For the last year and a half, there is only one point I’ve sought to make with my venture coverage: that the industry is not separate from sociopolitical context. That the tech industry and its backers are not separate from the economic fabric of this nation and the mores of our society.
This became evident when the American Alliance for Equal Rights (AAER) announced last week that it was suing Fearless Fund. The AAER was launched by Edward Blum, the man who helped overturn affirmative action, alleging that its race-conscious policies discriminated against Asian Americans.
AAER is accusing Fearless Fund of racially discriminating against white and Asian Americans because it awards a $20,000 grant only to Black women-owned small businesses. But as anyone with knowledge of who the venture community backs today knows: Black women raise around 0.4% of all venture capital funds in any given year, and grant programs like what Fearless built were created to fill that funding gap.
How venture capital is allocated to Black founders has always been a civil rights issue, just one river feeding the ocean of persistent economic segregation.
Earlier this year, three white men filed to sue the Minority Business Development Agency (MBDA) and the funding given to it by the Infrastructure Investment and Jobs Act. The suit alleges that how the funds were allocated was racially discriminatory and violated the Constitution’s Equal Protection Clause because the MBDA offers programs only for those from “socially or economically disadvantaged” backgrounds, which presumably does not include white Americans. The lawsuit resulted in a preliminary injunction against the MBDA’s business centers for unconstitutional racial discrimination.
More recently, a federal court in Tennessee filed an injunction against the Small Business Administration’s business development program after ruling that the SBA should stop taking race and ethnicity into account when it makes contracting decisions.
“There’s clearly a pattern here in recent months of courts and politically motivated plaintiffs going after public agencies like the MBDA and the SBA and private organizations like Fearless Fund,” John Dearie, the founder and president of the Center for American Entrepreneurship, told me. “That’s very worrying.”
Fighting fire with fire
Ed Zimmerman, a startup investing lawyer, pointed out the significance of AAER not going after diversity initiatives from more-prominent institutions, like Goldman Sach’s Launch with GS or the Andreessen Horowitz cultural funds. “What [AAER] didn’t do was take on very well-funded, heavily lawyered organizations that have the resources and personpower to fight back,” Zimmerman told me.
Fearless Fund’s legal team isn’t too shabby, though. It hired a team of heavy-hitting civil rights lawyers, including Ben Crump, best known for representing the families of George Floyd and Henrietta Lacks, whose stolen cancer cells changed the medical landscape.
“This frivolous lawsuit . . . is a frivolous attempt to prevent the economic progress of women,” Crump said in a press conference on Thursday. “We will defend it zealously and vigorously because we understand that [Fearless Fund founders] Arian [Simone] and Ayana [Parsons] are the first,” he continued. “If [AAER] can defeat them, by God, they will come after everyone who believes in the American promise of equal opportunity at the American dream.”
Fearless Fund’s team also includes the NAACP Legal Defense and Education Fund, the National Women’s Law Center and the Global Black Economic Forum.
The hiring of a team of civil rights lawyers frames the issue of who is and who is not raising capital for what it has always been: There is no overlooked, no underestimated, or underrepresented; there is only discriminated against. The fact that grants and funds that target so-called overlooked individuals even have to exist was already like using a separate water fountain, like having to attend a redlined school. It’s salt in the wound that now even these small programs are under threat.
“I don’t even know what to say,” James Oliver, the founder of Kabila, who is Black, told me when this lawsuit first broke. “Some folks don’t even want us to get the crumbs we get.”
It’s not surprising that people are exacerbated. Sad, enraged, yet energized. It doesn’t help that there has been an eerie silence among critical players within the venture ecosystem.
Some founders are already writing senators for help and are donating and signing pledges to support the Fearless Fund. People want to mobilize, but all they can do is wait. Bernard Coleman, a lawyer at the Coleman Law Firm, told me that companies and organizations should start looking at consulting legal counsel to review their own grant programs and see if they are compliant with civil rights laws.
What matters right now is that AAER has a chance to win, especially given the conservative-leaning makeup of the Supreme Court. The growth in lawsuits against race consciousness within business already heightens the possibility of spooking investing groups looking to diversify in whom they invest. Limited partners, banks and other institutions might be more hesitant to work with historically persecuted minorities, whether for legal reasons or simply to avoid unwanted press.
That alone could undo the little progress made.
For the most part, what’s next is up in the air. Dearie said he would continue working to help pass the CDFI Tax Credit Act and Expanding American Entrepreneurship Act, both of which would increase economic opportunities for Black and brown communities.
Aishetu Fatima Dozie, the founder of Bossy Beauty who won a grant for women of color from Fearless Fund and the Tory Burch Foundation, said she is ready to do whatever she can to support the fund. “I am ready to show up in court, if necessary, to testify about how important funds like this are,” she said. But for the most part, she is in the same position as most who want to help: “I’m not sure yet how to support, but I will do whatever is necessary.”
What is clear is that more clever, less legally perilous ways to address racial disparities in this country will be needed. Transparency acts from Congress could help in a tactical way, but it’s much harder to change the beliefs of an entire society. It’s already clear that current funding disparities aren’t just about people not knowing where or how to invest their money.
“They understand capitalism only works if we have a level playing field for all to compete,” Alphonso David, the president and CEO of the Global Black Economic Forum, said during Thursday’s press conference. “They want us to pretend that inequities do not exist. They want us to deny our history.”
Toni Morrison once said that the function of racism is a distraction. “It keeps you from doing your work. It keeps you explaining over and over again your reason for being,” she said. That is what’s happening right now. Fearless Fund has to argue a case about a law from 1866, and that will take time, money and resources away from the women of color who need them.
Morrison ended her quote by saying, “None of this is necessary. There will always be one more thing.” But venture is singing another tune. Simone told everyone that the fund would be “fearless” in its fight against this suit and its continued pursuit of economic justice. Or in other words, since 1866, not much has changed.