Venture capital has increasingly become the lifeblood of American entrepreneurship. And yet, of the record $316 billion in venture capital invested in the U.S. in 2021, low single-digit percentages went to Black, Latinx or female entrepreneurs. In Crunchbase News’ ongoing Something Ventured series, we’ve taken a data-driven reporting approach to explain how and to whom capital is distributed in the United States, how the industry can provide better access to opportunity to all entrepreneurs, and why diversity in the startup ecosystem matters to the nation’s economic well-being.
Something Ventured exposed not only the current state of inequity in the world of venture capital—admittedly bleak for underrepresented startup founders—but also showcased potential solutions by highlighting the efforts that are reducing this funding gap. For instance, in a July report, we found that Black startup founders received just 1.2% of total venture investment in the U.S. through the first half of 2021. As staggeringly low as that sounds, it represented a marked increase in funding to Black startup founders in the U.S., both in terms of overall dollars invested and as a percentage of the overall venture capital spent nationally.
Investors and founders we spoke with said George Floyd’s horrific murder was a catalyst, inspiring programs aimed at helping Black startup entrepreneurs access capital, connect with investors and get support as they grow their companies. We also found that as the investors themselves become more diverse, there was a follow-on positive impact on who receives funding. For example, there have been small but notable increases in the number of partner-level venture capitalists in the U.S. who are Black. The sources we spoke with for Something Ventured say that in turn has helped more Black and Brown founders receive funding.
The news is not all good. Joanna Glasner reported that the percentage of VC funding to U.S. female startup founders actually fell in 2021 from an already low figure. While actual dollars increased—alongside an overall boom in VC funding to U.S. startups generally—women-led startups received a smaller share of that funding.
By quantifying these inequities, Something Ventured played an important role inspiring change in the powerful world of venture capital in 2021. By highlighting the steps helping to close these gaps, we demonstrated that this problem is in fact solvable.
Crunchbase News is a newsroom that operates independently within business intelligence software company Crunchbase and utilizes the company’s unparalleled private company information in its reporting. This database includes traditional firmographic information like company size and location, but also hard-to-find data such as funding rounds and investors. We’re able to track companies as soon as they first raise funding, at which point they start showing up on our reports. Crucially, Crunchbase is an open platform that startup founders can access to add themselves and their early funding rounds and become a visible part of the ecosystem.
This is especially key for Crunchbase’s Diversity Spotlight feature, which launched in 2020 and offers the most comprehensive source available of ethnicity, race and gender data about private company founders and investors.
What was the hardest part of this project?
Launching the Diversity Spotlight feature was a significant challenge. Race and ethnicity data is sensitive, and the meaning of race varies in different parts of the world. In addition, people need to self-report at scale for the data to be meaningful. Before June 2020, we thought this would be too challenging.
Everything changed after the murder of George Floyd. Crunchbase knew that adding race and ethnicity to its database could both clarify the state of inequities in funding and help VCs connect with diverse startup founders. We started with the U.S. market, and for feedback and access to existing data partnered with organizations active in the Black and Latinx community including the Black Founder List, Black VC, Stanford Latino Entrepreneurship Initiative and the women’s entrepreneurship group All Raise, as well as investors.
Once the feature launched, our findings confirmed the inequities that many suspected. We npw have a perpetually growing database that offers an increasingly comprehensive view of improvement or regression on these stark statistics. In the first year after Diversity Spotlight launched, close to 1,400 contributors added diversity data to Crunchbase.
Our efforts to spotlight inequities in the business world via our Something Ventured project were not always welcomed. Many founders and investors were reluctant to offer criticism of the industry. They may believe, understandably, that speaking up will hurt their chances of receiving future funding or conducting deals in an industry that revolves around networking and relationships.
Venture capital is also inherently optimistic —investors and startup founders tend to put a positive spin on things, even when the data shows slow progress. By speaking with enough people, including successful Black and female entrepreneurs who felt comfortable offering critiques of the industry, we were able to provide a realistic perspective on what’s happening.
What can others learn from this project?
Journalists around the world rely on Crunchbase’s Diversity Spotlight data and the reporting in Something Ventured for their own stories.
Data from these efforts was picked up and amplified by dozens of other news outlets in 2021. The majority of these publications cite the shockingly low percentages of venture funding going to underrepresented groups, as originally reported in Something Ventured. For instance, in July, Crunchbase News reported that only 1.2% of all venture funding went to Black startup entrepreneurs. This data point was then referenced and credited in articles that appeared in The Wall Street Journal, ZDNet, Inc., Insider, Ebony and many others, and helped spark further discussion and calls for change.
In September 2021, we found that companies with solely female founders raised just 2.2% of all venture funding through the first 8 months of 2021. This data point was referenced and credited in articles that appeared in Fast Company, Forbes, Harvard Business Review, CBS News and others and continues to serve as a reference point in the industry.