Fearless Fund, which provides grants and investments to women of color, has been indefinitely barred from deploying its $20,000 grant to Black women after the American Alliance for Equal Rights, led by conservative activist Edward Blum (best known as the man who helped overturn affirmative action in education), sued them over the scheme.
The lawsuit against the venture firm could result in significant adverse ripple effects on the venture community’s efforts to promote diversity, equity and inclusion (DEI) in the startup ecosystem. In the eyes of many, banning grants targeted specifically toward minorities will serve to undo the progress made in this space to bring underserved and overlooked populations to an equal footing.
This is one of at least three lawsuits against agencies and organizations that are providing economic assistance to founders of color and is part of a more extensive backlash against the recent increase of schemes seeking to correct racial and gender discrimination in various spheres.
That backlash is also being felt in tech, with more people talking more candidly about waiting for “wokeness” to crumble. All of this is happening despite women, Black, and Latino founders never receiving more than 5% of venture capital in any given year. Emerging funds popped up over the past few years and targeted such communities with hopes of correcting some of the venture economic disparity. The Fearless Fund suit has the potential to dissuade such efforts.
To find out how the industry is reacting to this decision, TechCrunch+ spoke with one founder and four fund managers at venture firms that back women or founders of color. We included funds that back only women because women, specifically white women, were the main benefactors of affirmative action, and as the fallout from that overturn continues, any further efforts by Blum and others to impede similar schemes will probably negatively impact them and all women, too, regardless of race.
We spoke with:
- Carlissia N. Graham, president, New Media Ventures
- Naseem Sayani, co-founder, Emmeline Ventures
- Luke Cooper, general partner, Latimer Ventures
- Mec Zilla, founder, Mecx Dao
- Darrel Frater, investments associate, Visible Hands
Carlissia N. Graham, president, New Media Ventures
How do you expect the Fearless Fund case to pan out, and in what ways could the Fund losing the suit impact you? What would the short-term and long-term ramifications of this case be on the wider investment industry?
This is one to watch. While the 11th Circuit is predictably conservative and can easily rule in Blum’s favor, a few factors could tip the scales for Fearless Fund, including the delineation between contracts and grants. Even so, whether it is Fearless Fund or some other like entity, the arguments of this case will make it before the U.S. Supreme Court at some point in order to establish enough precedent to effectively prohibit any legal protections seeking to advance the socioeconomic positioning of historically marginalized groups in any way.
We don’t have a specific BIPOC mandate, though the outcome of these proceedings could impact our screening process, where we do give weight to both founders of color and communities of color as a targeted impact pool.
I’m worried about broader ramifications. In the short-term, disincentivizing institutional support to Black founders will increase the capital holdbacks we’ve seen over the last year, creating a cliff for growth capital at all stages. That means beyond the initial pre-seed and seed stages, many founders won’t have access to capital to scale their ventures precisely at a time when so many new sector opportunities (AI, future of work, entertainment platforms, etc.) are being created and could accelerate the shortening of wealth gaps.
In the long-term, allowing a civil rights statute to undermine its own intent is a legal gateway to denying the systemic impacts of racism and our responsibility as a society to [ensure] equal opportunity for all. For that, we should all be afraid. This is but an extension of the cultural wars that started with misguided bans on critical race theory and banned books in schools. If we can legally nullify race as a protective class, there will be no checks on not just unfettered wealth gaps but also the ruling class, which has historically profited on the backs of minorities.
Should funds and managers that sought to back diverse founders be worried about exposure to legal challenges?
Be prepared, not worried. Backing diverse founders or challenging the status quo in any way always comes with risks and attacks from the opposition. But it is highly unlikely that most other funds with BIPOC mandates will be attacked in the same way. These types of combatants are picky about the companies they target for legal battles based on their need for a high-profile fight.
