The venture capital firm, Fearless Fund, and the American Alliance for Equal Rights (AAER) have reached a settlement agreement that will see the former shutting down its Strivers Grant program. The program, initially sponsored by Mastercard, aimed to provide $20,000 to small businesses owned by Black women.
Background of the Program
The Strivers Grant was established with the goal of addressing the disparity in funding and opportunities faced by Black founders when it comes to accessing capital. As per Crunchbase data, in the first half of this year, Black founders raised only 0.32% of all venture investment. The program’s closure is the latest blow to the diversity, equity, and inclusion movement this year.
Lawsuit against Fearless Fund
AAER, run by conservative activist Edward Blum, sued Fearless Fund alleging that the Strivers Grant program discriminated against non-Black founders and violated the Civil Rights Act of 1866. The lawsuit claimed that the program’s use of racial criteria in its selection process was unconstitutional.
Court Ruling
In June this year, a court ruled that Fearless Fund’s contract likely violated the Civil Rights Act of 1866, and upheld a preliminary injunction on the program. This decision was a significant setback for Fearless Fund and the Strivers Grant program.
Reaction from AAER and Fearless Fund
Edward Blum, the founder of AAER, stated in an email to TechCrunch that "The American Alliance for Equal Rights encouraged the Fearless Fund to open its grant contest to Hispanic, Asian, Native American, and white women, but [the firm] has decided instead to end it entirely." He added, "Race-exclusive programs like the one Fearless Fund promoted are divisive and illegal."
Fearless Fund’s CEO, Arian Simone, responded by stating that her company is pleased to have ended the case and will continue to focus on helping under-resourced entrepreneurs. She emphasized that she remains committed to empowering women of color entrepreneurs in need.
Impact on Diversity and Inclusion Initiatives
The closure of the Strivers Grant program is a significant blow to diversity and inclusion initiatives in the venture capital industry. Many within the industry have closely followed AAER’s lawsuit against Fearless Fund, with some investors and founders expressing surprise that a civil rights act enacted to help formerly enslaved individuals was now being used against them.
Conservative Activists’ Success
Edward Blum and his nonprofit, AAER, have been successful in suing away similar programs. Most notably, he helped end the use of race in college admissions, and his organization is currently suing other race-based programs, including the Smithsonian Institute’s Latino Museum Studies Program for its focus on hiring Latino interns.
Loss of Partnerships
Simone stated that Fearless Fund lost nearly all of its partnerships after the lawsuit came to light. The firm used to offer other grants for businesses owned by women of color, but information on those grants is no longer available on its website.
Future Plans for Fearless Fund
Fearless Fund’s CEO plans to announce a $200 million debt fund for entrepreneurs in need of financing. This move aims to address the disparity in funding and opportunities faced by under-resourced entrepreneurs.
Conclusion
The settlement agreement between Fearless Fund and AAER marks a significant development in the ongoing debate over diversity and inclusion initiatives in the venture capital industry. The closure of the Strivers Grant program is a setback for efforts to address the disparities faced by Black founders when it comes to accessing capital.
However, Fearless Fund’s plans to launch a $200 million debt fund demonstrate its commitment to empowering under-resourced entrepreneurs. As the industry continues to navigate the complexities of diversity and inclusion, one thing is clear: more needs to be done to address the systemic barriers faced by marginalized groups in access to capital.
Recommendations
To truly address the disparities in funding and opportunities faced by Black founders, the following recommendations are proposed:
- Increase transparency: Venture capital firms should prioritize transparency in their selection processes and decision-making criteria.
- Diversify investment portfolios: Firms should actively work to diversify their investment portfolios to include more under-resourced entrepreneurs and businesses.
- Provide education and training: Educational programs and training initiatives can help equip under-resourced entrepreneurs with the skills needed to access capital.
By implementing these recommendations, venture capital firms can play a more significant role in addressing the disparities faced by marginalized groups in access to capital.
