On a recent sunny afternoon in Atlanta, Arian Simone stood outside a federal courthouse, with civil rights activist Al Sharpton by her side, to declare a small victory. That day, a federal judge struck down an effort by a conservative group that is determined to stop all attempts at affirmative action — including grants given to Black female entrepreneurs by the Fearless Fund, a venture capital firm co-founded by two Black women, Simone and Ayana Parsons.
A defiant Simone was jubilant that day. “We have deployed over $26 million to women of color, and we will continue to deploy millions of dollars to women of color,” she promised at a press conference following the judge’s ruling.
The Fearless Fund is a minnow in the VC world of more than $200 billion in assets, less than 0.05 percent of which goes to startups founded by Black women. Nevertheless, the American Alliance for Equal Rights, headed by anti-affirmative-action activist Edward Blum, sued the Fearless Fund in August. It claimed the fund’s grant program geared toward Black womenviolated a section of the Civil Rights Act of 1866 that “protects the equal right of all persons … to make and enforce contracts without respect to race” and asked for a preliminary injunction to stop the group from handing out any more money while the case proceeds. U.S. District Judge Thomas Thrash denied the injunction, saying the lawsuit was unlikely to be successful.
Simone’s joy, however, was short-lived. A few days later, two Trump appointees on a three-judge appeals panel reinstated the injunction, siding with the AAER and Blum, who has gained notoriety — and influence — since his group knocked down affirmative action in higher education by winning its case against Harvard University and the University of North Carolina at the U.S. Supreme Court. Since then, Blum has vowed to dismantle affirmative action just about everywhere else — including in the business world. (He also sued two law firms using arguments similar to those made in the Fearless Fund case. The cases were dropped after the law firms opened up their fellowships to everyone.) And while the latest decision in the Fearless Fund case is expected to be reviewed by the full appeals court, no matter what happens there, the case is likely to make it all the way to the Supreme Court.
If Blum’s group were to win the battle, Fearless Fund’s attorneys and supporters say, the ruling would turn civil rights law upside down. As the firm’s lawyers state in their response to the complaint, “Plaintiff seeks to distort the purpose and text of this seminal civil rights statute to use it against Black people — the same people the Reconstruction Congress sought to protect.”
The prospect has the investment community on edge. Given the high court’s recent ruling striking down affirmative action, “antennas are up, rightly so,” says Frederick V. Bryant II, a partner with law firm Foley & Lardner LLP.
It feels like an explicit attempt to disenfranchise certain people from realizing the American dream,” says entrepreneur Sheila Marmon, founder of Mirror Digital, a multicultural media network. She says her yearlong effort to raise angel financing more than a decade ago was “challenging” as a Black woman despite her Princeton degree and Harvard MBA, as well as a career that included a stint at Morgan Stanley. “I followed the path that I was told is the path to success. And when I became an entrepreneur, it was a really rude awakening in terms of the lack of support I got.”
With the stakes so high, the Fearless Fund case is forcing venture capitalists and allocators alike to rethink or reshape their efforts at increasing diversity, including among the companies they invest in, the managers they hire, and their own organizations, without backing down on the commitment to diversity, equity, and inclusion. DEI has become the shorthand acronym for all efforts to even the playing field for women and minorities, who are woefully underrepresented in the investment world. These days, managers, pension funds, and endowments are working to make their diversity efforts stand up to legal and other scrutiny.
Those of us who believe in DEI have to be more intentional, have to be just as vocal, have to be courageous and understanding that this is a point in time where we need to make a stand or it’s going to be harder for the generations that come after us,” says Angela Miller-May, chief investment officer of the $52 billion Illinois Municipal Retirement Fund.
While not a new concept, DEI gained prominence following the murder of George Floyd in the summer of 2020 and the widespread protests that followed. A slew of initiatives aimed at helping bridge the racial inequality gap followed — among them a surge in VC investment in Black entrepreneurs. Black-founded startups received a record $5.1 billion of venture capital in 2021, according to Crunchbase, but the surge quickly ended when VC funding fell across the board the next year. In 2022, Black entrepreneurs received 50 percent less than the prior year. Such startups saw their share of the VC market drop from 1.5 percent in 2021 to only 1.1 percent last year, Crunchbase says.
“It’s hard when you have the system that you have,” explains Miller-May. “You’re fighting a system that’s so ingrained. You just have to be smart. You have to be strategic. You have to figure out how you can implement things that are long-lasting.”
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Michelle Celarier 