Editor’s note: WRAL TechWire contributing writer Jen McFarland has 20+ years working in IT with experiences across a range of tools and technologies. She wants to help small businesses and teams design, improve, and maintain the technology that helps them succeed. In 2022, she incorporated Marit Digital.
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It’s not news that getting capital can be a challenge for minority-owned small businesses. Black founders represented about 1% of the $215.9 billion dollars distributed by VC funds last year. That’s a drop of 50% from the still-paltry 1.5% raised in 2021. Meanwhile, the Small Business Administration reported less than 4% of dollars from the 7(a) loans went to Black or African Americans in 2022.
It’s this fraught landscape that Edward Blum has chosen for his next battlefield. Blum, a conservative activist, is the founder and president of Student for Fair Admissions, the group that brought the suit against Harvard, UNC, the University of Texas, and others. This June, in a 6-2 decision, the Supreme Court stated that the admissions programs at Harvard and UNC violated the equal protection clause of the 14th Amendment.
In the wake of that success, Blum has now founded the American Alliance for Equal Rights. And on August 2, the group filed suit against Fearless Fund, an Atlanta-based VC firm that invests in women of color-led businesses. Specifically, the lawsuit is targeting the fund’s “Fearless Strivers” grant, which awards small businesses owned by Black women with $20,000 in grants, plus technology tools and mentorship.
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Being “fearless” and continuing on
I spoke with Andrea Inoken, COO and co-founder of Cadence Cash, a fintech platform for small business funding, about the potential effects of the lawsuit on funding for minority business owners. Inoken said she has certainly heard discussions about the case in the industry, and speculation about the impacts.
“I’ve definitely heard some talk of the fear that this may decrease the amount of funding or scare people away or even just give people an excuse not to fund,” Inoken said. “Particularly if [the lawsuit] is successful, the concern is that it will decrease the amount of funding that’s already so low.”
But Inoken also said she’s seen a lot of very positive responses. She recently attended Fearless Fund’s annual Fearless VC Summit and said it was “uplifting” and “empowering.”
“There was definitely talk of the case and being fearless in the face of it; continuing on. So I would say the tone was actually really positive. Almost emboldened. People are really leaning into the mission.”
Ultimately, Inoken hopes the lawsuit might be beneficial by bringing a focus to the issue of underfunding for minority entrepreneurs.
“If anything, it’s really showing there’s this systemic effort to dismantle access to capital for underrepresented founders,” Inoken said. “You know, we might see counter lawsuits about there being discrimination just because the numbers are so low at some of the more traditional funds.”
Mel Wright, founder of The Wright Village coworking space had a similar outlook.
“Given the current circumstances, it’s important to acknowledge that funding for minorities and women is already limited. It’s uncertain whether the lawsuit will directly impact the funding situation, but it could potentially draw attention to disparities and lead to discussions about equitable allocation in the future.”
“If people start to pull back and they’re afraid to fund these businesses, it’s such a loss for innovation,” Inoken told me. “[And] it continues to grow the wealth gap, as opposed to trying to shrink it. It’s just such a harm to our country and to our economy.”
Community Support
Fearless Fund co-founder and CEO Arian Simone confessed to CBS that when news of the lawsuit arrived she thought it was a joke. When reality set in, Simone and co-founder Ayana Parsons knew they would continue with their mission. Fearless Fund has started a petition and launched a website, fearlessfreedomnow.org to help raise money. Separately more than 70 VC firms have written a condemnation in a change.org petition.
On the local front, Thom Ruhe President and CEO of the NC IDEA Foundation, published a response to the lawsuit late last week. His comments criticized those attempting to undo the work of addressing systemic disparities and he pledged to continue support of initiatives like the NC Black Entrepreneurship Council. Ruhe cited data that diverse leadership leads to better financial performance, stronger innovation, and higher startup success.
“For experienced practitioners in economic development, we’ve known for decades that interventions targeted at leveling the playing field are not just the right thing to do but the smart thing to do. Ruhe said in his statement.”
Fearful or fearless? NC IDEA will stay the course of empowering people
Historic Challenges
As in his Students for Fair Admissions v. Harvard case, Blum’s lawsuit ignores the effects of systemic racism and historic injustices against Blacks and other people of color. It’s also notable that the lawsuit targets a small woman and black-owned VC fund and not programs like Google’s Founders Funds, which have funds for both Latino and Black entrepreneurs.
While companies like Cadence Cash and programs like the North Carolina Small Business Development Fund can mitigate shortages of capital through loans, the extra challenges for grants and other equity-based funding are bound to have an impact on the already fledgling capital available.
It will take time to determine the ultimate fallout as conservatives work to dismantle affirmative action and diversity initiatives through the courts. In the meantime, this is yet another burden on a population that most needs support and – ironically – yet another example of the bias and systemic challenges affirmative action was meant to counter.
