On 25 May 2020, Minneapolis police officer Derek Chauvin placed his knee on the neck of George Floyd for 9.5 minutes. The ensuing Black Lives Matter (BLM) social movement spurred reflection not only regarding police brutality but also drew attention to the underrepresentation of Black entrepreneurs. Many investors tweeted their intention to fund Black-owned startups, though these public professions of support were met with skepticism. As Arlan Hamilton of Backstage Capital said, “You can’t jump out of the taxi at the end of the inclusion marathon and act like you’ve been running in it the whole time.”

Beyond rhetoric, did venture capitalists actually respond by investing in Black entrepreneurs? This question is challenging to answer, given the lack of data on the race of founders. We create a new database of founder race for all U.S.-based startups tracked by PitchBook from 2000-2023, fusing image-classification algorithms with manual review of over 150,000 founder photos and profiles. We perform the same classification for more than 30,000 investor profiles.

We find that venture capitalists responded rapidly after the murder of George Floyd, as evidenced by a marked increase in the number and value of new investments in Black-founded startups in the subsequent four quarters. A given investor was 30% more likely to invest in a Black-founded startup in the following years, and the share of that investor’s dollars to Black entrepreneurs grew by 43%.

We consider two potential explanations for the response. One possibility is that the heightened awareness of racial issues spurred investors to seek permanent solutions for failures in the market for Black entrepreneurs. Perhaps the demand for products and services from Black-owned companies increased, leading Black entrepreneurs to seek funding while also driving interest among venture capitalists. Even absent changes in consumer demand, Black entrepreneurs may have felt newly emboldened to approach investors, who in turn had a newfound interest in Black-led startups that may have escaped their attention due to a lack of overlapping professional or social networks. If so, we would expect the response to be sustained and substantial.

A second explanation is that the investor response reflects “tokenism.” That is, investors may have been motivated more by a desire to address the reputational threat resulting from the social movement than by a sustained commitment to addressing longstanding issues of underrepresentation. If so, we would expect the response to be concentrated among investors who arguably were more vulnerable to charges of indifference to racial issues—such as VCs who had not previously invested in Black-owned startups. Moreover, the response might be more symbolic than substantial. Investors might make public pronouncements regarding their intention to support Black founders but not follow through. Alternatively, those who did invest in Black-owned startups might involve themselves less directly with the companies relative to other companies they add to their portfolios.

Multiple signs point to tokenism. First, although as noted above the response from the investment community was swift, increased funding of Black-owned startups had reverted to prior levels within two years and sunk further thereafter. Second, the response was concentrated among VCs who had not previously invested in any Black-owned startups. Third, these first-time investors in Black-founded startups were less likely to also invest time by serving on the board of directors. We describe a token response by startup investors to an emerging social movement as a “minimum viable signal.”

The reaction of Black entrepreneurs also appears consistent with (fears of) tokenism. Unlike the purchase of public-market securities, which is largely unilateral, investors must convince entrepreneurs to make a deal. Since venture investors can perform essential roles in startup development, startups carefully evaluate the “lead” investor on the deal. Black entrepreneurs may be cautious about aligning with investors who have no track record of investing in Black-owned businesses, worrying that they seek to be seen as having responded immediately but perhaps being less committed for the long time. Indeed, we find that investors with no prior investments in Black entrepreneurs were much less likely to close deals with the most accomplished Black entrepreneurs: those who had previously founded a startup, or startups that already had a patent at the time of founding.

Overall, our results support the skeptical view of several entrepreneurs and investors. For example, SameSky founder and CEO Abner Mason observed, “Once the marching ends, what will be different in America? As a Black business leader, this newfound desire to address America’s original sin is a breath of fresh air in the midst of this pandemic. But I wonder how long this new zeal to change will last.” Similarly, Bessemer Ventures general partner Elliott Robinson noted, “The industry is full of a bunch of bullshit diversity theater.”