The civil rights movement comes to venture capital

The Fearless Fund lawsuit highlights what the lack of funding to Black founders has always been: a civil rights issue

For the last year and a half, there is only one point I’ve sought to make with my venture coverage: that the industry is not separate from sociopolitical context. That the tech industry and its backers are not separate from the economic fabric of this nation and the mores of our society.

This became evident when the American Alliance for Equal Rights (AAER) announced last week that it was suing Fearless Fund. The AAER was launched by Edward Blum, the man who helped overturn affirmative action, alleging that its race-conscious policies discriminated against Asian Americans.

AAER is accusing Fearless Fund of racially discriminating against white and Asian Americans because it awards a $20,000 grant only to Black women-owned small businesses. But as anyone with knowledge of who the venture community backs today knows: Black women raise around 0.4% of all venture capital funds in any given year, and grant programs like what Fearless built were created to fill that funding gap.

How venture capital is allocated to Black founders has always been a civil rights issue, just one river feeding the ocean of persistent economic segregation.

Earlier this year, three white men filed to sue the Minority Business Development Agency (MBDA) and the funding given to it by the Infrastructure Investment and Jobs Act. The suit alleges that how the funds were allocated was racially discriminatory and violated the Constitution’s Equal Protection Clause because the MBDA offers programs only for those from “socially or economically disadvantaged” backgrounds, which presumably does not include white Americans. The lawsuit resulted in a preliminary injunction against the MBDA’s business centers for unconstitutional racial discrimination.

More recently, a federal court in Tennessee filed an injunction against the Small Business Administration’s business development program after ruling that the SBA should stop taking race and ethnicity into account when it makes contracting decisions.

“There’s clearly a pattern here in recent months of courts and politically motivated plaintiffs going after public agencies like the MBDA and the SBA and private organizations like Fearless Fund,” John Dearie, the founder and president of the Center for American Entrepreneurship, told me. “That’s very worrying.”

Fighting fire with fire

Ed Zimmerman, a startup investing lawyer, pointed out the significance of AAER not going after diversity initiatives from more-prominent institutions, like Goldman Sach’s Launch with GS or the Andreessen Horowitz cultural funds. “What [AAER] didn’t do was take on very well-funded, heavily lawyered organizations that have the resources and personpower to fight back,” Zimmerman told me.

Fearless Fund’s legal team isn’t too shady, though. It hired a team of heavy-hitting civil rights lawyers, including Ben Crump, best known for representing the families of George Floyd and Henrietta Lacks, whose stolen cancer cells changed the medical landscape.