Black entrepreneurs and DEI efforts face complaints and lawsuits — for racial discrimination
Just months after the Supreme Court struck down affirmative action in higher education, conservatives have set their sights on a new target: initiatives meant to close racial disparities in business.
Companies, governments and venture capitalists have been hit with complaints and in some cases federal lawsuits over the constitutionality of supporting minority- or Black-owned businesses.
Ed Blum, a conservative activist who has led efforts to eradicate affirmative action in college admissions, has become part of this new fight. His group, American Alliance for Equal Rights, sued the Fearless Fund, a Black woman-run venture capitalist fund, to block the group from giving $20,000 to businesses primarily owned by Black women. Blum has argued that the group’s Fearless Strivers Grant Contest violates civil rights law.
The Atlanta-based 11th U.S. Circuit Court of Appeals agreed. The court ruled in a 2-1 decision on Sept. 30 to halt the program, reversing an earlier federal ruling that allowed it to continue.
“We strongly disagree with the decision and remain resolute in our mission and commitment to address the unacceptable disparities that exist for Black women and other women of color in the venture capital space,” the Atlanta-based Fearless Fund said in a statement, according to the Associated Press. The Fearless Fund did not immediately respond to a request for comment from NBC News.
Blum’s efforts, though, are part of a broadening backlash against initiatives meant to boost minority-owned businesses, which are likely to be overlooked and underfunded when seeking capital and other resources. Black people represent less than 3% of business owners while making up 14.2% of the U.S. population, according to the Brookings Institution, a nonpartisan research group.
Black business owners typically receive less than 2% of all funding from venture capitalists each year, CNBC reported earlier this year. Last year, Black startup founders raised an estimated $2.254 billion out of the $215.9 billion in U.S. venture capital funds, showing a slight drop from funding in 2021, according to data by Crunchbase. Black business owners are also more likely to be offered inferior loans, even when they are stronger applicants than white peers, according to a study published this year in the Journal of Marketing Research.
In the face of such statistics, efforts to purposefully support Black-owned businesses have emerged, ranging from venture capitalists like the Fearless Fund to policies stipulating that local, state and federal governments consider or hire a certain number of minority-owned businesses for contract work.
But a growing call to thwart these efforts has been taking hold. Conservative groups and state attorneys generals have increasingly turned their attention to considerations of race in the workplace after the Supreme Court struck down affirmative action in college admissions in June. Meanwhile, a white couple sued the city of Houston last month over a decades-old program that set aside money for minority-owned businesses. In July, a judge dismantled part of a Small Business Administration program that deemed race a social disadvantage for entrepreneurs seeking government contracts.
Fears of such litigation are spreading, and other businesses have begun downplaying their diversity efforts to insulate themselves from lawsuits.
“I don’t think anyone is surprised that these suits are going forward, and given the makeup of the current Supreme Court, it’s hard to be optimistic in terms of diversity, equity and inclusion in the workplace,” said Erica Foldy, a professor at New York University’s Wagner Graduate School of Public Service.
Black venture capital firms and other groups that provide funding for small businesses have been swept up in this backlash. As a result, groups are fighting to keep programs that specifically benefit Black entrepreneurs, and other organizations are weighing whether to downplay their own diversity initiatives for fear of being targeted with lawsuits.
The Fearless Fund has given $3.7 million to businesses through its grant programs and invested nearly $27 million in about 40 businesses owned by women of color since its founding, according to The Associated Press.
Arian Simone and actor Keshia Knight Pulliam launched the $5 million fund in 2019 specifically to support businesses created by women of color. Ayana Parsons joined later as chief operating officer. One business that has been helped by the Fearless Fund is LS Cream Liqueur, a beverage brand run by Myriam Jean-Baptiste and Stevens Charles, who are of Haitian descent.
“Before getting in with Fearless Fund I was really wondering, ‘How are we gonna get this done?’” Jean-Baptiste said. “It’s very hard to get funding. It’s very difficult to get funding from a bank. We got an investment from Fearless Fund this year and for us it has been completely life-changing.” Jean-Baptiste said they were able to hire more employees and expand the business with the Fearless Fund’s investment.
