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--:-- Noel King: After Edward Bloom, the conservative activist who set his sights on ending affirmative action in college admissions, won, he didn't celebrate very much. He told The New York Times he went back to his hotel room, talked to his wife, had a little wine, a little Ambien, and went to bed. And then, apparently, he went right back to work. His new lawsuit is aimed at a smaller target than all of college. He's suing an Atlanta venture capital fund that invests in businesses led by women of color. The suit argues that the Fearless Fund's $20,000 grant that's explicitly for Black women entrepreneurs is discriminatory.
--:-- Noel King: A panel of judges agreed, and the grant has been temporarily blocked. Industry watchers say after a so-called reckoning three years ago, they're now seeing more attempts to end diversity programs and initiatives and grants. And all of that is coming up on Today Explained.
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--:-- Noel King: It's Today Explained. I'm Noelle King. Myrtha Donastorg is a business reporter at the Atlanta Journal-Constitution. She covers the space where diversity and business intersect. And so she's been following this lawsuit by Edward Bloom's American Alliance for Equal Rights closely. And even before the suit, she was familiar with the Atlanta-based Fearless Fund.
--:-- Myrtha Donastorg: So the Fearless Fund is a investment firm, a venture capital firm based here in Atlanta. They're relatively new on the scene. They invest specifically in women of color, and it was started by black women. Women of color are four times more likely to start a business than any other group. But they face a lot of barriers when it comes to getting money, whether it's a business loan or securing investors.
--:-- Noel King: It's a problem the Fearless Fund is working to solve. They invest in businesses that are in food and beverage or beauty and technology spaces. Those are their industry focuses. They've invested in businesses that you might have heard of before, like Slutty Vegan. They've also invested in Hairbrella. Which is the world's first rain hat that insulates women's hair from the rain and protects their style.
--:-- Myrtha Donastorg: So it solves the problem of women running around with bags on their head. They've invested in Bread Beauty, which is in Sephora. Bread Beauty is a black-owned brand that caters to all curl types, and I'm already a fan of... Total, they've invested in about 40 startups.
--:-- Noel King: The founders of the Fearless Fund are Arian Simone. She is an entrepreneur. I have loved entrepreneurship since I was a child. People say that I would have sold my mother's placenta had I known it had value. There is also Ayanna Parsons, who is an organizational consultant. There's no shortage of women of color founders. What truly is the issue is the funding needs. And that's the problem that we're here to solve.
--:-- Myrtha Donastorg: The third founder of Fearless Fund is Keisha Knight-Puliam, who is better known as Rudy from The Cosby Show. When the founders of the Fearless Fund talk publicly about what their goals are, what they want to do, what do they say? What's the mission?
--:-- Noel King: So they say that they are trying to essentially even the playing field. Between 2009 and 2017, only 0.0006% of venture capital funding went to businesses started by Black women. We knew we had to definitely step up and solve an amazing problem that should have just been in play anyway. And so Fearless Fund is coming into this space to try to bridge that gap and to level the playing field, not just for black women, but women of color founders overall.
--:-- Myrtha Donastorg: So the thing that got them into contact with or trouble with Edward Bloom was they created a grant for black women. What is this grant? Who is it for? What does it promise? Tell me all about it. Specifically, it's a Fearless Strivers grant. It's been around since 2021. They run it in partnership with MasterCard. Even though MasterCard is not named in the lawsuit, they're not a defendant. But essentially, it gives $20,000 grants to Black women small business owners.
--:-- Noel King: Okay, so there is a tangible gap in the funding that Black women entrepreneurs get. The founders of this venture capital firm say, we're going to do something about it. We're going to create a grant that is explicitly for Black women. That doesn't sound like it's hurting anyone, but it ends up becoming central to a lawsuit.
--:-- Myrtha Donastorg: What happened? So about a month after, Edward Bloom and a group that he started successfully challenged affirmative action at the Supreme Court. He decided to sue Fearless Fund over this grant because he said that three members of this other group that he had started the American Alliance for Equal Rights that three white and Asian female business owners were being racially discriminated against because this grant was explicitly for Black women only in the eligibility criteria.
--:-- Noel King: And Bloom is saying that the members of his group who otherwise would fit the rest of the criteria are being discriminated against because they're not Black. They are the plaintiffs in this case against Fearless Fund.
