Seminarios Académicos

Abstract: Using data on startup founders "at risk" for venture funding, we find that Black founders raise roughly half as much venture capital funding in the five years after founding as other startups in the same state-industry-year. However, we find no such gap in non-debt sources of funding other than venture capital. What explains the gap in venture capital funding? A subsample test of patenting startups seems to suggest that initial quality is not a factor, as patent applications from Black startups are no less likely to be granted or receive forward citations, yet are similarly less likely to be funded by VCs. We bound our estimates of the funding gap and show that omitted variables would have to be three times as important as the variables we fix (which explain over 30% of the funding gap) to explain away the funding gap. The funding gap is zero at later funding stages (post Series B), suggesting that some investors had incorrect (initial) beliefs about Black-founded startups. We conclude by showing that the race and network of the venture partner are associated with the likelihood that a Black founder is funded, consistent with relative bias driven by networks.