What’s going on:
Amid the racial justice movement that started with the tragic death of George Floyd in 2020, investments in Black-founded businesses saw a rise like never before.
Nevertheless, this surge of venture capital funding had weakened by the end of 2022 with a drop of 36% compared to a steeper decline of 45% in financing for Black companies, according to data from Crunchbase.
Why it matters:
Investments in Black entrepreneurs constituted only 2% of all VC dollars, whereas Black women-led businesses received even less at only 1%.
Investing in founders from diverse backgrounds is seen by many firms as a riskier venture due to the unusual nature of the entrepreneurs, according to Diversity VC CEO Ladi Greenstreet.
How it’ll impact the future:
“[Venture capital] has such disproportionate decision-making power on the future of technology, the future of innovation, the future of quality of life in many ways,” said Pocket Sun, co-founder and managing partner of SoGal Ventures.
John Roussel, Executive Director of Colorwave, emphasizes the importance of investing in diverse teams, not only from a moral standpoint, but for the potential of higher returns for investors.