Venture capital firm Fearless Fund is facing a setback in its program to give grants to black female business owners: An appeals court ruled against Fearless on Monday, upholding a preliminary injunction against the program.
As first reported by the Atlanta Journal-Constitution, the ruling said Fearless Fund's Strivers Grants likely violate the Civil Rights Act of 1866, which bans racial language in contracts. Strivers Grants are issued through the fund's foundation arm and award grants to businesses run by Black women. Last August, the American Equal Rights Union filed a lawsuit alleging that the grants discriminate against non-Black female founders because only Black women can apply for them.
AAER was founded by Edward Blum, a conservative activist who successfully fought to end affirmative action at universities. The Atlanta-based Fearless Fund vowed to fight the lawsuit but was temporarily barred from managing its funds in October last year while the case continued in court. Fearless Fund challenged the injunction, and in January the parties presented their arguments in appeals court. Blum again argued that the Strivers grant violated the Civil Rights Act of 1866, while Fearless Fund argued that the grant was a charitable donation and therefore protected under the First Amendment.
While today's ruling means that Fearless Fund cannot make grants, it is not necessarily the final decision on the matter. A representative for Fearless Fund said the company is considering its next steps, including the possibility of going to court. In an emailed statement, Alphonso David, a lawyer for the company and president of the Global Black Economic Forum, said the company disagrees with the court's ruling that Strivers' grants violate the Civil Rights Act of 1866.
“As the dissenting judges noted, the discrimination in access to funds that Fearless Foundation seeks to address is longstanding and irrefutable,” David said. “This is the first decision in the more than 150-year history of post-Civil War civil rights law to block private philanthropic support to a racial or ethnic group.”
Fearless Fund CEO Ariane Simone also released a statement saying the foundation is committed to continuing to fight the lawsuit.
“America is supposed to be a country where we have the freedom to achieve, the freedom to earn, the freedom to prosper. But when it comes to providing equal opportunities for underrepresented groups, our freedoms have been stifled,” Simone continued. “We must continue this fight for the next generation of girls who deserve to grow up in an America where their dreams are enabled, not forbidden.”
Bloom also issued a statement to TechCrunch, saying, “The American Equal Rights Union is grateful that the court ruled that Fearless Fund's race-specific grant competitions were unlawful. Programs that exclude individuals because of their race, such as those designed and implemented by Fearless Fund, are unjust and divisive. The majority of Americans believe that an individual's race should not be a factor in the nation's public policy.”
News of Fearless Fund's lawsuit has caused uproar among diversity advocates within the startup and venture ecosystem. Many founders and investors spoke to TechCrunch about the irony that the Civil Rights Act of 1866 was enacted to help formerly enslaved people, but is now being used against the communities that sought its help. Some are worried about the impact the lawsuit will have as companies try to change their language around diversity programs to appear less targeted at marginalized communities. The impact on venture funds with a focus on diversity remains unclear.
Darshun Kendrick, an attorney and Georgia state representative, told TechCrunch that while today's ruling was disappointing, Fearless Fund still has time to pursue its case. Kendrick said that because today's ruling only upheld the decision that Fearless Fund cannot make grants, and not the actual merits of the lawsuit, there is still time for arguments.
Still, tech giants have remained silent about what's happening with the Fearless Fund, signaling the end of a proactive era of DEI advocacy in the industry. Simone told Inc. earlier this year that the fund had lost nearly all of its partners except for two: JPMorgan and Costco. Even Mastercard, the sponsor of the currently contested Strivers Grant, has never publicly commented on the case.
“Some people think of justice as equality, and some people think of justice as fairness – putting everyone on an equal footing,” Kendrick continued, agreeing that the fight is not over yet.
This story has been updated to include a statement from Bloom.