--:-- Myrtha Donastorg: What does Bloom's team argue is illegal about the Fearless Fund's grant program? So after the Civil War, during Reconstruction, there was a Civil Rights Act passed in 1866 in order to try to establish legal rights for newly freed Black people, including in business. There is a section that says basically you cannot use race when creating, making, enforcing business contracts, that we are trying to give the rights that white people have enjoyed to Black people.
--:-- Noel King: That is the central argument of if these grants are illegal. Is Fearless Fund going into a contract with the applicant and the applicant has to be a Black woman because these grants are for Black women's small business owners?
--:-- Myrtha Donastorg: The Alliance is trying to argue that it is illegal because this is a contract and you cannot make or enforce contracts on the basis of race, according to this law. The Fearless Fund says this is a charitable donation. And because it's a charitable donation, we get to decide who we want to give money to, who we want to support. That is our First Amendment right.
--:-- Noel King: When the founders were asked about their reaction to the lawsuit, what are they saying publicly? They're saying that they don't necessarily know why they were targeted. My initial thought, I didn't think that this was real.
--:-- Myrtha Donastorg: You didn't think it was real? What did you think it was? What did you think? When the emails came through, I honestly thought it was chat GPT. You did. You thought maybe you were being punked sometimes. Yes.
--:-- Noel King: Mostly they are saying that we're in it for the long haul. Like, we are here to fight this. They're really positioning it and see it as an important civil rights fight, not just for themselves and the fund, but they can see potential larger implications if they lose in this lawsuit.
--:-- Myrtha Donastorg: This guy, Ed Blum, that got affirmative action overturned, he also went after some law firms for their diversity programs. Of course, he sued us. But what he's trying to do is eliminate any race conscious decision making in America. Fearless Fund and its supporters kind of see this as a seminal civil rights fight of our time because they have seen what happened at the Supreme Court with affirmative action in college admissions. And so it feels like there is now this larger effort in their mind to roll back any sort of programs or progress that have been moving the needle or trying to address systemic inequalities for Black folks and folks of color overall.
--:-- Noel King: OK, so the American Alliance for Equal Rights, this conservative nonprofit helmed by Bloom, sues the Fearless Fund. And then what happens next? The suit initially went to district court here in Atlanta, where the district court judge sided with fearless. A judge said a lawsuit claiming discrimination can't stick for now. And said that because of their First Amendment rights, the grant program could continue.
--:-- Myrtha Donastorg: The alliance then appealed that decision to the 11th Circuit Court of Appeals. And at the end of September, the appeals court sided with the alliance. In a 2-1 decision by the Atlanta-based 11th U.S. Circuit Court of Appeals, they have now blocked the program, writing that it is substantially likely to violate a federal law prohibiting racial discrimination in contracting.
--:-- Noel King: Now the appeal process is going on. So the Alliance has to file a brief to a three-judge panel by November 6th about why the district court's ruling should be overturned. And then the Fearless Fund will reply to the response. Essentially, it's back and forth legal challenges, at least through the end of the year.
--:-- Myrtha Donastorg: You cover this. This is your beat. This is your job. You were surely watching as the decision on affirmative action was handed down earlier this year. I would think of this as kind of Edward Bloom's next step. This is the next thing that he's going to target is workplaces or contract agreements.
--:-- Noel King: What do you think this lawsuit tells us about where this fight is headed? I think this lawsuit tells us that any programs that seem to be favoring or trying to rectify challenges for Black people, for people of color in this country, are going to be scrutinized that they are potentially going to be targeted, if not with lawsuits, with the threat of lawsuits.
--:-- Myrtha Donastorg: And I think business leaders executives now have this in the back of their mind like you know if I put in place this diversity program that is specifically for black people or Hispanic people or other people of color am I going to be sued do I need to change language do I need to broaden this do I need to make this a little bit more vague to protect myself protect my company
--:-- Noel King: And I think that chilling effect is probably one of the bigger impacts that Edward Bloom, the alliance in this lawsuit is having on the business community.
--:-- Myrtha Donastorg: That was Mirtha Donastorg of the Atlanta Journal We did reach out to Edward Bloom for comment and he told us the country civil rights laws don permit racial distinctions adding a useful way of determining the fairness and ultimately the legality of a policy is to apply the shoe-on-the-other-foot test.
--:-- Noel King: In the case of the Fearless Fund, would a different venture capital fund's requirement that only white men are eligible for its funding and support be fair and legal? If the answer is no, then it must follow in the law that racially exclusive policies that target a different race and sex must be unfair and illegal as well.
