They invest in Black women. A lawsuit claims it’s discrimination.
ATLANTA — Brianna Wise-Riley was working an administrative job with the Fulton County Superior Court when her manager gave her a great idea. Noting the food trucks parked near their office, her boss said: What if a nail salon could bring a manicure to you?
Six months later, the 29-year-0ld bought an old school bus on Facebook Marketplace, painted it white, tore out the floor and seats, and added manicure stations. She found success booking weddings and parties, and now she’s trying to expand her business with a line of press-on nails. Securing capital has been a challenge, but she felt hopeful when she learned about a grant program for Black, female entrepreneurs run by Fearless Fund, an Atlanta-based venture capital firm.
The firm had planned to name the latest round of grant winners before Labor Day. But the awards could be delayed, as Fearless Fund finds itself ensnared in the nation’s rapidly expanding legal brawl over affirmative action.
Edward Blum, whose lawsuit prompted the U.S. Supreme Court to strike down the use of racial preferences in college admissions, targeted the Fearless Fund in early August, claiming it engaged in “explicit racial exclusion” by operating a grant program “open only to Black females.” The lawsuit — which asked the court to prevent the fund from selecting its next round of grant winners — is one of the most prominent in a flurry of recent lawsuits and legal claims by conservative activists aimed at applying the Supreme Court’s insistence on race-blind college admissions practices to the corporate sphere of hiring, contracting and investment.
On Tuesday, Blum also sued two corporate law firms, alleging that their fellowship programs — aimed at students of color, those who identify as LGBTQ+ and students with disabilities — exclude applicants based on race, and demanding that the programs be shut down.
“Laws must apply equally to every racial and ethnic group in the country,” Blum said in an interview with The Washington Post. If not, he said, they become “the request for one group’s idea of social justice.”
Blum’s lawsuits are “the beginnings of a very broad attack” on employers’ diversity efforts, said David Gans, director of the human rights, civil rights and citizenship program at the progressive Constitutional Accountability Center, a nonprofit law firm and think tank. “I think conservative litigators are going to be looking for ways to kind of extend the reasoning and rationale of the affirmative action cases into new contexts.”
The legal battle is sparking concern among those who say efforts such as the Fearless Fund’s are essential for expanding economic opportunity to people of color and others. Wise-Riley, for instance, said she has struggled to find financing to expand her business.
The lawsuit against Fearless Fund “doesn’t make sense,” Wise-Riley said in an interview with The Post during a Fearless Fund event this month in Atlanta. “Everyone should be afforded the same opportunities. Why can’t we be included?”
Fearless Fund is one of dozens of firms geared toward combating the well-documented racial imbalance in U.S. venture capital: Last year, 1.1 percent of the $214 billion in venture capital funding allocated went to companies with Black founders, according to data from Crunchbase. In 2019, research from Stanford University concluded that founders of color face more bias from professional investors the better they perform.
Ayana Parsons and Arian Simone, the two Black women who founded Fearless Fund, said they got used to hearing the word “no” when they were starting out.
Parsons, 43, leads the Board and CEO Inclusion practice at Korn Ferry and is a former corporate executive. Simone, 42, is a serial entrepreneur and angel investor, with a background in marketing and public relations. Despite their deep experience in business, they estimate they took 300 meetings with potential investors before getting their first $5 million in funding.
Now Fearless Fund is backed by Mastercard and Bank of America, and has invested in more than 40 businesses in the past four years, including popular brands like the Slutty Vegan restaurant chain and the Lip Bar makeup company. The firm has doled out more than $26 million in investments and $3 million in grants.
“We know women such as ourselves have been overlooked. We’ve been marginalized. We’ve been underfunded and unsupported,” Parsons said in an Aug. 10 news conference about the lawsuit. She noted that Black women are starting businesses at a higher rate than any other demographic, “yet they lack access to capital, access to resources, access to strategic networks and the education needed to scale their businesses.”
Fearless Fund has lined up a heavyweight defense teamwith expertise in civil rights, including the NAACP Legal Defense Fund, Gibson, Dunn & Crutcher and Ben Crump, the attorney who represented the families of George Floyd and Tyre Nichols in their civil suits over the men’s killings at the hands of police.
The lawsuit against the Fearless Fund, Crump told The Post, “is an attack by the enemies of equality, to say ‘You will never be equal.’”
Blum, who has taken eight cases to the Supreme Court, describes himself as a matchmaker who brings together plaintiffs, lawyers and funders to advance the argument that any consideration of race or ethnicity is unconstitutional. He told The Post that he did not actively seek out the Fearless Fund case. Rather, he said, a woman-owned business emailed him describing the Fearless Fund. The lawsuit cites three female business owners, one from New York and two from Virginia, who argued that they could have benefited from the Fearless Fund grants but were ineligible because they are not Black. The lawsuit does not name the women, and Blum declined to identify them.
