Black women make up about 8% of the population in the United States. But, according to a report by Project Diane, firms founded by Black women received 0.0006% of total funding from venture capitalists between 2009 and 2017. In recent years, the amount of venture capital funding awarded to firms founded by Black women has remained far less than 1%. Further, a study by Palladium Impact Capital found that "Black women entrepreneurs in the United States suffer the largest gap between their total capital demand and the amount of investment capital they receive when compared to other demographic groups."  

Nevertheless, some people believe that in the status quo, Black women are receiving too much venture capital. They argue that Black women are benefiting from illegal racial preferences. And they are suing to put an end to it.

The focus of the litigation is the Fearless Fund, which runs the Strivers Grant Contest, a program that awards $20,000 to four small businesses that are majority-owned by Black women. A group called The American Alliance for Equal Rights (AAER) sued the Fearless Fund, arguing the grant contest constituted illegal racial discrimination. 

AAER bills itself as "a nonprofit membership organization dedicated to challenging distinctions made on the basis of race and ethnicity in federal and state courts." In practice, it files lawsuits on behalf of aggrieved white people who believe they are being harmed by programs designed to benefit racial minorities that face widespread discrimination. Edward Blum, the president of AAER, told the New York Times in 2023 that "systemic racism" does not exist. Blum also rejected the idea that "racism" was part of the country at its founding.

AAER's most famous legal victory was a successful lawsuit arguing that "race-conscious student admissions policies used by Harvard University and the University of North Carolina" were unlawful.

In the Fearless Fund lawsuit, AAER argued that the Fearless Fund's grant "violates section 1981 of the 1866 Civil Rights Act, which prohibits discrimination on the basis of race when enforcing contracts." That law was originally "intended to protect formerly enslaved people from economic exclusion," but is now being turned on its head by AAER. 

This week, a federal appeals court handed a victory to AAER. In a 2-1 decision, a panel found AAER was likely to succeed on the merits and issued an injunction suspending the Fearless Fund's grant program. The decision was written by two judges appointed by former President Trump. 

Blum celebrated the decision while waiving away concerns about the systemic exclusion of Black women from venture capital funding. "Our nation’s civil rights laws do not permit racial distinctions because some groups are overrepresented in various endeavors, while others are under-represented," Blum said. 

The real meaning of civil rights law

Do civil rights laws really prohibit initiatives like the Fearless Fund's grants to businesses owned by Black women? Other courts have rejected challenges to similar programs. In November 2023, America First Legal (AFL) — an organization run by Trump advisor Stephen Miller — sued Progressive Insurance on behalf of a white business owner to stop a program that awarded $25,000 grants to black-owned small businesses. The money could be used toward the purchase of a commercial vehicle. The white business owner represented by AFL claimed he began filling out the application before realizing it was limited to Black-owned businesses.

AFL's legal theory was the same as the one used by AAER in the Fearless Fund case: the grants violated section 1981 of the 1866 Civil Rights Act. An amicus brief filed by civil rights groups explained how AFL's lawsuit was not consistent with the purpose of the 1866 Civil Rights Act and how the law has been interpreted by courts:

Section 1981 aimed to empower Black citizens to gain the economic power they were deprived of following centuries of anti-Black discrimination and the aftermath of slavery and was never intended to serve as a vehicle to cut back private, remedial measures that serve to further Black economic opportunity. The seminal cases interpreting Section 1981 highlight this history and purpose. While it is recognized that Section 1981 “prohibits racial discrimination against all groups,” the Sixth Circuit has explained that “the majority plaintiff who asserts a claim of racial discrimination” must still do so “within the historical context of the Act.” 

Furthermore, Section 1981 explicitly governs contractual relationships and was not intended to apply to private philanthropy like the one at issue in this case…

Plaintiffs’ suit aims to use Section 1981—a statute intended to concretize the promises of the Thirteenth Amendment—to cut back private, philanthropic measures intended to further racial justice. This Court should be wary of Plaintiffs’ attempt to use Section 1981 and the Judiciary to unravel the growth of opportunity for minority business interests on the basis of race. 

Last month, a court dismissed AFL's lawsuit, stating that the plaintiff failed to demonstrate he suffered any harm from the program. Because the court ruled that the plaintiff lacked standing, it did not consider the substance of the plaintiff's arguments. 

The anonymous plaintiffs taking on Fearless Fund

AAER is not a small business seeking investments, so it does not have standing to sue Fearless Fund. But AAER claimed that two members of the group were business owners and "ready and able" to apply but were ineligible because they were not Black. 

Who are the AAER members who are suing? We do not know. Two women signed declarations stating that they were participating in the lawsuit using "a pseudonym because I operate a small business and, if my participating in the litigation becomes public, I fear reprisal against [my business] and myself." 

Did these anonymous plaintiffs suffer actual harm from the Fearless Fund's grant program? The dissenting judge noted that the declarations submitted did not say either plaintiff "would enter the Contest, or plans to enter the Contest, or intends to enter the contest, or is even thinking about entering the Contest." Further, neither woman "attests that she has ever sought a grant of any other kind or entered a similar contest for her business in any other circumstances." Moreover, there is no information about "what kinds of businesses these are, how long they’ve been operating, or any other facts that would be relevant to assuring ourselves these are operating businesses, let alone ones that genuinely desire to enter the Contest." 

The dissent compared the plaintiffs to "floppers" in a sporting competition. They are manufacturing "a foul that the player hasn’t actually experienced to manipulate the referee into inappropriately exercising his power to award a penalty."

The majority rejected that argument. They found that the anonymous women have done enough to establish that they have suffered harm and are likely to succeed in using civil rights laws to stop a grant program designed to help Black women. 

AAER fights against "pro-Latino discrimination"

In March, the Smithsonian Institution’s National Museum of the American Latino settled a lawsuit filed by AAER against the museum’s director and the Smithsonian’s director of the Institute of Museum and Library Services alleging that the museum’s undergraduate internship program had “pro-Latino discrimination.”

In the settlement, the Smithsonian said it would state that the internship is “equally open to students of all races and ethnicities” on the application, and that those reviewing the applications “should not give preference or restrict selection based on race or ethnicity.” A spokesperson for the museum, which has yet to be built, told CNN that the “language added to the program’s website and scoring rubric as part of the settlement ‘spells out what had been our practice already.’” 

The AAER lawsuit, which was filed in February, alleged that the internship program violated the Constitution as it was “not equally open to non-Latinos.” The lawsuit alleged that, since the internship started in 2022, “not a single intern identified as black, Asian, or white,” but that “at least 25 interns… self-identified as Latino” and “[n]o intern identified as non-Latino.” The lawsuit also “cite[d] language used by the museum and its leadership regarding the intention of the internship, which is to bring more Latinos into key museum positions, only 5% of which are filled by Hispanics.”