.
The post-George Floyd period “was the great awakening, there was this racial reconciliation,” Bailey said. “It highlighted these inequalities. This light is starting to fade a little.
Crunchbase said its report was based on data received through the end of February this year.
Last year, the biggest increase in Crunchbase data for a metro Atlanta startup founded by Black was for cleantech company Cloverly, which received a $19 million Series A investment . Series A is typically the first investment capital a company raises after seed and angel investing.
Joey Womack, founder of the technology nonprofit Goodie Nation, said the decline could be because “in the past, some big companies at the top of the ladder received a lot of funding.”
But he also said there is a need to build more technical expertise in artificial intelligence technology in Black-led startups, in order to attract more venture capital funding.
“One of the things that concerns me, with Atlanta startups in general, but especially for diverse-led startups, particularly Black-led startups, is their readiness and adoption around technology AI – not to run the business, but as part of its core offering,” Womack said. “Particularly, investors want to see more tech teams that can create artificial intelligence,” beyond that. of using third parties for this work, he said.
Womack said the root causes go back 10 to 15 years and are related to gaps in teaching and exposure to science, technology, engineering and math.
“Today, young students’ exposure to science, technology, engineering and mathematics education is “better than it was 10, 15 or 20 years ago, but it’s nowhere near where it should be,” Womack said.
