Can this VC firm invest in only Black women? Fearless Fund faces court challenge
Ayana Parsons (center) and Arian Simone were joined by civil rights attorney Benjamin Crump at a Fearless Fund town hall meeting in August. Parsons and Simone are the founders of the venture capital fund. (Photo by Alyssa Pointer for the Washington Post via Getty Images)
They might be courtroom adversaries, but Arian Simone swears she and the man suing her venture capital firm want the same thing: an America where race does not matter.
The difference is that Simone believes race-specific initiatives like the Fearless Fund are essential to achieving that ideal. Given that Black-owned start-ups secured less than 1 percent of the nation’s VC spending last year, she said, “I can’t stop.”
But the conservative activist driving the lawsuit, Edward Blum, says racial equity is not one-sided. That’s why he insists that the fund’s grant program for Black women is discriminatory, in one of the most-watched civil rights cases since he was on the winning side of the landmark Supreme Court decision that overturned race-conscious college admissions.
In the coming months, a panel on the U.S. Court of Appeals for the 11th Circuit in Florida will decide whether to block the Atlanta-based Fearless Fund from awarding $20,000 grants to Black female-owned businesses while the case is litigated in trial court. The stakes could not be higher, as evidenced by the legal firepower lining up on both sides and the swarm of amicus briefs, illustrating the vastly different interpretations of the nature of discrimination, the role of history in shaping public policy and how civil rights should work in America.
“This is the life and blood of the civil rights movement,” civil rights leader the Rev. Al Sharpton said in an interview. If the Fearless Fund loses, he said, “we are the generation that lost what preceding generations provided for us.”
The VC fund may face long odds: Two of the three judges on the panel are Donald Trump appointees who, during a Jan. 31 hearing, appeared skeptical of the fund’s argument that the grant program is a form of “charitable giving” protected by the First Amendment.
Should Blum’s American Alliance for Equal Rights prevail, the case could have sweeping implications for any race-based initiative in the private sector, particularly grant programs, scholarships and other efforts with monetary benefits, according to observers on both sides of the issue. In less than a year, Blum’s legal nonprofit has reached settlements in about a half-dozen cases involving scholarships and fellowships at large law firms, as well as a Texas-based grant program for minority and women entrepreneurs. All agreed to drop racial criteria to resolve the discrimination claims.
But the Fearless Fund opted to take up the fight because Blum and his supporters want “it to be illegal for us to … fund ourselves,” Simone said during a March 14 rally outside the Supreme Court before about 100 mostly Black listeners, some waving signs that read: “Defend Diversity, Equity & Inclusion.”
Black women represent the fastest-growing demographic of entrepreneurs and yet are the least funded, she noted. So, “we don’t need just to defend ourselves. We need an offensive strategy.”
The fund’s supporters include more than a dozen civil rights organizations, including the NAACP Legal Defense Fund and the American Civil Liberties Union, as well as the attorneys general of New York, Wisconsin, Maryland and 15 other states, who argue in a joint brief that Blum’s group is misapplying a Reconstruction-era civil rights law, which was established to grant former enslaved people basic civil rights.
“This is an inflection point—literally for civil rights and how this country views civil rights,” said Keith Harrison, an attorney who filed an amicus brief on behalf of the Lawyers’ Committee for Civil Rights Under Law, the NAACP Legal Defense Fund and others. “What the plaintiffs are doing is taking the Civil Rights Act of 1866 and trying to turn it on its head, so that it becomes weaponized and undermines efforts to do exactly what the Civil Rights Act was intended to do, which was be remedial and race-conscious.”
“We can’t just forget 300 years of slavery, and just call everybody equal,” he added. “We’re not anywhere close to that yet.”
Aligned with Blum are conservative organizations that in recent months have attacked affirmative action and diversity, equity and inclusion (DEI) initiatives in higher education and the private sector. They include organizations such as the Manhattan Institute for Policy Research and the Equal Protection Project, as well as America First Legal, the organization founded by former Trump adviser Stephen Miller.
Edward Blum is also the founder of the group Students for Fair Admissions, which challenged affirmative action in college admissions at the U.S. Supreme Court. (Francis Chung/E&E News/POLITICO via AP Images)
“What’s at stake here is: Are we going to move into a situation where racial discrimination is justified to attempt to cure broader societal problems—and I think that’s a very dangerous place to head down,” said William A. Jacobson, a Cornell University law professor and founder of the Equal Protection Project, a legal organization that opposes race-based affirmative action.
Added Blum: “There cannot be ‘good’ racial discrimination and ‘bad’ racial discrimination. This case examines how one person’s good intentions lead to another person to suffer an injustice.”
$60 million to zero
Simone and Ayana Parsons, an investor and diversity consultant, founded the Fearless Fund in 2018 to address the chasm in venture capital for start-ups run by women of color. That year, such businesses received $484 million in investment while Black start-ups overall received $1.7 billion—1 percent of the $131 billion allocated that year.
