VC firm Fearless Fund has faced a setback in its plans to issue grants to black female business owners. On Monday, an appeals court ruled against Fearless, upholding a preliminary injunction against the program.
The court’s ruling said the Fearless Fund’s Strivers Grant likely violates the Civil Rights Act of 1866, which prohibits the use of race in contracts, as first reported by Atlanta Journal-Constitution. The Strivers Grant is issued through the founding arm of the fund and awards grants to businesses owned by black women. It was followed by a lawsuit last August by the American Alliance for Equal Rights (AAER), which argued that the grant discriminated against non-black female founders, as only black women could apply.
AAER was founded by Edward Bloom, the conservative activist who helped successfully overturn affirmative action in universities. Atlanta-based Fearless Fund vowed to fight the lawsuit, but was temporarily barred from continuing to use those funds last October as the case continued to travel through the courts. The Fearless Fund challenged that order in January as well, and both parties argued their case to the appeals court. Blum once again argued that the Strivers Grant violated the Civil Rights Act of 1866, while the Fearless Fund argued that the grant was a charitable donation that would be protected under the First Amendment.
While today’s decision means the Fearless Fund cannot issue grants, it is not necessarily the final word on the case. Fearless is evaluating its options about what to do next, including the possibility of going to trial, its reps told us. The company disputes the court’s ruling that the Strivers Grant violates the Civil Rights Act of 1866, the company’s attorney and president of the Global Black Economic Forum, Alphonso David, told TechCrunch.
“As the dissenting judge pointed out, the discrimination in access to funding that Fearless Foundation seeks to address is longstanding and undisputed,” David said. “This is the first court decision in the 150-plus year history of civil rights law since the Civil War that has halted private philanthropic support for any racial or ethnic group.”
Arian Simone, the CEO of the Fearless Fund, also released a statement, saying the foundation is determined to continue fighting the lawsuit.
“America is supposed to be a nation where one has the freedom to succeed, the freedom to earn, and the freedom to prosper. However, when we tried to level the playing field for underrepresented groups, our freedoms were stifled,” Simone continued. “We must continue this fight for the next generation of girls who deserve to grow up in an America that lets them live their dreams instead of outlawing them.”
Blum also sent a statement to TechCrunch, saying, “The American Alliance for Equality is grateful that the court ruled that the Fearless Fund’s racially exclusive grant competition is illegal… Programs that exclude certain people because of their race, like Fearless’s Fund has designed and implemented are unfair and polarizing. A substantial majority of all Americans believe that a person’s race should not be a factor in our nation’s public policies.”
News of the Fearless Fund lawsuit caused consternation among diversity advocates in the startup and venture ecosystem. Many founders and investors told TechCrunch the irony of the Civil Rights Act of 1866, which was originally put in place to help former slaves, is now being used against the community it tried to help. Others worry about the implications this case would have as companies seek to change the language around their diversity programs to appear less targeted at marginalized communities. Its impact on diversity-focused venture capital remains unknown.
Dar’shun Kendrick, an attorney and representative for the state of Georgia, told TechCrunch that the Fearless Fund still has a case, even though today’s ruling was disappointing. That’s because today’s decision only upheld the verdict that the Fearless Fund could not make grants. it wasn’t a decision on the merits of the case, which means there’s still time to argue this, Kendrick said.
However, big names in the tech ecosystem have remained tight-lipped about what’s going on with the Fearless Fund, marking the end of the open era of DEI’s support for the industry. Simone spoke to Inc. earlier this year telling the fund she had lost almost all her partnerships except for two, JPMorgan and Costco. Even Mastercard, which backed 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 equality, bringing everyone to a place of equality,” Kendrick continued, agreeing that the fight is far from over.
This story has been updated to add Blum’s statement.