Fearless Fund is an exceptionally great target for such an attack — their scale, their visibility, their roster of corporate and institutional partners, their jurisdiction in a conservative court with 6/12 judges appointed by Trump, a far-right state, and the second most populous state for Black female founders. Few other funds match up in the same way. So the risk to other funds is low, but they should be prepared to defend their investment thesis and support for their BIPOC founders at all costs and scenario plan two-plus years ahead if the Supreme Court rules in line with the dreaded Students for Fair Admissions v. Harvard case, which overturned affirmative action in education.
Many view the lawsuit as more than just a case over grants, but an effort to shape future legislation. What does that say about the prospects for true equality in this country?
Equality is a far cry from reality when one group of people had a 400-year head start over all others and that same group is threatened by a 2% crumb allocated toward Black VC funding. This is a well-documented historical pattern in the U.S. — emancipation followed by crop liens, reconstruction followed by Jim Crow, integration followed by public-school defunding, rising Black wealth zones followed by massacres, migration from the South followed by red-lining and ghettos.
Still, we must fight. The fight for equality is long, it’s generational, and it’s absolutely worth continuing. With each battle, we gain a little more ground and help build the blocks toward a true democracy of all equal citizens, even if it doesn’t fully come in our individual lifetimes.
Some people feel many power players and allies have been silent about this case. How would you like to see people show support?
This is an industry that moves in silence, so I can’t correlate the volume of public support with perceived inaction. There could be an outpouring of potential private actions that we might not know about. Everyone that I know of in this space is deeply familiar with this case and watching closely.
Beyond support, which is usually in the form of sustained levels of financial support, I’d like to see renewed promises to do better. We should go on the offensive for once and, as a sector, be proactive.
Institutions can independently enact mandates to allocate more capital to underrepresented GPs and founders. No one is stopping you from going from a 1% reserve to 10%. Venture capitalists should begin thinking of unrepresented founders as a viable untapped market with lucrative potential, not charity. If they become invested in the potential for returns and BIPOC investment is normalized, they are more likely to be stronger allies and advocates. Then, small funds like Fearless Fund will become untouchable because they’ll have the support of the whole VC community behind them.
Take a page out of the American Alliance for Equal Rights’ notebook. Consider legal challenges against institutions that continue to lock underrepresented founders out of the capital conversation — not just Black people, but BIPOC in general, women, people with disabilities, etc.
What is the game plan for you as the backlash against increased diversity, equity, and inclusion continues in politics and in tech?
Use our platform to help more founders of color. One initiative we’ve recently announced is Voices for Democracy, which addresses disparities in BIPOC community-centric media ownership and leadership by funding early-stage media entities, particularly those in the U.S. South and key battleground states.
We also want to be louder about our commitment and allegiance to underrepresented founders, as we cannot build a multiracial democracy without them. We take every opportunity to also educate our peers and create safe spaces to upskill VC partners where we can.
What keeps you optimistic about the startup and venture space?
In this capitalistic society of ours, money really does trump all else. And there’s so much of it that if we’re able to just peel off small pockets, we can begin to shift power to the benefit of more people. I get to invest in the people reimagining what democracy, freedom and equality look like through the lens of technological advancement — there’s nothing cooler than that for me. As long as people are still building, I know there are capital providers who will meet them in that space.
Naseem Sayani, co-founder, Emmeline Ventures
How do you expect the Fearless Fund case to pan out, and in what ways could the Fund losing the suit impact you? What would the short-term and long-term ramifications of this case be on the wider investment industry?
A loss for Fearless Fund fund would be a heavy loss for diversity-led funds for sure, but likely would not affect our end game. We’ve been explicit about the gender- or race-based focus of our funds for a few reasons: to bring attention to the funding gaps we’re addressing, to attract the founder profiles we’re looking for, and to capture the business opportunity we’re after.
If the Fearless Fund wins the case, we’ll revert to playing the game the way it’s always been played. No explicit statements on who we’re after; we’ll fund the best and most capable founders regardless.
Should funds and managers that sought to back diverse founders be worried about exposure to legal challenges?
