On a rainy Thursday afternoon in New York City, Arian Simone and Ayana Parsons, far from their home base in Atlanta, addressed a room of reporters from the Wall Street Journal to TechCrunch to, of course, yours truly. The pair, cofounders and general partners of Fearless Fund, a small venture firm focused on backing women of color, are being sued for racial discrimination by a group founded by conservative activist Edward Blum. Their message to reporters: “Activism is in our DNA,” Simone, who is also CEO, told the room. “We are not scared, we are fearless.”
Just a couple weeks ago, the four-year-old firm, whose first fund was $25.8 million, was still somewhat under the radar, writing small checks up to $2.5 million, and in the process of raising fresh capital amid the rocky venture environment (the firm raised $16 million so far for its second fund, according to a May SEC filing). Now, the early-stage Fearless Fund has been thrust into the national spotlight as one of the faces defending diversity-focused investing, backed by a team of big time lawyers. And they’re at the center of what I and others view as a major story in the venture world right now—one that could have ramifications for the industry at large.
To recap, last week the American Alliance for Equal Rights (AAER), a group founded by the conservative activist behind the recent rejection of affirmative action in college admissions, filed a lawsuit against the small fund. The lawsuit alleges that Fearless Fund’s grant program, which awards Black women small business owners $20,000 four times a year in partnership with Mastercard, is discriminatory against nonblack individuals, violating Section 1981 of the Civil Rights Act. Remember: Black founders received only 1% of VC dollars in 2022; so far in the first half of 2023, the figures are even more paltry, at around 0.75%, TechCrunch reported. (Simone said Fearless Fund has deployed over $26.5 million so far.)
Fearless Fund has heavy-hitting lawyers in their corner: Ben Crump, an attorney known for representing the families of George Floyd and Breonna Taylor, and Janai Nelson from the NAACP Legal Defense and Education Fund, are among those representing the firm.
As Fearless Fund is highlighting in its response—the fund addressed the lawsuit for the first time yesterday—the recent ruling rejecting affirmative action in higher education “has become a catalyst for more legal groups to attack critical investments in marginalized communities,” the firm wrote in a release prior to the press conference.
But some insiders also worry about what the lawsuit might do to limited partners investing in these types of funds. “If this lawsuit successfully deters LPs from supporting funds with racial mandates, especially in a further deteriorated fundraising environment, it will be hard for these funds to grow beyond Fund I or Fund II, which replenish sources of capital for entrepreneurs,” Yasmin Cruz Ferrine, cofounder and general partner at Visible Hands, a VC firm that has accelerators for underrepresented founders, wrote in a blog post this week. And she later told me over the phone that, considering many of these minority-focused VCs are still relatively young, they haven’t had sufficient time to prove their returns to LPs for preseed and seed companies. “I worry that just giving an out of justifiable legal liability [for LPs] will reverberate,” she told me (Visible Hands shares some portfolio companies with Fearless Fund, she said).
So far, the big corporate backers of Fearless Fund, including Bank of America and JPMorgan Chase, are rallying around the firm, cofounder Simone said on CBS Mornings earlier on Thursday, adding that “They stand by their DEI programs.”
It’s too soon to tell how this will play out, or how the fund’s lawyers will go about their defense (Fearless Fund’s legal counsel would not answer questions about their strategy during the press conference). But this will be a precedent-setting case that VCs should be paying attention to.
Fashion consolidation...Tapestry, the American fashion company that owns brands including Coach, agreed to acquire Capri Holdings, the parent of iconic fashion brands Versace and Michael Kors, for a whopping $8.5 billion in cash. It’s another big consolidation in the fashion space, and beefs up Tapestry against the likes of European titan LVMH, which still dominates the luxury goods space and counts brands like Louis Vuitton among its holdings.
Have a great weekend,
Anne Sraders
Twitter: @AnneSraders
Email: anne.sraders@fortune.com
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