A grant program for Black women business owners, established by a venture capital firm, has been temporarily suspended by a panel of the U.S. federal court of appeals. The panel has ruled in favor of a conservative group’s lawsuit, stating that the program is likely to be deemed discriminatory.
The Fearless Fund faced legal action last year from the American Alliance for Equal Rights, a group led by Edward Blum, a conservative activist known for his involvement in the Supreme Court case that resulted in the end of affirmative action in college admissions.
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In a statement, she expressed her disappointment with the judges’ decision, stating that it sends a message that diversity should not be encouraged in Corporate America, education, or any other sector. She further criticized the judges for supporting the views of a small group of white men.
Alphonso David, the legal counsel of Fearless Fund and also the president and CEO of The Global Black Economic Forum, stated that they are considering all possible options to continue their fight against the lawsuit.
Civil rights groups, philanthropic organizations, employment lawyers, and the venture capital industry have been closely monitoring the case against the Fearless Fund. This is because it serves as a crucial indicator of how the courts perceive programs designed to promote equality for racial minorities and other marginalized groups who have long experienced discrimination in the business world and workplaces.
The Fearless Fund has been directed by the court to halt its Strivers Grant Contest, a program that awards $20,000 to businesses predominantly owned by Black women, for the duration of an ongoing lawsuit in a federal court in Atlanta. This decision overturns a previous ruling by a federal judge, who had allowed the contest to proceed, believing that Blum’s lawsuit was unlikely to succeed. Nonetheless, the grant contest has remained suspended since October, following a prompt approval of Blum’s request for an emergency injunction by a separate panel of the federal appeals court.
The panel of appeals court judges, comprising of two judges appointed by former President Donald Trump and one appointed by former President Barack Obama, dismissed the Fearless Fund’s claims that the grants are not contracts but rather charitable donations safeguarded by the First Amendment’s right to free speech.
According to the majority opinion of the court, Fearless Fund’s strict policy of only accepting applications from black females for business owners was seen as a clear act of race discrimination. The court stated that the fund’s argument would essentially classify every act of race discrimination as a form of expressive conduct.
The appeals panel also dismissed the Fearless Fund’s argument that Blum did not have standing because the lawsuit was filed on behalf of three anonymous women who did not prove that they were “ready and able” to apply for the grant or that they suffered any harm as a result.
In a scathing dissent, Judge Robin Rosenbaum, appointed by Obama, expressed her disagreement. She compared the plaintiffs’ allegations of harm to soccer players attempting to win by feigning injury on the field. Rosenbaum argued that none of the plaintiffs provided any evidence of genuine intent to apply for the grants. She criticized their “cookie-cutter declarations,” dismissing them as insubstantial and lacking substance.
According to David Glasgow, executive director of the Meltzer Center for Diversity, Inclusion, and Belonging at New York University’s School of Law, the panel’s ruling was not unexpected given its conservative leaning and past skepticism towards the Fearless Fund’s argument.
The Strivers Grant Fund is just one of the many programs offered by the Fearless Fund’s foundation. The fund was created with the aim of tackling the significant racial inequality in funding faced by women of color in business. Shockingly, digitalundivided, a nonprofit advocacy group, reports that less than 1% of venture capital funding is allocated to businesses owned by Black and Hispanic women.
The Fearless Fund’s grant program, defended in an amicus brief by the National Venture Capital Association, is seen as a “modest but important” step towards fostering equal opportunities in an industry that has long marginalized Black women. The trade group, which boasts hundreds of member VC firms, acknowledges the need for creating a level playing field and promoting inclusivity in venture capital.
According to a recent study conducted by Deloitte and Venture Forward, the nonprofit arm of the National Venture Capital Association, along with consulting firm Deloitte, it was found that only 2% of investment professionals at venture capital firms were Black women in 2022. The study also revealed that a mere 1% of investment partners were Black women. The study surveyed a total of 315 firms, comprising 5,700 employees, and representing $594.5 billion in assets under management.
Blum emphasized in his statement that our civil rights laws prohibit racial distinctions based on the overrepresentation or underrepresentation of certain groups in different areas of endeavor.
The case is being closely monitored by philanthropic groups due to its potential impact on charitable giving.
Kathleen Enright, president and CEO of the Council on Foundations, emphasized the potential negative impact of legal decisions that restrict people’s ability to donate according to their values or personal experiences. She highlighted that such restrictions would not only harm philanthropy and nonprofits but also have wide-ranging consequences for the entire country. Enright’s statement came in support of the Fearless Fund, with the nonprofit Independent Sector also filing an amicus brief.
