NEW YORK, NEW YORK - AUGUST 10: Alphonso David and Arian Simone attend a press conference with ... [+]
The U.S. Court of Appeals for the 11th Circuit has halted the Fearless Fund, a Black-owned venture capital firm, from awarding grants solely to Black women entrepreneurs. The court ruled that this practice likely violates Title 42 of the U.S. Code, which ensures equal rights and prohibits racial discrimination in awarding and enforcing contracts.
What Do We Know?
The Fearless Fund, as stated on their website, is built by women of color for women of color, investing in businesses led by women of color seeking pre-seed, seed level, or series A financing. Its mission is to bridge the gap in venture capital funding for women of color founders building scalable, growth-oriented companies.
The Fearless Foundation, a 501(c)(3) non-profit organization affiliated with the fund, provides capital, community, mentorship, and education to women of color entrepreneurs. The Foundation has various programs including Get Venture Ready and Grants with a mission to provide more funding for women-of-color owned businesses. There are four grant programs, one of which is called the Fearless Strivers Grant Contest, offering a $20,000 grant. According to the official rules, it is “open only to Black females.”
Edward Blum, president of the American Alliance for Equal Rights (AAER), a nonprofit challenging racial distinctions in courts, filed a lawsuit against the Fearless Fund on behalf of three anonymous small business owners who claimed they were ready and willing to apply for the grant but couldn’t because they are not black women. Blum argues that civil rights laws do not permit racial distinctions, insisting that race should not be a factor in public policies.
The Current Situation
Despite being the fastest-growing group of business owners in the U.S., women of color have historically faced barriers to accessing capital and resources. Black female startup founders received just 0.34% of the total venture capital in the U.S. in 2021, according to Crunchbase data.
Megan Thorp, General Partner of IgniteIR FoF, highlights, “Underserved populations represent untapped markets because historically, these markets have not received enough financial backing to develop novel solutions compared to other groups. Venture capital funding for businesses owned by Black and Hispanic women accounted for less than 1% of the total in 2022, according to the nonprofit advocacy group digitalundivided.”
She emphasizes the need for initiatives like the Fearless Fund’s grant program to address historical inequities and create more inclusive pathways for underrepresented entrepreneurs. “These stark disparities highlight the need for initiatives like the Fearless Fund's grant program to address historical inequities and create more inclusive pathways for underrepresented entrepreneurs to access capital and bring their innovative ideas to market.”
Industry Implications
Gwyneth Borden, Founder & CEO of Remynt, a debt and credit recovery company, believes the court’s decision could undo decades of progress toward leveling the playing field for Black and brown people. “The U.S. Court of Appeals for the 11th Circuit's decision against the Fearless Fund will negatively impact efforts to address racial and gender wage disparities in the United States,” she says.
She points out that less than 0.5% of venture capital goes to Black women founders, highlighting the persistent inequality in investment. “The Fearless Fund was established to address this gap.”
Thorp adds, “Blocking such efforts risks perpetuating the systemic barriers that have long hindered economic opportunities for marginalized communities. As long as there is adequate historical data to support the underrepresented treatment of these populations, there should be no issue with supporting initiatives that aim to rebalance and level the playing field.”
Rosana Rabines, Managing Partner at GWP Impact, agrees, “The blocking of minority focused grant programs and initiatives reinforces existing structural inequities in the U.S., driving forward the wealth gap.” However, she points out that this decision does not affect the fund’s venture capital arm. Fearless Fund can still invest in companies aligned with their investment thesis. Strong data shows that gender and ethnic diversity improve investor returns, and this ruling is unlikely to deter funders from seeking those returns.
Borden continues, “The entire community must fight against this decision to prevent it from being the precedent: this isn’t just about Black women.”
Supporting DEI Initiatives
The question is, how do we continue supporting DEI initiatives?
Jessica Karr, Founder & Managing Director at Coyote Ventures, suggests that organizations can support underrepresented groups by funding programs and business models that benefit them and focusing on distributing capital to those with lived experiences of underrepresentation.
“For example, our fund invests in underrepresented groups with a focus on health of women,” Karr says. “While we don’t need to explicitly mandate funding of female founders only, it’s common for women who have experience the health issue to be the innovators launching solutions.”
She adds, “While I find it disheartening that the Appeals Court has blocked Fearless Fund’s grant program, I am hopeful that they may be able to continue their track record of supporting underrepresented groups by understanding more about their lived experiences, even if DEI mandates themselves must be removed.”
Rabines adds that funders looking to level the playing field for female founders of color will need to be more creative.
Borden believes, “Organizations committed to addressing economic inequality must strategically define their efforts and opportunities within the legally allowable range. For example, it's possible to support founders from specific geographic areas, first-time founders, individuals from lower socio-economic backgrounds, or those who are the first in their family to graduate from college, gender (at least for now) —a way to address supporting the intended targeted population without saying it.”
Final Thoughts
The ruling against the Fearless Fund underscores the ongoing challenges in addressing historical inequities in venture capital funding. While the decision highlights the legal complexities surrounding race-based initiatives, it also emphasizes the critical need for creative and inclusive approaches to support underrepresented entrepreneurs. Despite the setback, organizations like the Fearless Fund can continue to make strides by leveraging broader criteria to foster diversity and innovation in the industry, ensuring that the economic potential of all communities is recognized and supported.