Those percentages have largely held steady, though investment in Black start-ups did see a surge in 2021, to $4.9 billion, after the murder of George Floyd prompted a flood of commitments toward the Black community. But by 2023, investment in Black start-ups had shriveled to $705 million, or 0.5 percent, of the $140.4 billion in venture capital awarded that year, according to Crunchbase. It also marked the first time since 2016 that investment in Black start-ups fell below $1 billion.
With its mission to direct a greater share of venture capital dollars to women of color, the Fearless Fund occupies a sliver of the impact investing market, where investors aim to advance environmental and social causes through their stakes. The market is expected to hit $550 billion in 2024, according to the Business Research Company.
But the investment philosophy has drawn the ire of conservatives who argue that it is anti-business and meant to promote a liberal agenda. It’s part of a broader backlash that has coincided with resistance to DEI efforts in higher education and in the business world.
The Fearless Fund’s first VC fund totaled just over $25 million when it closed in 2021; its second, which is still raising money, has amassed $19 million, according to PitchBook. The funds, in partnership with JPMorgan Chase, Bank of America and General Mills, have gone to start-ups focused on fintech, personal products and clothing. Simone also runs the Fearless Foundation, which administers grants to businesses, including through the Fearless Strivers Grant Contest, the program at issue in the case. In 2022, the foundation brought in $4.1 million: a sixteenfold increase from the $251,000 generated in 2020, its first full year.
In March, Simone met with lawmakers on Capitol Hill, urging them to recognize the magnitude of her case and act, either by calling her before a congressional panel or drafting legislation to protect race-based affirmative action in the private sector, she said.
Arian Simone spoke at the AfroTech conference in September. (Photo by Bennett Raglin/Getty Images for Blavity)But the case also has implications for the viability of the Fearless Fund itself. Since Blum filed his lawsuit in August, fundraising has hit a wall. “I haven’t had a closing since,” she said, meaning funding secured from investors. “Typically by now, I would have been about 60 million [dollars] more.”
JPMorgan Chase has opted out of the firm’s second fund, Simone said. A spokeswoman, who declined to comment about investments, said in a statement that the nation’s largest bank remains “committed to supporting business growth and entrepreneurship among underserved communities” and to helping build a more inclusive economy, “which is good for business.”
Meanwhile, Mastercard, which funded the grant competition at issue in the case, said its commitments to the Fearless Fund were “unchanged” despite reports that the relationship was at risk.
Simone emphasized that the Fearless Fund’s portfolio—the women-owned businesses it has invested in—is “extremely healthy.” The start-ups in the top quarter of the portfolio, she said, are expected to reach “unicorn status,” meaning a $1 billion valuation.
Their success in an industry dominated by White men underscores the importance of her work, Simone said. “I would love a world that was equitable, where everybody received their fair portion,” she said. “That’s just not the world we live in. If we lived in that world, I’d be fine—I can stop the Fearless Fund.”
“But we don’t live in that world.”
It’s unclear why the drop-off in venture capital funding has been so dramatic, but Simone believes it reflects the ongoing fallout from the Supreme Court ruling against Harvard and the University of North Carolina last summer that upended race-conscious college admissions.
“People want to know what impact that ruling has had,” she said, pointing to the plunge in VC investment. “That’s proof right there.”
Charitable giving
Lawyers for Blum’s nonprofit argue that the Fearless Fund is violating the Civil Rights Act of 1866—which prohibits racial discrimination in private contracts—by limiting its grants to Black women. The law enacted after the Civil War to give citizenship rights to the formerly enslaved is now being used in a rash of new lawsuits to challenge affirmative action and DEI programs.
“I think Simone and I agree on the most important civil rights principle in American life and law: A person’s race should not be used as a factor to help or harm them in their life’s endeavors,” Blum said in a statement to The Washington Post, pointing to polls showing that a majority of Americans oppose affirmative action. “She is gravely wrong, however, in her assessment of how our multi-racial nation achieves these colorblind ideals.”
“The law does not—and must not—permit racial preferences to achieve racial balancing,” Blum added. “In other words, the bar must never be raised for some races, and lowered for others, to realize racial proportionality.”
But the fund’s attorneys and a chorus of civil rights organizations say Blum is twisting the civil rights law’s intent. They also contend that his lawsuit is meritless because the Fearless Fund’s grant program is a form of charitable giving—thus expression protected by the First Amendment—and that it operates much like organizations that support people of a certain heritage, such as the Order Sons and Daughters of Italy in America.
On Jan. 31, those arguments were heard by an 11th Circuit panel composed of Trump appointees Robert J. Luck and Kevin C. Newsom, and Barack Obama appointee Robin S. Rosenbaum, which will soon decide whether to block the grants while the case is being litigated. Luck and Newsom appeared skeptical of the Fearless Fund’s First Amendment argument.
Yet Simone remains optimistic, noting that she’s less concerned about who appointed the judges deciding her case than the “climate that we’re in.”
“This is a very critical time,” she said. “If you’re going to strip away people’s resources and economic rights, it’s almost a reverse back to the early 19th century.”
