Editorial Note: Opinions and thoughts are the author’s own and not those of AFROTECH™.
Venture Capital, the lifeblood of startups, is undergoing a transition that may decrease the number of Black venture capitalists and venture-backed founders while reducing diversity in the types of ideas that Silicon Valley takes seriously.
Historically, venture capital was viewed as niche, unlike other areas of finance. However, venture capital has grown into a global industry that has helped usher in our technological future.
Companies like Uber and Airbnb have raised venture capital to build and grow their businesses into the household names they are today. Since 2021, the world of startups and venture capital has been going through a watershed moment that may alter the future of the industry.
As AFROTECH™ previously reported, interest rates heavily impact how the startup ecosystem operates. Ever since the start of the war in Ukraine in 2022, interest rates have been hiked globally to combat the potential for inflation, according to The Guardian.
High interest rates make capital more expensive, leading to more cautious capital allocations and the decline in venture capital that we’re currently seeing. Couple that with the lack of exits in the startup ecosystem via IPO or mergers and acquisitions, as reported by Carta, and it creates a big issue for the people who fund this entire ecosystem, namely, limited partners (LPs).
Limited partners are people or organizations that invest in venture capital funds, enabling venture capitalists to perform their role of investing in startups. Limited partners can be high-net-worth individuals, as well as institutions such as pension funds, like CalPERS (California Public Employees’ Retirement System), or university endowments.
LPs have not gotten the money back they needed, so they are becoming more restrictive in their investments and are flocking to large, established funds rather than backing emerging managers — investors in their first three funds or fewer. However, these very managers have been instrumental in developing the Black venture capitalists of today.
Due to the increased cost of capital and LPs not seeing liquidity, they are less likely to back emerging managers as they did before.
U.S. emerging managers raised $64 billion at their peak in 2021, but this figure declined to $17 billion in 2024. As of this year, they have only raised $4.7 billion, according to Bloomberg.
This means that there will be less funding available for Black emerging fund managers in the future. Given that only 2%-3% of investing professionals at venture capital firms are Black, firms like BLCK VC or working to increase the number of Black check writers in the industry.
With Black people already a small part of the ecosystem, in this decline Black check writers will be disproportionately affected and reduced. This reduction will result in fewer Black fund managers being established, fewer Black individuals gaining entry into the venture world by working at emerging venture capital funds, and ultimately more of the largest funds setting the strategy for the ecosystem as a whole.
What I am hopeful for is that recently announced funds, such as Symphonic Capital from Sydney Thomas, Cherryrock Capital from Stacy Brown-Philpot and Saydeah Howard, or Harlem Capital led by Jarrid Tingle and Henri Pierre-Jacques, will be able to raise subsequent capital and use their progress to open doors for others.
What we lose when Black emerging managers are not part of the picture is a diversity of ideas that do not get funded. Ideas like Rebundle, founded by Ciara Imani May, which aims to make hair extensions less toxic and more sustainable, or SPILL by Alphonzo Terrell and DeVaris Brown, which brings Black people together via socialization and games.
A diverse set of ideas getting funded makes the world a better place for all of us. If this does not happen, then the largest venture capital firms, such as Andreessen Horowitz, which are primarily focused on investing in themes like American Dynamism, will not be able to invest in defense, manufacturing, and space startups.
We do not want a startup ecosystem dictated by a few firms and their views on what is worth investing in because then we will end up living in the world they want, not the world we want.
With IPOs seemingly back on the table, companies like Chime are already going public (June 12), according to CNBC. The luck of emerging managers may change as long as they are savvy enough to get into the companies that will make an impact in the markets. A few people should not shape the future of technology, but if things don’t change, it’s increasingly likely to become a reality.
