VC firm Fearless Fund faced a setback in its plans to award grants to Black women business owners. On Monday, an appeals court ruled against Fearless, upholding a preliminary injunction against the program.
A court ruling says the Fearless Fund’s grant to Strivers likely violates the Civil Rights Act of 1866, which prohibits the use of race in contracts, as first reported by the organization Atlanta Journal Constitution. The Strivers Grant is awarded through the fund’s foundation and awards grants to Black women-owned businesses. Last August, she was sued by the American Equal Rights Association, which argued that the grant discriminated against non-black founders because only black women could apply.
AAER was founded by Edward Blum, a conservative activist who helped successfully overturn affirmative motion in universities. Atlanta-based Fearless Fund said it could fight the lawsuit, but was temporarily barred from further use of the funds last October while the case was still pending in court. Fearless Fund appealed against the order, and in January either side presented their arguments in the appellate court. Blum once again asserted that the Strivers Grant violated the Civil Rights Act of 1866, while the Fearless Fund argued that the grant was a charitable donation that could be protected under the First Amendment.
While today’s ruling means the Fearless Fund cannot make grants, it is not necessarily the last word on the matter. Fearless representatives are assessing their options for further motion, including the possibility of taking the case to trial. The company disagrees with the court’s ruling that the Strivers Grant violates the Civil Rights Act of 1866, company attorney Alphonso David and president of the Global Black Economic Forum told TechCrunch in an emailed statement.
“As the dissenting judge noted, the discrimination in access to funds that the Fearless Foundation seeks to address is long-standing and undeniable,” David said. “This is the first court decision in the more than 150-year history of post-Civil War civil rights law to withhold private charitable assistance to any racial or ethnic group.”
Arian Simone, CEO of Fearless Fund, also released a statement saying the foundation is committed to continuing to fight the lawsuit.
“America is to be a nation of freedom to achieve, freedom to earn, and freedom to prosper. But when we tried to level the playing field for underrepresented groups, our freedoms were suppressed,” Simone continued. “We must continue this fight for the next generation of girls who deserve to grow up in an America that allows them to pursue their dreams, not prohibit them.”
Blum also sent a statement to TechCrunch saying: “The American Equal Rights Alliance is grateful that a court has ruled that the Fearless Fund race-only grant competition is illegal… Programs that exclude certain individuals based on their race, similar to like the Fearless Fund he designed and implemented, are unfair and polarizing. A big majority of Americans consider that an individual’s race shouldn’t be a factor in our nation’s public policy.”
News of the Fearless Fund lawsuit has sparked concern among diversity advocates in the startup and enterprise ecosystem. Numerous founders and investors told TechCrunch about the irony of the Civil Rights Act of 1866, which was initially enacted to help the once enslaved and is now getting used against the very community it was intended to help. Others worry about the fallout from the case as corporations try to change the language around their diversity programs to make it seem less targeted at marginalized communities. Its impact on diversity-focused enterprise capital funds stays unknown.
Dar’shun Kendrick, an attorney and Georgia state representative, told TechCrunch that Fearless Fund still has a case despite the fact that today’s ruling was disappointing. That’s because today’s ruling only upheld the verdict that the Fearless Fund couldn’t make grants and wasn’t a ruling on the merits of the case, which implies there’s still time to challenge that, Kendrick said.
Still, big names in the tech ecosystem have been silent on what’s happening with the Fearless Fund, signaling the end of the open era of DEI support in the industry. Simone spoke to Inc. earlier this 12 months, talking about the fund she lost just about all of her partnerships except two, JPMorgan and Costco. Even Mastercard, which sponsored the now-disputed Strivers Grant, has never publicly commented on the lawsuit.
“There are those who see justice as equality and those who see justice as justice that brings equality to all,” Kendrick continued, agreeing that the fight is not over yet.