While the Fearless Fund and others like it were built to close gaps between white business owners and owners of color, Blum’s lawsuit said that the Fearless Fund’s Strivers Grant Contest violates the Civil Rights Act of 1866, which prohibits racial discrimination in contracts. He told NBC News in an email that racial disparities in funding don’t justify the exclusion of “certain men and women from public programs by race or ethnicity.”
He held that if a venture capital fund that exclusively benefited white men is deemed “unfair and illegal,” then so would a program prioritizing Black women.
“The American Alliance for Equal Rights believes it is legally permissible to provide benefits to businesses and individuals who are under-resourced, but those benefits must be made available to all races and ethnicities,” Blum added.
Attorneys for the Fearless Fund, including noted civil rights lawyer Ben Crump, have said the grants are protected by the First Amendment because they’re donations and not contracts, according to The Associated Press. But the panel of judges rejected that argument, declaring that the First Amendment does not give the Fearless Fund the right to “exclude persons from a contractual regime based on their race.”
Meanwhile, America First Legal, the right-wing group run by former Donald Trump aide Stephen Miller, is leading a lawsuit against Hello Alice, a small-business-resource company, and insurer Progressive Preferred Insurance Company, as well as other Progressive entities, on behalf of a white trucker who filed a complaint because he was not eligible for a $25,000 grant program designated for Black entrepreneurs. The Driving Small Business Forward fund program, a partnership between Hello Alice and Progressive, is intended to intervene in the racial disparities that make it difficult for Black business owners to access capital.
“Multiple studies have shown how inequities have made it harder for Black entrepreneurs to access capital. This program aims to alleviate this challenge,” according to Hello Alice’s website.
According to the complaint, Nathan Roberts, an Ohio man who runs a small trucking company, began filling out an application for the grant until he realized it is intended to help Black business owners. The complaint states that Roberts brought the suit to combat “these racially discriminatory practices and recover classwide damages on behalf of everyone who has suffered unlawful racial discrimination” as a result of the program. Neither Roberts nor his attorneys immediately responded to a request for comment from NBC News.
The chilling effect on DEI efforts
Hello Alice has been vocal about the lawsuit, sharing messages with its members and social media posts about the litigation.
“In AFL’s own words, it claims ‘Diversity, Equity, and Inclusion’ are ‘gentle-sounding euphemisms [that] are designed to mask a brute force agenda of social engineering, Marxist dehumanization, and overt racism and sexism,’” the group said in a statement on its social media platforms.
The group added in the statement: “Let’s be clear: our values are not ‘gentle-sounding euphemisms.’ These are the pillars upon which we built Hello Alice and guide our mission to drive capital, connections, and opportunities into the hands of small businesses of all types and backgrounds.”
Groups like the Black Innovation Alliance, a coalition of organizations devoted to supporting Black entrepreneurs, have taken notice. The BIA last month announced its “Clap Back” campaign, a 90-day effort to share resources and tools to bring attention to the recent attacks on DEI in business and advocate for Black communities. Kelly Burton, CEO of the BIA, said she wasn’t surprised when she learned of the lawsuit against the Fearless Fund.
“When Fearless Fund was sued, we knew that it was not it. We knew we were about to experience an onslaught” of these lawsuits, Burton said. “Within BIA, we have support organizations wondering if they need to scrub the word ‘Black’ from their websites. It’s saying that if you see racial injustice, you can’t do anything about it. And that’s deeply dangerous.”
Another lawsuit from Blum’s American Alliance for Equal Rights prompted the Morrison & Foerster law firm to change the eligibility requirements for its DEI fellowship by removing the term “underrepresented groups” from its criteria, according to Bloomberg Law. The group dropped the case as a result.
Eric T. McCrath, chair of the law firm, told Bloomberg that the firm is “pleased by the AAER’s decision not to pursue a meritless case.”
Tina Opie, a DEI consultant and management professor at Babson College, said she’s noticing businesses changing externally facing language “because they think that will prevent them from being sued, and that may work in the short term, but in the long term, I don’t think that just changing your language is going to cause them to sic the dogs off. If you stop talking about race … the people who are experiencing the worst disparities don’t have a chance for relief. And I think that’s the goal.”
Foldy, of NYU, agreed that companies will have to do much more than tweak a few terms to stave off the litigation.
“They’re going to have to try to find a new rationale for serving the people they were initially founded to serve,” Foldy said.