In honor of Martin Luther King Jr., his values, and his goals, we are dedicating today’s Chart of the Week to minority founders. Venture capital and private equity spaces have long been known for being dominated by white men. While some progress has been made through awareness, dialogue, and funds (like Backstage Capital) dedicated to minority founders, this lack of diversity still largely remains today.
But one of the best ways to help create change is to maintain awareness. To that end, let’s examine funding and deal flow for startups with minority founders in 2022.
Startups with minority founders made up 23% of total equity deal flow in 2022. If we break this down a little more, Regulation Crowdfunding (Reg CF) raises had far better representation than Regulation A (Reg A) raises. Just over 30% of Reg CF equity deals had minority founders, while less than 10% of Reg A raises had this kind of diversity. And the percentage of Reg CF raises with minority founders is down by about 13% from 2021. That’s a worrying drop. It may indicate that in times of economic volatility, minority founders feel the crunch more quickly than their white counterparts.
We see similar behavior when it comes to funding. Minority founders earned a total of $113.3 million in 2022. And again, Reg CF far outperformed Reg A. Startups with minority founders received 25.4% of dollars invested in Reg CF equity deals in 2022. On the Reg A side, only 11.4% was invested in minority founders. Overall, startups with no minority founders received four times the funding of startups with minority founders. While more progress is needed, online startup investing is still more inclusive than traditional venture capital (VC) funding options, where minority founders receive as little as 2% of total VC dollars.
Regardless, minority founders are historically underrepresented in both the online startup investing and VC spaces. And when looking at Reg CF only, funding for minority founders fell by 6% from 2021 to 2022. However, there is a silver lining to these figures. Funding for minority founders decreased far less than the number of new deals with minority founders. So even while there were fewer minority founders to invest in, Reg CF investors still saw their merit and chose to support them.
We have confidence that online startup investing will continue to be more inclusive than traditional VC funding opportunities for minority founders, especially as trends lean positive. However, this data does indicate that there is a substantial difference in both representation and funding when comparing Reg CF and Reg A raises. Since Reg A raises tend to be used by more mature companies and often target accredited investors, it may be that some of the biases from VC persist in them. Hopefully as more founders turn to equity crowdfunding, the funding gap between minority founders and white founders will shrink.
Note: All data on online startup investing used for the Chart of the Week comes from the KingsCrowd database and represents a snapshot of the US crowdfunding market.