--:-- Noel King: Coming up, how the clubby world of venture capital is reacting to this lawsuit. Support for today's show comes from Adio. What is Adio? Adio is an AI-native customer relationship management system built specifically for the next era of companies.
--:-- Dominic-Madori Davis: I'm Dominic-Madori Davis, and I'm a senior reporter at TechCrunch, covering venture capital. What did you think when you heard that Edward Bloom was suing the Fearless Fund?
--:-- Noel King: I was stunned. And I usually predict everything. Like, I go through my head and I have like a bazillion scenarios in my head. I could not have predicted this. I think I was actually, like, breathless. Like, I was like, oh my gosh, this is insane.
--:-- Dominic-Madori Davis: I was on a plane, I think, when I saw this. I was like, I have to, like, land the plane or something. Like, this is insane. Stunning. Like, absolutely stunning.
--:-- Noel King: So let's talk about the venture capital world. The women who founded the Fearless Fund say there are particular inequities that they want to address. And in the first half of the show, we heard from Myrtha Donastorg about what the numbers around those inequities look like. But let's get it from you, who covers venture capital specifically. What does the venture capital world look like? Who gets to be a part of it?
--:-- Dominic-Madori Davis: You know, something I do with Crunchbase is we team up and we track the amount of venture funding that goes to specifically Black founders. And basically, like even this quarter, black founders raised 0.13 percent of all capital, which is like a significant drop from the like 1.2 percent they got last quarter.
--:-- Noel King: When I was doing the numbers for last year as a whole, I reported that black founders raised about $264 million out of the $33.6 billion that was allocated to startups in Q4 last year. In total, Black founders raised about $2.2 billion out of $215 billion. $2 billion is a lot of money, but when it's out of $200 billion, you're like, OK, well, that's, you know, not that much. Same with women. The percentage is always around 2%, 1.9% for all women teams.
--:-- Dominic-Madori Davis: And even when you break it down by race, it's like, you know, Black women get like 0.5%. Basically, women and Black founders and Latino founders are not getting money.
--:-- Noel King: What's broadly understood, Dominic, about why this disparity exists? What's behind it?
--:-- Dominic-Madori Davis: You know, I think that depends on who you ask, right? In my coverage, I always frame this as racism. I'd always map it out. I'm like, this is, you know, economic discrimination, and it's always existed in this country.
--:-- Noel King: If we think about the Black-owned businesses that we've grown up with, they're smaller. They're individual entrepreneurs. They weren't well capitalized before. And their relationship to the banking sector and community banks or big banks might have been limited.
--:-- Dominic-Madori Davis: There's clearly a reason that funds and investors are not giving money to Black people consistently for the past history of venture capital. There's also the excuses of maybe not a lot of Black founders are pitching. Maybe there's just not a lot of Black companies. Maybe the companies aren't good enough. And that's why, like, always in my reporting, I'm like, well, OK, that could be true. But that doesn't explain why you're saying these things.
--:-- Noel King: Right. Because then you get like social proof of investors telling black founders like your company is great. Like, stuff like that. It's there's obviously something going on.
--:-- Dominic-Madori Davis: I do think it depends on who you ask. But I think the numbers aren't lying. And there is some sort of economic discrimination happening.
--:-- Noel King: What then do you know about this type of lawsuit? Is it common? Is it unprecedented?
--:-- Dominic-Madori Davis: Actually, when I was doing my research, because at first I was like, oh, my gosh, this is crazy. But then when I looked it up, it turns out the Small Business Administration and the Minority Business Development Fund are also being sued for having programs that target like underrepresented communities.
--:-- Elizabeth Gore: Hi, I'm Elizabeth Gore from Hello Alice. And as you might have seen, we are getting sued for our support of small business owners.
--:-- Dominic-Madori Davis: So basically for the Minority Business Development Agency, three white men filed to sue them, saying that how the funds were allocating money was racially discriminatory and violated the Constitution's Equal Protection Clause.
--:-- Elizabeth Gore: I couldn't believe that we still have these race-based problems in America. I thought we got rid of this a long time ago. And here I see me and more importantly, millions of other people who happen to have the same skin color as me don't qualify for certain programs.
--:-- Dominic-Madori Davis: And basically, they were upset with that wording because that program said you had to come from a socially or economically disadvantaged background, which those three white men said presumably does not include white Americans. And so the judge agreed. And basically, that's there's like a preliminary injunction, which Fearless Fund is also under a preliminary injunction.
--:-- Noel King: It seems like this is a trend that is happening.
