NEW YORK, NY – In the year after the racial justice movement sparked by the murder of George Floyd, a new Columbia Business School study shows that the share of total funding dollars going to Black founders increased by an astounding 43%. However, this progress has not only stalled—it has sharply reversed, with investment levels now back to pre-2020 norms.
In the paper titled Minimum Viable Signal: Venture Funding, Social Movements, and Race, Columbia Business School Assistant Professor of Business Emmanuel Yimfor, along with Cornell SC Johnson College of Business Professor Matt Marx and Cornell PhD student Qian Wang, analyzed startup and funding records from PitchBook, a database that tracks U.S. startups and venture capital activities. They matched the startup funding information with public images and biographical information from LinkedIn to build a dataset of 150,000 Black startup founders. Their findings revealed that post–George Floyd, a funding surge to Black-founded startups was driven almost exclusively by a group of new investors, who were more vulnerable to charges of indifference to racial issues due to no prior history of backing Black founders. The researchers concluded that these investments largely reflected tokenism, with many investors making one-time investments and avoiding deeper commitments like taking board seats. They also discovered that top-tier Black founders often bypassed this group of new investors, which the authors conclude could be due to stronger bargaining power and skepticism toward investors with no prior track record in funding Black entrepreneurs. While the surge provided a short-term boost in capital in 2020, funding levels started to drop toward the mean in 2022 and declined to pre-2020 levels by 2023. The authors theorize that the investment decline might be explained by the June 2023 U.S. Supreme Court decision striking down the use of affirmative action in college admissions, which started a reevaluation of diversity, equity, and inclusion policies.
This research shows that social norms may only temporarily shift venture capital behavior. The authors classify much of the post-2020 surge of funding as tokenized investments – performative in nature and designed for the funds to address their own short-term reputational threats. The fleeting round of investments did not address long-term institutional challenges for Black entrepreneurs seeking venture capital funding. Future research could examine the behaviors that contribute to lasting institutional transformation.
To learn more about the cutting-edge research being conducted, please visit the Columbia Business School.
###
