In 2020, the murder of George Floyd and the growing Black Lives Matter movement put a spotlight on diversity and equity issues—including in the business world. Suddenly investors were clamoring to support Black entrepreneurs, a way of course correcting a history of underinvestment and unfair barriers.

In the year after Floyd’s murder, a given investor was 36% more likely to invest in a Black-founded startup, and the overall share of venture capital dollars going to Black entrepreneurs grew by 43%. 

Major investments made headlines. SoftBank, for example, announced a $100 million fund that would invest only in companies led by founders of color. Andreessen Horowitz launched a $2 million fund focused on founders from “underserved” communities, and VC firm Revolution set aside $2 million to support Black entrepreneurs.

But that surge didn’t last, according to new research out of Cornell University. Within two years, investment in Black-founded startups reverted back to previous levels. (Some studies say just half a percent of all VC funding goes to Black founders; separate Cornell research found that just 3.5% of founders seeking funding from VC firms are Black.)

For this new study, Cornell researchers analyzed data from PitchBook, which shows venture capital funding into companies. They used software (and then manually checked it) to classify images of about 150,000 founders by race, and then looked at investments from 2020 to 2023. 

The researchers also looked at who was driving the temporary surge in investments, digging into about 30,000 investors. They found that the main increase in funding was primarily among venture capitalists who had never previously invested in a single Black entrepreneur. 

The researchers found that Black entrepreneurs with stronger business track records were less likely to take investments from those “newcomer” investors in that period after Floyd’s death.

In other words, “the strongest Black entrepreneurs paired up with investors who had more of a track record” of investing in founders of color, says study coauthor Matt Marx, a Cornell professor who focuses on entrepreneurship and innovation.

To Marx, that shows how investing is a two-way relationship: “The investor has to get the entrepreneur to agree to take their money, and so it becomes a little trickier to right past wrongs or address the issue if the very people you were ignoring have to agree to go along with you.”

Most VCs who did invest in Black entrepreneurs also did so in a less engaged way, the researchers found. These investors were about 15% less likely to take a board seat in the startup they supported, for example. 

So where does this leave Black founders now? Marx has other research that points to some opportunities. In a 2024 study, his team found that the racial funding gap for startups is smaller when a business comes out of an accelerator—like Y Combinator or Techstars—than just through VC funding. With traditional VC investing, founders may need a personal connection to get referred, which can leave certain people out. 

If venture capital funds adopted a more open application process like accelerators do, that could help close the funding gap, Marx says. And though that surge of investments to founders of color petered out, overall the number of Black founders is growing—albeit slowly. Although Black entrepreneurs represented just 3.5% of all founders seeking VC funding over the past 20 years, in the past five years that number has grown to 4.5%. 

That means Black founders are “still underrepresented,” Marx says. “But maybe [that growth] gives someone the thought that, Hey, I can play this game too. I’m going to take an entrepreneurship course or apply to an accelerator. That’s my hope.”