In a major setback, venture capital funding for Black businesses dropped significantly last year.
That financial backing fell 45% for those businesses, based on data from analytics firm Crunchbase, per CNBC. The news outlet disclosed that it is the largest year-over-year decline for Black entrepreneurs. And the decrease was much greater than the 36% drop in VC funding altogether.
The descent came after venture capital funding for Black founders reached record levels for Black founders in recent years. In the first half of 2021, Black founders raised almost $1.8 billion, more than four times the capital raised during same time the prior year.
The fresh numbers offer a glimpse how challenging VC funding can be for Black entrepreneurs. Black founders saw an uptick in VC funding following the murder of George Floyd and subsequent national racial injustice protests. Many of the nation’s largest corporations vowed tens of billions of dollars roughly three years ago to support economic growth and new opportunities for Black businesses and individuals.
But the large VC financing plunge Black founders faced last year has caused some observers to question how many of those funding commitments and investments were actually made.
William Michael Cunningham, an economist and owner of Creative Investment Research in Washington, D.C., says the recent decline is a concern for Black business owners. But he says it fits patterns in his book, Thriving As a Minority-Owned Business in Corporate America: Building a Pathway to Success for Minority Entrepreneurs.
Moreover, Cunningham says his firm does not believe VC funding is the best option for Black founders. He maintains that source of funding is too discriminatory and volatile. He adds the focus from venture capital firms on requiring Black businesses to generate extreme levels of profits is inconsistent with the financing needs of the Black community.
“If new VC funding initiatives are announced targeting Black firms, we say look into them, just don’t count on them.”