Everyone should be careful about language and intent right now. The system is being manipulated for the sake of power and control, and it’s worth staying aware of what’s going on.
Much of this feels like a purposeful distraction to derail our momentum. We’re not letting that happen. It’s also a good reminder that many people still hold very antiquated views on how society should function.
Many view the lawsuit as more than just a case over grants, but an effort to shape future legislation. What does that say about the prospects for true equality in this country?
Economic freedom for the most underserved is not only an issue of race but also an issue of power and control. While cases like this are frustrating and hurtful, they also serve to prove the point we’ve all been making: The system is working as designed, and as our efforts to reimagine that system are gaining steam, that system is cracking.
Economic freedom for the people who need it most is not just valuable for those people; it’s valuable for all of us. These cases lose sight of that. This is about growing the pie, not taking it. True equality is still possible in this country, but we will need to lean on criteria beyond race (without losing sight of race) to keep moving things forward. Socioeconomic status, business opportunity, ability to drive growth and scale, distance from metro cities, the ability to connect large groups of consumers — the criteria we can use to support economic freedom are expansive and we can come at this in other ways.
Some people feel many power players and allies have been silent about this case. How would you like to see people show support?
It would be great to see Fearless Fund’s large institutional investors state their support for the fund’s grant programs publicly. These voices have influence on the market and on the collective consciousness of everyone watching these cases and the supporting news coverage. They would add real horsepower to why these programs matter.
What is the game plan for you as the backlash against increased diversity, equity, and inclusion continues in politics and in tech?
We will continue to invest the way we always have. Again, this is about the business opportunity we are after. We’re not funding diverse female founders just for the sake of it — there is real money to be made by taking women’s purchasing power seriously, and that is what we’re after. The proof was in the pudding this summer with Beyoncé, Taylor, and Barbie — and we’re seeing it again with Taylor and the NFL. Let’s go get that value!
What keeps you optimistic about the startup and venture space?
Pre-seed and seed-stage innovation has never been more interesting! We’re meeting an incredible number of founders on a daily basis who are building new businesses that are after specific market opportunities. It’s keeping us very excited about the investment potential ahead of us. Politics don’t stop innovation — that train is still moving.
Luke Cooper, general partner, Latimer Ventures
How do you expect the Fearless Fund case to pan out, and in what ways could the Fund losing the suit impact you? What would the short-term and long-term ramifications of this case be on the wider investment industry?
It won’t stop anything.
We will not shy away from the work that must get done for, and with, the marginalized communities that will become the breeding ground for the next wave of technology disruptors. I am confident that regardless of the outcome of this case, this issue will not be existential and is completely navigable.
We do not have any grant-making programs similar to the one under attack here, but we’ve nonetheless begun exploring language surrounding our ancillary community-based activity.
Should funds and managers that sought to back diverse founders be worried about exposure to legal challenges?
This is not something Black fund managers can worry about. Most don’t have an explicit mandate to only invest in Black founders, and from market dynamics to valuations, there are already so many things to worry about.
To lead the orchestra, you’ve got to turn your back on the crowd, and in this instance, I’d advise diverse managers to do exactly that.
Many view the lawsuit as more than just a case over grants, but an effort to shape future legislation. What does that say about the prospects for true equality in this country?
It says we have a long way to go.
Some people feel many power players and allies have been silent about this case. How would you like to see people show support?
This is a VC problem, not just a Black VC problem.
If fewer checks are written to diverse founders who only make up a fraction of the funding anyway, fewer startups will be the source of innovative change and growth within the modern enterprise. All the best ideas can’t come from one segment of the population, and we all hurt if we remain silent on this issue.
I’m no Shakespeare, but the reality is that we need Silicon Valley to advance with us “once more unto the breach, dear friends, once more.”
What is the game plan for you as the backlash against increased diversity, equity, and inclusion continues in politics and in tech?
