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Venture capital funds for Black startups and entrepreneurs face possible Supreme Court challenge

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Venture capital funds for Black startups and entrepreneurs face possible Supreme Court challenge


If ongoing federal lawsuits filed over the past year eventually make their way
to the U.S. Supreme Court, venture capital funds for Black-owned tech startups
could end up with the same fate as the historic ban on affirmative action.

Yet, only months after the nation’s high court’s historic 6-3
decision to ban affirmative action in early June, allied conservative legal groups tied to former President Donald Trump are now
seeking to also block venture capitalists from exclusively funding
Black-owned startups and tech firms.

On Sept. 30, the U.S. Eleventh Circuit Court of Appeals in Atlanta
granted Edward Blum’s right-leaning American Alliance for Equal
Rights a request to temporarily block Atlanta-based Fearless Fund
from considering applications for grants only from businesses led
by Black women.

A different group founded by Blum, who is white, was behind
the litigation that led to the June decision, powered by the
Supreme Court’s 6-3 conservative majority, declaring race-conscious student admissions policies used by Harvard University and
the University of North Carolina unlawful.

Another group, former Trump aide Stephen Miller’s America
First Legal (AFL), has also filed a federal class lawsuit against Hello
Alice, alleging that the online funder “conspired and partnered”
with Progressive Insurance in administering a grant program that
offered $25,000 grants to ten Black-owned small businesses to
use toward the purchase of a commercial vehicle. Plaintiffs claim
that Hello Alice and Progressive violated their civil rights by not
making the grants available to White-owned businesses.

Hello Alice is an online funding platform founded during the pandemic that focuses on supporting marginalized business entrepreneurs, including people of color, women, immigrants, anyone
identifying as LGBTQ+, veterans, and people with disabilities. AFL has brought multiple suits against programs for Native American, Latino and Black small business owners based on allegations that they are racially discriminatory. In some cases, these have
also ended funding for U.S. veteran-owned businesses.

The benefits of venture capital for early-stage startups huge, according to several studies. NVCA, Venture Forward, and the
Kenan Institute of Private Enterprise at the University of North Carolina at Chapel Hill recently released a report that found that
employment at VC-backed startups grew 960% from 1990 to 2020, at a pace eight times higher than employment growth at
non-VC-backed companies.

If access to VC and other forms of alternative capital are banned by the Supreme Court, more than $200 billion committed
by U.S. corporations and financial institutions to increase efforts toward racial justice and diversity since the murder of George
Floyd on May 2020 could be halted. Much of these funds are being committed to providing affordable housing, lending in lowand middle-income and minority communities, and community development.

According to research by Wall Street consulting giant Accenture, Black founders receive less than 1% of funds invested in the U.S., even amidst rising and historic VC levels in the ecosystem overall and even with a rising number of Black entrepreneurs. A more recent Accenture analysis of the same group found that while Black founders are receiving 1.7x more deals than their non-Black founder counterparts from comparable demographics, they’re receiving 42% less funding on average per deal. Such a paradox presents considerable implications and challenges to Black founders, and further necessitates taking action to help achieve parity.

Accenture’s own Black Founders Development Program helps Black technology startup founders advance and grow their businesses through direct access to venture capital, corporate mentorship and strategic connections with Accenture business partners and clients.

 “Three years after the murder of George Floyd, the general consensus is that not enough has been done to effectively address diversity and inclusion issues in corporate America. Developing ‘human skills’ like how to give fact-based feedback or how to navigate difficult conversations are required to create workplaces that are psychologically safe and enable all perspectives to be heard,” said Elise Smith, co-founder and CEO of Praxis Labs.

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