Venture capital funding for African American-owned startups plummeted in the U.S. last year, with metro Atlanta seeing one of the worst declines, according to data released Thursday by data firm Crunchbase.
VC funding for Black-owned businesses fell 71% nationally in 2023 compared to 2022. In the Atlanta area, such funding declined by 79%, Crunchbase found.
Investing in upstart tech companies has generally declined in the past couple years amid higher interest rates, fears of recession that chilled investments as firms held onto cash and turmoil in the tech industry. Investors, in part, have prioritized immediate profits over supporting promising companies that are not yet making money.
Still, overall VC funding declined 37% last year or about half the rate of decline seen among African American startups.
Black-owned companies generally attract only about 1% of VC funding despite African Americans making up about 14% of the U.S. population. In 2021, the year after the police killing of George Floyd and as businesses committed to investing in more Black-owned businesses, venture funding of African American companies reached a high-water mark nationally and in Atlanta.
VC investments in Black-owned startups reached nearly $5 billion in the U.S. in 2021. That figure plummeted by more than half to $2.4 billion in 2022. Crunchbase found in 2023, just $705 million in venture funding went to Black-owned startups, the first year that figure was less than $1 billion since 2016.
In the Atlanta area, Black-owned firms raised $467 million in 2021, which dropped to about $110 million a year later and only $23 million last year, Crunchbase found.
“The decline was worse in many of the metro areas that have in the past been strong pillars for investment into Black entrepreneurs,” Crunchbase found. “That includes the Atlanta, Boston and San Francisco Bay Area regions. … The decline in those regions is significant not just because they are some of the largest markets for venture investment in the U.S., but also because they historically have posted some of the strongest funding numbers for minority founders.”
The Crunchbase report did not outline causes, but the downturn also coincides with a pullback by many companies in diversity, equity and inclusion initiatives launched in the wake of Floyd’s murder as some businesses prepared for a possible recession and as such efforts have come under attack, particularly by conservative groups and lawmakers. For instance, Atlanta-based venture capital firm Fearless Fund, which focuses on Black-women entrepreneurs, was sued last year by a conservative group alleging a grant program it runs is racially discriminatory.
Since 2021, there has been a decline of interest in and institutional support for Black-led firms and diversity, equity and inclusion programs, said Sherrell Dorsey, CEO and founder of Plexus Information Services, a research and reporting firm on Black innovation.
“There’s an overall sentiment that has changed pretty drastically,” Dorsey said. And with the overall decline in VC funding, she said, unfortunately Black startups “really bear the brunt of those market changes.”
Venture capital is one key form of business financing and 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 VC funding figures “show a departure from previous years, our research tells us that metro Atlanta’s companies remain dedicated to supporting Black-owned businesses through a variety of strategies.”
“With targeted efforts and strategic partnerships, we remain optimistic that metro Atlanta’s business community will help decrease access challenges for our region’s Black-owned founders over time,” he said.
The Russell Innovation Center for Entrepreneurs (RICE) in Atlanta trains and helps Black founders raise funds to grow their businesses. On Thursday, RICE announced a $2 million donation from the philanthropic arms of Charlotte-based Truist.
“Organizations like ours that are holding the line and are providing access, opportunity and exposure to these entrepreneurs that need it most are more critical than they’ve ever been,’ said RICE CEO Jay Bailey.
The post-George Floyd period “was the great awakening, there was this racial reconciliation,” Bailey said. “It put a very big spotlight on this inequities. That light is starting to dim a bit.”
Crunchbase said its report is based on data received through late February of this year.
The largest raise in Crunchbase’s data for a Black-founded metro Atlanta startup last year was for clean tech firm 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 tech nonprofit Goodie Nation, said the decline may be because “In the past, there’s been some larger companies at the top end that received a lot of funding.”
But he also said there’s a need for more technical expertise in artificial intelligence technology at Black-led startups, to attract more VC funding.
”One of the things I am concerned about, with Atlanta startups in general but especially for diverse-led startups, in particular Black-led startups, is their preparation and adoption around AI technology — not to run the business, but as part of its core offering,” Womack said. “Investors want to see more technical teams in particular that can create the artificial intelligence,” beyond relying on third parties for that work, he said.
Womack said root causes date back 10 to 15 years and relate to gaps in science, technology, engineering and math education and exposure.
”Today, young students’ exposure to science, technology, engineering and math education is “better than it was 10, 15, 20 years ago, but it’s not nearly to the level of what it needs to be,” Womack said.
