On June 3, the U.S. Court of Appeals for the 11th Circuit ruled in a 2-1 decision that an Atlanta-based venture capitalist firm Fearless Fund should be temporarily banned from providing grants to businesses founded by Black women. The court said that providing these grants would likely discriminate against business owners of other races.
Fearless Fund is a venture capital firm that funds businesses founded by women of color. The firm held a Strivers Grant Contest, intending to provide $20,000 to businesses owned by Black women. In August 2023, they were sued by the American Alliance for Equal Rights, led by Edward Blum, who previously led cases against Harvard and the University of North Carolina regarding affirmative action for students. Blum thanked the court, saying that programs that exclude individuals based on race are “unjust and polarizing.”
In September 2023, a federal judge ruled that the contest should be allowed to continue, less than a week later in October, the ruling was reversed. A separate panel was assigned to decide on the case, which agreed to halt the contests. This decision could impact racially conscious programs in the private sector, specifically regarding grants to business owners. According to the nonprofit advocacy group Digitalundivided, less than 1% of venture capital funding goes toward businesses owned by Black and Hispanic women, underscoring the significance of organizations like Fearless Fund.
The CEO of Fearless Fund, Arian Simone, said the ruling was “devastating” in a statement emailed to the Washington Post. Simone emphasizes the importance of historical context, saying, “When we have attempted to level the playing field for underrepresented groups, our freedoms were stifled.”
The court ruled that the award for the contest would likely violate an 1866 federal statute that prohibits race-based discrimination in contracts, established during the Reconstruction Era to protect the formerly enslaved from workplace exclusion. Now, this statute is being used by anti-affirmative action activists to argue against programs planning to benefit minority-owned businesses and workplaces.
This ruling comes amid many DEI (Diversity, Equity, and Inclusion) legal battles against corporate diversity programs. Fearless Fund argued that their contest was protected by the First Amendment, exempting them from the 1866 statute and that the funds were meant to remedy racial issues in the venture funding industry. The majority opinion responded that Fearless Fund “simple – and flatly – refuses to entertain applications from business owners who aren’t ‘black females'”, arguing that their mission ultimately relies on racial discrimination.
This case has drawn the attention of civil rights groups, venture capitalists, philanthropic organizations, and employment lawyers. They view this case as insight into how the courts will assess programs attempting to create equity for minorities who have historically faced discrimination in the workplace. Kathleen Enright, the president and CEO of the Council on Foundations, highlights the impact the ruling can have on charity and philanthropy, stating, “If legal decisions curtail people’s ability to give in ways that align with their values or their experience, it’s going to hurt not only philanthropy and nonprofits but our own country as a whole.”
This ruling adds to the debate surrounding race-conscious initiatives in the private sector, with proponents arguing that such programs are necessary to address longstanding disparities and create a more level playing field. Critics contend that these initiatives constitute reverse discrimination and violate the principles of equal opportunity. As legal battles continue, the impact on funding for underrepresented entrepreneurs remains uncertain, potentially exacerbating the existing challenges faced by Black and Hispanic women seeking to establish and grow their businesses. The resolution of this issue will have far-reaching implications for the inclusivity of the entrepreneurial landscape, and the broader philanthropic sector’s ability to direct resources toward marginalized communities.
Written by Mia Boykin
