Fearless Fund Faces Lawsuit With Far-Reaching Fintech Implications
A venture capital firm focused on investing in Black women-owned businesses is currently being sued for racial discrimination.
Yes, you read that right.
Last week, Reuters reported that venture capital firm Fearless Fund is under fire for racial discrimination through a lawsuit filed by conservative foe Edward Blum’s organization. (The very same Edward Blum behind the Supreme Court case, which limited affirmative action in higher education).
Not surprisingly, the implications of this lawsuit could have enormous ramifications for the future of fintech startups and the industry’s profitability. After all, the $130 billion invested into fintech startups in 2021 came from VC firms.
And without proper access to capital and resources, many fintech startups won’t be able to get off the ground – let alone flourish.
And given that research shows us over and over that diverse leadership results in more innovative and profitable companies, that could spell bad news for anyone hoping to cash in on fintech’s potential.
Atlanta-based Fearless Fund, led by general partners Arian Simone and Ayana Parsons, backs women of color entrepreneurs, including fintech founders like Capway’s Sheena Allen.
Blum’s nonprofit American Alliance for Equal Rights said in its lawsuit that the VC violates Section 1981 of the Civil Rights Act of 1866, a U.S. law barring racial bias in private contracts, by making only Black women eligible in a $20,000 grant competition.
Fearless Fund is making waves in the VC space. They’ve raised over $25 million and invested in 40+ companies in the past four years, including some notable names such as Slutty Vegan, Partake Foods, Live Tinted, and The Lip Bar.
The firm even received multi-million dollar follow-on investments from Bank of America, Costco, and Mastercard this June.
But in the face of the $70 billion+ venture capital funding that was seen nationally in 2023 (not including certain corporate investments), less than 1% has been allocated to Black-founded companies – that’s why Fearless Fund also runs a range of training and financing programs, such as their third annual Fearless Strivers Grant Contest in partnership with Mastercard. This initiative is the program at the center of the lawsuit.
Why it matters
The disparities in venture capital funding for Black-owned startups compared to those started by white founders are staggering.
According to the nonprofit advocacy group Digitalundivided, an abysmal 0.0006% of VC funding between 2009 and 2017 went to businesses founded by Black women.
Meanwhile, white founders receive a whopping $35 million more across the funding cycle than their Black and brown counterparts.
One of my favorite examples: Adam Neumann raised more money in a single round than all Black entrepreneurs in a single quarter.
To clarify, Blum is taking legal action against a venture capital firm run by Black women for a $20,000 grant designated specifically for Black female founders who already receive limited funding. Meanwhile, ignoring the issue of $35 million being allocated to white founders.
If Blum is serious about suing venture capital firms for their bias towards founders based on race, he better start looking at the numbers, get ready to file a lot of paperwork, and start investigating his white peers running VC firms with majority white-founder-led portfolios.
That’s a lot of lawsuits and investigations if Blum is determined to end these inequitable practices. 🤦🏽♀️🤦🏽♀️🤦🏽♀️
As if it weren’t bad enough that he’s trying to shut down women of color when we’re making strides toward thriving, he has the audacity to use the myth of ‘reverse racism’ as the crutch of his argument.
It’s as if he thinks that by asserting ‘reverse racism,’ he can prove that people of color don’t have it that bad, like some Racism Olympics. But we all know that’s untrue.
Using ‘reverse racism’ to defend against racism and discrimination is simply a way for white people to exclude people of color from creating spaces for themselves. His ‘reverse racism’ argument only demonstrates the power of white privilege that is so often overlooked and completely removes historical context.
I’m all too aware of the complexity of this conversation, and I’d like to ease some of the discomforts and contribute to the discussion by admitting my privileges.
As a half-white, half-Asian person, I have undeniable privileges. However, I don’t want to forget that my privileges do not undermine my accomplishments. I believe that it’s quite the opposite.
My privileged background has enabled me to take advantage of many opportunities and create a platform for success. This platform might not have been available to me without my privileges. Of course, I am also well aware that this platform has been denied to many others, so I will take my privilege and use it to lift up others.
See, that wasn’t so hard!
VC roles in fintech
For budding fintechs trying to make a name in a competitive marketplace, few resources are as invaluable as VC firms.
Not only do these firms provide capital investments but also mentorship, advice, and even talent recruitment. On top of that, their knowledge of financial regulations and compliance requirements provides a much-needed insight into the complex world of finance.
At the same time, eager startup founders can count on their VC investors to lend a helpful ear for ideas, mentorship, and strategic brainstorming. Furthermore, VC firms have the clout to draw in top talent and even offer referrals from their existing network of professionals.
Last but not least, VC firms offer the financial runway necessary to help bring potentially disruptive ideas from concept to reality, without which many fintechs could not survive the journey to profitability.
While it’s alluring to focus on the apparent benefits of venture capital investment, it’s essential to recognize the impact of such funds on diversity and inclusion in fintech. From providing access and opportunity for traditionally underrepresented founders to creating a more equitable environment for innovation, VC funds are playing an increasingly critical role in shaping the future of our industry and the world.
And yet, despite this impact, Black-women-led venture funds are still under attack – a problem that we must acknowledge and address if we truly want to create a level playing field for all.
To put it simply: An attack on Black-women is an attack on us all.
So while I’m very interested in exploring other alternatives to funding outside of VC (if you want to discuss with me for a future newsletter story, respond to this email), I can’t help but point out that we must recognize the critical role these funds play in fostering inclusivity and progress. We have to stand by and support them.
A shadow over fintech startups
While the lawsuit’s immediate impact is centered on the Fearless Fund’s practices, it also casts a shadow over the fintech industry, particularly in the realm of startups.
Our fintech, a rapidly growing sector that leverages technology to reshape traditional financial services, thrives on innovation and disruption. However, this lawsuit could introduce an element of uncertainty that negatively affects the future trajectory of fintech startups.
Often characterized by limited resources and heightened risks, startups depend on access to diverse and flexible funding sources to fuel their growth and development. A precedent set by this lawsuit could discourage venture capital firms from focusing on niche markets or underrepresented groups, leading to a potential narrowing of investment opportunities for fintech startups that cater to specific demographics.
Moreover, the lawsuit could impact the profitability of the fintech industry. Fintech has been a beacon of innovation, creating novel financial solutions and technologies that address gaps in traditional banking and finance. A lack of diversity in investment could stifle this innovation by limiting the resources available to startups with unique and game-changing ideas.
Additionally, the fintech industry has increasingly recognized the importance of diversity in driving innovation and capturing untapped markets. Discrimination lawsuits like the one against Fearless Fund could deter fintech companies from focusing on inclusive strategies, hindering their ability to cater to a broad customer base and tap into underserved markets.
Beyond its immediate legal implications, the outcome of this lawsuit could send ripples throughout the fintech landscape. It highlights the complex interplay between legal challenges, diversity initiatives, and the growth of startups.
To ensure a thriving and innovative fintech sector, investors and startups must navigate these challenges with a keen awareness of the implications for the industry’s future growth, profitability, and capacity for positive change.