Blum said the fund’s grant program fails what he described as the “shoe-on-the-other-foot test.” Meaning: Would a fund aimed solely at benefiting businesses that are 51 percent owned by White males be considered fair and legal? It would not, Blum said, so a venture fund aimed at businesses owned primarily by Black women shouldn’t be, either.
That use of race to preclude a business from receiving money from the fund is a “compelling reason to look deeply at that particular policy,” Blum said. A legal team agreed that the case was actionable, he said, and that it could have wider public policy implications.
As Blum targets race-based programs outside the world of education, he’s starting with a pair of Black, female founders in Atlanta — a city that has played a critical role in the fight for civil rights and has the country’s highest concentration of Black-owned businesses.
“It feels like he’s bullying them,” said Fatima Goss Graves, president and chief executive of the National Women’s Law Center, which is consulting on Fearless Fund’s legal team. And, she said, the Fearless Fund case is just the beginning. “I think he has a broader agenda and a broader plan to dismantle any effort by organizations to do work to provide equal opportunity in this country.”
The lawsuit claims that the venture capital firm’s practice of awarding $20,000 grants, business support services and mentorship to Black women-owned businesses violates a section of the Civil Rights Act of 1866 that guarantees “race neutrality” in contracts. That legislation, which was passed after the Civil War to protect the rights of people freed from enslavement, is also being used in similar lawsuits — along with the Civil Rights Act of 1964 — to claim that companies’ attempts to eradicate racial inequality qualify as discrimination.
Federal laws that were intended to ensure equal opportunity and rights for people of color “are now being used as a weapon to deny them rights,” said Kenneth Davis, professor of law and ethics at Fordham University. “It’s the height of irony.”
On Aug. 17, theFearless Fund held a town hall with its portfolio companies, local representatives, legal counsel and other allies to discuss the lawsuit. About 400 people filled the brightly lit event room at the Gathering Spot, a private club and co-working space in Atlanta geared toward professionals from underrepresented backgrounds. Dressed in cocktail attire, attendees clinked glasses and snapped selfies with Crump and the Fearless Fund founders.
The mood was defiant and celebratory.
“We are being attacked, collectively,” Gathering Spot co-founder Ryan Wilson told the crowd of mostly Black investors and business owners. People nodded, offering a chorus of “mhmm’s.” “We’re in a fight, a real fight, with folks that are deeply organized. And they’ve got a lot of money,” Wilson said.
Parsons told the crowd that the lawsuit reflects efforts to close down key pathways to Black economic progress, which are already studded with barriers.
“The stock market, homeownership, these are great tools, but they cannot unlock generational wealth in the way that entrepreneurship can,” she said.
When someone onstage asked the audience how many of them were born with a trust fund, the answer was laughter. A single hand went up.
In 2020, just 3 percent of U.S. businesses were Black-owned, according to data from the Pew Research Center, while 86 percent were White-owned. Black business owners are 12 times more wealthy than Black people who don’t own businesses, according to research from the Congressional Black Caucus Foundation.
In the wake of George Floyd’s murder in 2020, companies made pledges to improve racial equity in their ranks, committing $340 billion to the cause between May 2020 and October 2022, according to an analysis by the McKinsey Institute for Black Economic Mobility. Investment swelled in the start-up world as well: A record $5.1 billion in funding was allocated to Black-founded start-ups in 2021, according to Crunchbase. But interest and commitment eroded quickly, with funding for Black-founded start-ups plunging 50 percent in 2022, Crunchbase reported, as corporate diversity efforts became a political lightning rod and employers backpedaled.
“We have no choice but to get into policy work,” Simone told the audience at the Gathering Spot. “One Fearless Fund is not enough. We need Fearless Funds.”
Emphatic support for Fearless Fund’s mission was on display throughout the event. When it came time for questions, attendees instead offered rallying cries, including Arlan Hamilton, founder of Backstage Capital. Hamilton, who built her VC fund while she was homeless, said the lawsuit against Fearless Fund landed “like a dagger to my heart.” She said she feels like her work, and that of others, is “being threatened.”
Wise-Riley left the town hall with mixed emotions. She felt “motivated,” she said, energized by the success stories shared by Black entrepreneurs, especially women whose businesses had been transformed by investments from Fearless Fund. But she also felt “disheartened” about the lawsuit and other forces seeking to halt efforts to level the playing field for Black professionals.
“They are bridging a gap that shouldn’t have existed in the first place,” she said.
Now it’s up to federal court in the Northern District of Georgia to decide whether Fearless Fund’s approach to closing that gap is acceptable or unconstitutional. In the coming months, a judge is expected to decide whether Fearless Fund can continue issuing grants while the lawsuit unfolds.