- VC firm Fearless Fund is being sued by the group behind the Supreme Court affirmative action case.
- The conservative group claims a grant program run by Fearless Fund is racially discriminatory.
- The lawsuit is the latest action intended to challenge and scale back corporate DEI initiatives.
In the summer of 2020, there appeared to be a turning point. George Floyd had just been murdered by a Minneapolis police officer and protests across the nation erupted in a collective cry for change.
That emotion spilled over into the business world as leaders faced calls for more focus on diversity, equity, and inclusion at their companies. This ultimately led to company pledges to consider diversity more in hiring, creating DEI-themed initiatives, and companies started to hire more chief diversity officers. It also led some companies like Bank of America, Mastercard, PayPal and others to earmark millions of dollars to fund and address the racial funding gap. Some of that money ultimately went to smaller VC firms that focus on funding underrepresented startup founders.
A small, Atlanta-based, Black women-led venture firm called Fearless Fund was one of them. And now it’s at the center of a lawsuit filed by the conservative nonprofit American Alliance for Equal Rights – the same organization headed up by Edward Blum that clinched a victory against affirmative action in college admissions before the US Supreme Court.
The nonprofit claims in the lawsuit that a small business grant program run by Fearless Fund is racially discriminatory because Black women are the only eligible participants, therefore violating a section of the Civil Rights Act of 1866, which bars racial bias in private contracts.
“Their motive is clear: they want to disrupt the vital work of Fearless Fund and similar institutions and organizations whose primary mission is to provide underrepresented communities with an economic engine to build, sustain and scale their businesses,” said Fearless Fund in a press release.
Arian Simone, who previously ran a public relations and marketing firm, and former corporate executive Ayana Parsons, launched Fearless Fund in 2019 with the specific goal to back companies led by women of color. The firm raised $25 million for its first fund and said in June that it received a multimillion follow-on investment from Bank of America, Costco, and MasterCard for its second fund.
But it appears that the window that was once open for making venture capital funding more racially equitable in the wake of George Floyd's killing, is now closing with this lawsuit's filing, says Eghosa Omoigui, the founder and managing general partner of EchoVC, a firm that focuses on underrepresented founders in underserved markets.
Yasmin Cruz Ferrine, the cofounder and general partner at Visible Hands, another VC firm with a focus on backing underrepresented founders, says the situation is even worse. Despite some willingness to focus on DEI just a few years ago, corporate sentiment has completely changed.
"What I've seen actually is that it's a backlash," Ferrine said. "The pendulum is not going back to net neutral. It's going back to now DEI is framed as a liability."
It does appear that there's a sea change in parts of corporate America, where diversity, equity and inclusion aren't necessarily a priority anymore.
Some companies are scaling back racial and social justice commitments and the momentum to advance DEI initiatives at companies has lost steam, The Wall Street Journal reported. Several chief diversity executives at companies such as Netflix, Disney, and Warner Bros. Discovery have either stepped down from their roles or were let go.
Other diversity heads told The Wall Street Journal that their work has been met with more scrutiny in the wake of the Supreme Court's affirmative action ruling, while thousands of DEI-focused workers have been laid off.
Yet, despite the fact that a recent poll by the Pew Research Center found that 56% of adults employed in the US thought focusing on increasing DEI in the workplace was a good thing, companies have been facing calls to scale those efforts back.
In July, shortly after the affirmative action ruling, the attorneys general of 13 states issued a letter to companies in the Fortune 100 – the largest companies in the US ranked by revenue, which include Microsoft, Coca-Cola, and Walmart – "to refrain from discriminating on the basis of race, whether under the label of 'diversity, equity, and inclusion' or otherwise."
"Companies that engage in racial discrimination should and will face serious legal consequences," they wrote in the letter.
Some Black VCs believe the lawsuit against Fearless Fund is the latest effort to stamp out any progress that's been made to bridge the racial funding gap, which continues to be abysmally low – so far this year, Black founders have raised 0.75% of the $565 million in venture capital funding in the US, TechCrunch reported, citing Crunchbase data.
"Now is not the time to retreat, but rather our peers are needed more than ever to continue working towards a more inclusive startup ecosystem," Ferrine wrote in a blog post. "The intention behind this lawsuit is to create a chilling effect and roll back progress."