Funding Black High-Growth Startups

85 Pages Posted: 22 Nov 2022 Last revised: 18 Apr 2024

See all articles by Lisa D. Cook

Lisa D. Cook

Michigan State University - Department of Economics and James Madison College; NBER

Matt Marx

Cornell University, SC Johnson College of Business; NBER

Emmanuel Yimfor

Columbia Business School

Multiple version iconThere are 2 versions of this paper

Date Written: March 28, 2023

Abstract

We characterize the gap in venture-capital funding for Black entrepreneurs. Combining face-detection algorithms with extensive manual review, we classify the race of more than 150,000 U.S.-based founders and investors since 2000. Only 3.45% of founders seeking VC funding are Black, and those who raise VC funding obtain substantially less than others. We attribute some of this gap to Black founders having fewer traditionally observable markers, such as past startup experience, patents, or networks. However, Black founders with these markers are just as likely to receive funding. Interestingly, while Black partners at VC firms rely less on these traditional markers, they are more likely than their fellow partners to invest in Black founders, and these startups tend to have more successful outcomes when backed by Black partners compared to other VCs, even within the same firm. Our results suggest that Black partners are better able to select Black entrepreneurs who will succeed, due in part to lower information asymmetries given their overlapping prior professional experience.

Keywords: Black Founders, Minority Founders, Angel Financing, Patents, Venture Funding, IPOs, Acquisition, Image-processing

JEL Classification: G24, M13, J15

Suggested Citation

Cook, Lisa D. and Marx, Matt and Yimfor, Emmanuel, Funding Black High-Growth Startups (March 28, 2023). Columbia Business School Research Paper No. 4279986, Available at SSRN: https://ssrn.com/abstract=4279986 or http://dx.doi.org/10.2139/ssrn.4279986

Lisa D. Cook

Michigan State University - Department of Economics and James Madison College ( email )

South Case Hall
East Lansing, MI 48825-1205
United States

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Matt Marx

Cornell University, SC Johnson College of Business ( email )

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Emmanuel Yimfor (Contact Author)

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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