--:-- Dominic-Madori Davis: And then also when you kind of take a step back, you see policy has become this kind of battleground in venture capital because California just passed a bill requiring firms to break down the diversity of who they invest in. It would force venture capital firms in California to disclose the race and gender of the founders they're funding.
--:-- Noel King: And Massachusetts is trying to pass some venture capital bills as well. And so you kind of see that there's this tug of war going on where there are people who are trying to push policy to limit the amount of money going to underrepresented founders. But then there's also people who are trying to say, well, actually, let's not do that, basically.
--:-- Dominic-Madori Davis: So there's like a tug of war going on right now. Does everyone in the VC world know about this lawsuit? I mean, it strikes me, it's interesting that these VC firms that are for black women are niche. I mean, based on what you've told me, they are niche. Most of these firms, the people that they fund would be white founders, white entrepreneurs. Is this lawsuit widely known in the world of VCs?
--:-- Dominic-Madori Davis: I think that really depends. Because like for me, it felt like it was everywhere. And then I spoke to people who weren't like black founders, black VCs, people who were not focused on DEI. And it seems like a lot of people did not know.
--:-- Noel King: I think people are starting to become aware. The main question now is how far up is this going? Like, I mean, I reached out to some billionaire. Can you tell me who?
--:-- Dominic-Madori Davis: Oh, my goodness. Will he come after me, Mark Cuban? I reached out like when the news first broke. I said, you know, do you have any comment on this? He said, I had never even heard of this. And I was like, oh, snap. This is like everywhere. It felt like it.
--:-- Noel King: There's been a lot of big funds that haven't said anything. I don't know if that means they don't know or that they just don't care.
--:-- Dominic-Madori Davis: What has been going on in this space, in the space of businesses saying we want to fill a gap? We're noticing inequities and we don't think those inequities should exist. Where does this begin and how has this evolved over the past couple of years?
--:-- Dominic-Madori Davis: Over the past few years, you've seen people of color and women especially launching their own funds and being emerging fund managers and really giving back to their communities. And that's because, you know, the traditional old guard of venture capital is very, very gatekept. And so you saw these new emerging funds pop up trying to give back, trying to do these things.
--:-- Noel King: And what's happened to Fearless Fund is it's new but also not new. Every time that Black Americans specifically have fought to fill a gap somewhere, it's always ended up in the court system, whether that's from like voting rights to, you know, even the bill that Edward Bloom is using to sue Fearless Fund was like a bill from the 1800s or whatever that was enacted right after the election. Slavery just ended and it was, you know, hoping to give Black Americans, the formerly enslaved, free and equal market participation.
--:-- Dominic-Madori Davis: And so what's happened is kind of, I guess, what's what was always going to happen. Like you had this fund, you have these people who are coming trying to fill in these gaps. And maybe this is the next part of the fight.
--:-- Noel King: And so if this is the next part of the fight, what do you think the broader impact might be? What do you think might be coming?
--:-- Dominic-Madori Davis: Well, something that's very important to note is that this issue, it's actually kind of split on party lines because Fearless Fund, initially they were given the go to continue with the grant, and that was by a Democratic judge. But then the preliminary injunction came from two Trump-appointed judges who had the majority vote on a panel of judges.
--:-- Noel King: They could win, but also given the makeup of the court system, given the makeup of the Supreme Court, it might just end up being a party issue.
--:-- Dominic-Madori Davis: If they do lose, I don't think that would be good for grants. And we also don't know how far Edward Bloom wants to go with this. What happens if he wants to sue a fund that only targets like Black and Latino founders? How deep can this rabbit hole go?
--:-- Noel King: So that's what I think most people in venture are, especially emerging fund managers that care about this issue. I think that's what people are waiting to see.
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--:-- Noel King: Today's episode was produced by Siona Peterous and edited by Matt Collette. It was engineered by David Herman and fact-checked by Laura Bullard. The rest of our team includes Avishai Artsy, Amanda Llewellyn, Halima Shah, Hadi Moagdi, Patrick Boyd, Isabel Angel, John Ahrens, father of a daughter, Miles Bryan, and mother of a son, Victoria Chamberlain.
--:-- Noel King: Our supervising producer is Amina El-Sadi, and our EP is Miranda Kennedy. We use music from Noam Hassenfeld and Brickmaster Cylinder. Today Explained is distributed by WNYC, and the show is part of Vox, which is totally free, thanks in part to contributions from our listeners. You can join us at vox.com slash give. I'm Noelle King, and this has been Today Explained.
