Black and Latinx founders aren’t receiving an equitable share of venture capital funding, according to a Crunchbase report. The report highlights just how drastic the funding disparity is: Since 2015, the top 10 venture firms have invested in only 70 companies with Black or Latinx founders.
Black and Latinx founders have raised over $15 billion in the past five years, but that represents only 2.4% of the total VC funding raised by startups in the U.S. Yet according to the U.S. Census, Black (13.4%) and Hispanic or Latinx (18.5%) people together represent roughly 31.9% of the population.
And although the companies in Crunchbase’s database suggest a fairly equal distribution of Black and Latinx entrepreneurs — 51% and 47%, respectively, with 2% of companies having both Black and Latinx cofounders — funding hasn’t been split commensurately. Latinx founders received $9.9 billion out of the total $15.5 billion raised, which means Black entrepreneurs are missing out on even more of these already limited funds.
Crunchbase’s analysis is based on data from over 970 Black- and Latinx-founded companies that have raised venture funding — including seed, venture, corporate venture, and private equity funding — within the past five years. The company’s database includes over 650,000 companies, along with details about their investors, exits, and racial makeup. The report did not look at non-Hispanic or Latinx minority groups, nor LGBTQ+ individuals. It did include data on female founders, however. Notably, it found that 36% of Black and Latinx founders were women, compared to just 21% of white founders.
According to Crunchbase, 81% of VC firms don’t have a single Black investor. There are some micro venture firms that specifically invest in founders from underrepresented backgrounds, including Backstage Capital, Precursor Ventures, and MaC Venture Capital, but these firms exist as a minority within the greater VC space.
This funding gap reflects the effects of institutionalized racism and policies such as redlining that have historically constrained Black Americans’ efforts to build generational wealth. A study from The Hamilton Project found that the typical white family possesses 10 times the wealth of a typical Black family. This inequity extends into entrepreneurship, making it less likely for Black founders to get started with investments from family and friends.
New Age Capital cofounders Ivan Alo and LaDante McMillon say the seed stage — where a founder works to convince an investor their idea is worthy of funds — is less dependent on specific metrics and therefore more susceptible to bias. According to Crunchbase, Alo and McMillon noted that “Black and Latinx founders often experience rejection because they do not fit a certain profile.”
Crunchbase suggests its report will make VC companies more aware of the opportunities lost by overlooking Black and Latinx founders and help facilitate change.
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