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Record $137bn invested in US startups in 2021; Black founders receive only 1.2%

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A report has claimed that many of the financial commitments made during global racial protests might not have amounted to what was hoped for.

Only 1.2% of the record $137 billion invested in US startups in the first half of 2021 went to black entrepreneurs, according to a blog post from Crunchbase senior product manager Diane Wong.

It said its tool, Diversity Spotlight, which provided visibility into the diversity of certain portfolios and allowed entrepreneurs to highlight diversity on their own company profiles, allowed the company analyze trends and collect other data about diversity.

They noted that funding to black entrepreneurs in the US hit nearly $1.8 billion through the first half of 2021, a four-fold increase compared to the previous year’s same timeframe.

“Led by funding to early-stage startups, this year’s half-year total has already surpassed the $1 billion invested in Black founders in all of 2020 and the $1.4 billion invested the year before that,” Crunchbase said.

“Georgia has seen the highest percentage of venture funding with 8.4% going to black founders of any other state in the country since 2016, according to the data. The venture money going to companies in Georgia has doubled in the last five years — from about $800 million in 2016 to $2 billion last year, a more than 158% jump”, according to its numbers.

READ ALSO: Nigerian govt proposes bill to provide seed funding for startups

Despite reaching a five-year high, black women still receive a tiny fraction of VC dollars. Startups with at least one Black woman as a founder have raised around $494 million so far in 2021, surpassing the $484 million raised in all of 2020, according to the blog’s data.

When asked about their findings, Gené Teare, the firm’s senior data journalist, told ZDNet that the amounts and proportion of venture funding to Black-founded startups remained low.

Teare added that the leading sectors over the last five years were financial services, professional services, and healthcare for Black-founded startups.

“Year to date, funding to black-founded companies in the U.S. topped $2.2 billion — more than double the amount for the whole of 2020 when $1 billion was invested. But the proportion of funding to companies with Black founders remained proportionally low, although it also moved from 0.6% to over 1% of all venture funding in the US,” Teare said.

Some black founders like Hannibal Brumskine III were able to reach success through “bootstrapping”; a term used for start up founders with minimal financial resources. He gathered financial resources working as a freelance consultant for small businesses in Northern Virginia and record labels nationwide, then in late 2020, Brumskine III launched The Music Business Live, an online messaging software which prioritized live-chat communication between independent artists and music industry professionals.

Despite his lack of funding, he was considered one of the pioneers of the music industry’s online consulting space, which gives hope for existing black founders looking to achieve reasonable levels of success and impact without receiving the 1.2% invested into black startups.

In 2022, Brumskine III again launched a similar software with no funding tailored towards black owned businesses under Black Owned Consultancy, an ed-tech platform for black professionals. Brumskine III created the platform to champion the “Great Resignation” amongst dissatisfied black professionals, while educating them on how to safely leave corporate America and start their own consulting businesses.

Others like Charley Moore still remembers being the only Black startup attorney practicing on Silicon Valley’s Sand Hill Road.
That was 25 years ago. Earlier this year, Moore raised $223 million in growth capital for Rocket Lawyer, marking one of the largest funding rounds ever to a startup founded by a Black entrepreneur.

While venture funding to Black startup entrepreneurs in the U.S. remains woefully small, Crunchbase numbers showed a significant uptick over the past year that coincides with the racial justice movement that reignited across the country.

“I haven’t seen this amount of interest and conversation in the business community at large about race since the anti-apartheid movement of the ’90s,” said Moore, whose company offers low-cost online legal services to individuals and small businesses.

To be sure, much work remains to be done. Black startup entrepreneurs still received only a tiny fraction of the record $147 billion in venture capital invested in U.S. startups through the first half of this year. That compares with the more than 13 percent of the U.S. population that is black or African American.

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