Underrepresented founders took a disproportionate hit when it came to venture capital funding in 2023.
While the market was cool for venture capital in general, capital raised by Black founders in Massachusetts dropped by 88% from 2022 to 2023 — compared with just a 21% drop in funding year over year for startups in Massachusetts overall.
The market was frigid for Latino founders as well. They saw VC investment decrease by 69% over the same period, according to Crunchbase data.
Daniel Acheampong, partner at Visible Hands, a venture capital firm that supports underrepresented founders, described the new data as an unwelcome direction in startup investing and a shock to the system.
“You almost need to take a second to breathe,” Acheampong said.
In 2023, less than 0.1% of overall funding for Massachusetts businesses went to Black founders. Black founders in Massachusetts raised just $14.6 million in venture capital last year.
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In 2022, Black founders in Massachusetts raised $120 million for their startups, which was approximately 0.6% of the total $20 billion that Massachusetts companies raised that year. At the time, a slight increase in the proportion of funding going to underrepresented founders signaled a slow but apparent commitment to growing an ecosystem for underrepresented founders.
The 2023 numbers are a large step in the wrong direction, and they are not a surprise.
“It's certainly the lived experience of Black and Latino founders. So it's not shocking,” said Senofer Mendoza, founder of Mendoza Ventures, the first Latino-led venture capital firm on the East Coast.
Latino founders raised $265 million in 2023, down from $868 million the previous year. That figure represents about 1.6% of the total capital raised in Massachusetts. In 2022, Latino founders raised 4.3% of the state’s venture capital total.
'Startling' drop
Total funding raised by Massachusetts businesses came in at $15.8 billion in 2023, compared to $20 billion the previous year, according to Crunchbase.
Mendoza said that early 2023 predictions led her to believe that the cooling economic landscape would have a harsher impact on women- and people-of-color-led businesses. The newly available data proved that prediction to be correct.
“This is one of the first indicators showing that is exactly what's happened,” she said. In Mendoza’s perspective, it’s part of an overall decline in commitment to diversity, equity, and inclusion initiatives.
Rakheem Morris, founder and CEO of the recruitment startup HourWork, said that while he is not surprised the numbers are down, the degree to which funding for Black founders dropped is “startling.”
“They’re showing that when investors have the power position, they invest in underrepresented founders much less often,” Morris said.
In his perspective, this downward trend has the potential to have a generational impact, widening the wealth gap even further.
Morris’s company raised its Series A venture capital in May 2022, and he has not had to look for additional funding since then, he said.
About 9.5% of the Massachusetts population identified as Black or African American in the most recent U.S. Census. Approximately 13.1% identified as Hispanic or Latino.
Return to status quo
This waning commitment is not just present in venture capital, but represents a larger reduction in attention to issues of diversity across all corporate levels, said Malia Lazu, CEO and founder of The Urban Labs, a workplace culture firm, and author of “From Intention to Impact, A Practical Guide to DEI.” Lazu is also a lecturer at MIT on the topics of innovation and inclusion.
At the national level, funding for Black founders has decreased overall since a spike in funding in the wake of 2020’s racial reckoning. In 2021 and 2022, Black founders raised over $1 billion annually, which for both years was over 1% of the national average. In 2023, it was less than 0.5%, or about $661 million out of $136 billion, according to Crunchbase.
In 2020, there was a “flashpoint moment” said Lazu, and a confluence of data that made people want to address past harms and racial imbalances. How the corporate world responded was temporarily helpful, but not built to last.
“It was a reaction, not a sustainable response,” she said. It didn’t work to change structures or address biases of what kind of investments are seen as safe bets for business. The bias was not addressed, she said, and there is now a return to the status quo.
“Unless your response is taking on the structural, institutional and implicit bias, it's not going to last,” said Lazu.
At Visible Hands, Acheampong said the firm is committed to continuing their work serving underrepresented founders despite the market’s downturn for Black and brown founders.
“Hearing those numbers, it's frustrating and disheartening,” Acheampong said.
Other venture capitalists are missing out on opportunities to invest in promising companies by overlooking some founders, he said. The firm will continue to look for those opportunities.
“Part of our job is to make sure we’re identifying those incredible founders who are building impressive businesses, and are consistently overlooked,” he said. “We’re focused on doing what we do.”