There will always be asymmetrical advantages that flow from asymmetrical resource allocations in any market. I’m taking advantage of them to drive innovation, access and growth within the Fortune 1,000. We’ll continue to do that and let the numbers speak for themselves.
What keeps you optimistic about the startup and venture space?
I am optimistic for two reasons. Diverse founders have not given up and continue to press ahead despite being denied far too often. And, majority founders are beginning to understand their power with investors and build diversity, equity, and inclusion into their companies right from the start.
This is the culture we need to combat efforts that would seemingly marginalize them even more.
Mec Zilla, founder, Mecx Dao
How do you expect the Fearless Fund case to pan out, and in what ways could the Fund losing the suit impact you? What would the short-term and long-term ramifications of this case be on the wider investment industry?
If the ruling stands, it will absolutely have an impact on the startup ecosystem because it will be just the kind of technicality that will allow funds and managers to hide behind and further justify the lack of diversity in their portfolios. The ecosystem is already grossly skewed toward and primarily benefiting white men. A ruling such as this will ensure that does not change. I’d like to say it will inspire funds and managers to step up, but that’s not the world we live in.
Should funds and managers that sought to back diverse founders be worried about exposure to legal challenges?
I think funds and managers that seek to back diverse founders should not be worried, but rather double down on those much-needed investments if the goal is to truly be a more equitable space and world.
Some people feel there has been silence from many power players and allies in supporting the Fearless Fund. What do you think this silence means? How would you like to see more people show support?
I really wish partners and investors would speak up, but I also don’t expect them to put their reputations on the line for Black women.
What is the game plan for you as the backlash against increased diversity, equity, and inclusion continues in politics and in tech?
As a Black woman and a founder, I know firsthand how lack of proximity to investors can directly result in a lack of opportunity. I think the short answer is more family offices and funds that can write checks and grants at their own discretion.
What keeps you optimistic about the startup and venture space?
One thing that keeps me optimistic about the startup and venture space is that more women of color are getting educated about how it works and finding ways to pool their resources together in a way that will undoubtedly challenge the large banks and investment firms/funds to back them because what we know to be true is that statistically speaking, teams that are more diverse produce better outcomes.
Darrel Frater, investments associate, Visible Hands
How do you expect the Fearless Fund case to pan out, and in what ways could the Fund losing the suit impact you? What would the short-term and long-term ramifications of this case be on the wider investment industry?
I predict that more lawsuits will be created targeting other funds with a diversity focus.
Diverse managers already have so many obstacles to overcome; battling lawsuits like this will make their job even harder. Additionally, this is a topic now on the minds of limited partners.
In addition to selling the vision of your fund, diverse fund managers must also now articulate how they will navigate through legal risks, making it even harder to close LPs.
Should funds and managers that sought to back diverse founders be worried about exposure to legal challenges?
Managers should not be worried, but they should be prepared. All managers with a diversity focus can be targeted, so they should be proactive about countering any attempts at a lawsuit. Consult with your legal team to assess what changes, if any, your fund should make to the language you are using externally while still holding true to your mission and vision.
Many view the lawsuit as more than just a case over grants, but an effort to shape future legislation. What does that say about the prospects for true equality in this country?
Black people have always had to fight for equality. This is nothing new, and we are used to these obstacles. Moments like this are a reminder of why we, as a people, need to continue to work together and stand united to create equal opportunity for all.
Some people feel many power players and allies have been silent about this case. How would you like to see people show support?
These situations are not easy to navigate, so it is expected for people, especially those with a lot at stake, to determine how they should engage. Whether support is shown publicly, as we’ve seen on many LinkedIn and Twitter posts over the past few weeks, or privately through phone calls and emails, it is important for us all to find ways to use our voice to support in the ways we feel we can be most effective.
What is the game plan for you as the backlash against increased diversity, equity, and inclusion continues in politics and in tech?
It is important that, as a community, we build independence. There is enough Black wealth in existence for us to fund our own and support one another to the point where success becomes circular within our own ecosystem.