Funding Black High-Growth Startups

Lisa Cook, Matt Marx and Emmanuel Yimfor

No 30682, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We analyze determinants of access to venture capital for Black founders of high-growth startups. We combine image- and name-processing algorithms with clerical review to identify race for over 100,000 startup founders “at risk” for venture funding. Black founders raise roughly one-third as much venture capital in the five years after founding vs. other startups formed in the same year, industry, and state. What explains the gap? We attribute about a third of the gap to four factors: Black startups have smaller founding teams; Black founders are less likely to have worked at the same companies or attended the same schools as investors who fund startups in the same industry and geography; Black startups are less likely to be located in geographies with plentiful venture capital, and Black startups are less likely to have a patent. We then bound our estimates of the funding gap and show that, to explain the gap, omitted variables would have to be nearly four times as important as the variables we fix. The funding gap is not statistically different from zero in later funding stages (post Series B), suggesting that some investors initially hold—but later amend—incorrect beliefs about Black-founded startups. We also exploit the hiring of Black partners and show that they are more likely to fund successful Black startups, consistent with segmented networks.

JEL-codes: G24 M13 (search for similar items in EconPapers)
Date: 2022-11
New Economics Papers: this item is included in nep-ent and nep-sbm
Note: PR
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Citations: View citations in EconPapers (4)

Published as Lisa Cook & Matt Marx & Emmanuel Yimfor, 2024. "Funding Black High-Growth Startups," Academy of Management Proceedings, vol 2024(1).

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