First, they came for affirmative action in colleges. Then, they set their eyes on Black businesses.

A Black woman-led venture capital company that invests in other businesses led by women of color was sued in August by the American Alliance for Equal Rights. AAER argues that the Fearless Strivers Grant offered by the Fearless Fund violates Section 1981 of the Civil Rights Act of 1866. 

The Reconstruction-era law they cite prohibits discrimination when making and enforcing contracts. It was “aimed at protecting the rights of the newly freed slaves,” according to the New York University School of Law, and it specifically grants all individuals “the same rights and benefits as ‘enjoyed by white citizens’ regarding contractual relationships.”

Other organizations offering grant programs for Black business owners say they are concerned about the long-term consequences of this lawsuit. If these programs are deemed illegal, it could make it harder for Black people to start and sustain their own companies.

Fearless Fund launched in 2019 and offers financing for women entrepreneurs of color. Its portfolio lists 41 women-led businesses, including brands like The Lip Bar, Slutty Vegan, Bread Beauty, and Hairbrella.

The fund has deployed $26 million and awarded more than 350 grants and $400 million in grant capital with their partners, said Arian Simone, president and CEO of Fearless Fund, in a September interview on “The View.”

Black women-led companies receive less than 1% of all venture capital funding, and leading up to 2021, only 93 Black women founders raised VC funds of $1 million or more, Insider reported. According to the Fearless Fund, women of color founders received just 0.39% of all funding.

RELATED: BEA Foundation Stands Up for Fearless Fund, Empowering Black Women Entrepreneurs

With these statistics in mind, Simone and her business partners launched the Fearless Strivers Grant as an opportunity for four Black women-owned businesses each year to receive $20,000 grants. But mere weeks before applications would close on August 31, the fund was hit with a lawsuit by the same man and organization whose case helped the Supreme Court overturn affirmative action.

A three-judge panel on Atlanta’s 11th Circuit Court of Appeals recently stopped the grants from being awarded to recipients due to a ruling in the appeals process. A date has yet to be set for another panel of judges to review the suit.

“I can’t say why we were targeted, but I know the mission of this was to instill fear,” Simone said on “The View.” Simone wanted to use the interview to “sound the alarm that the American Dream is under attack.”

Opposition to the Fearless Fund 

Edward Blum, leader of AAER, has fought against affirmative action for over a decade and filed over “two dozen cases since the 1990s attempting to remove the concept of race from America’s laws,” according to the New York Times. Eight of those cases have made it to the nation’s highest court. His group, Students for Fair Admissions, won its Supreme Court case against Harvard and the University of North Carolina in June, leading to the end of race-based affirmative action in higher education. 

Fresh off that victory, Blum made the Fearless Fund his next target. 

Blum told TechCrunch that he filed the lawsuit because a woman-owned business reached out to him to challenge the grant program. He hopes these programs end and “offer benefits to all small businesses regardless of the owner’s race.”

“It’s very important to frame this as a civil rights issue. This could shape economic policy that will impact the Black community for the rest of our lives.” 

Dominic Davis, senior reporter covering venture capital and startups at TechCrunch

Davis has followed diversity issues within venture capital for years and closely tracks progress around the lawsuit against Fearless Fund.

Earlier this year, a lawsuit challenged the Small Business Administration for its 8(a) Business Development Program. Three white men brought a similar case against the Minority Business Development Agency for funds from the Infrastructure Investment and Jobs Act. And on Oct. 4, Hello Alice, an online platform for small businesses, announced they were being sued by America First Legal for their program offering $25,000 grants to 10 Black-owned small businesses to purchase a commercial vehicle.

With all of these legal battles floating around, there’s a hesitancy from sponsors and firms to start or continue their diversity-focused grant initiatives, Davis says. They’re worried about backlash and “the legal risks and ramifications that could come with being so explicit about wanting to do so.”

What’s at Stake for Black-Owned Businesses

The fear of ramifications applies to organizations outside of VC firms, too. 

The African American Alliance of Community Development Financial Institutions CEOs offers a grant program of its own: the Black Renaissance Fund. This program gives more Black-led CDFIs the capital they need to continue serving their communities. Like the Fearless Fund, this program is specifically for Black institutions. As such, they may be at risk as well.

“This could be far-reaching,” Lenwood V. Long, Sr., president and CEO of the Alliance, says of the lawsuits. “Which is to say that you could not create an organization that’s designed to serve any target group, whether that’s Black or brown.”

Buy From A Black Woman is another organization that serves Black women-owned business owners and offers a grant program. Founder Nikki Porcher says this threat has always been there.

“For whatever reason, there are groups of people who feel threatened by our success when we’re handed pennies, and we’re able to create million-dollar businesses and corporations.”

Nikki Porcher, founder of Buy from a black woman

Black women are the fastest-growing group of entrepreneurs, but only 3% of their businesses last beyond five years. These grant programs give companies resources needed to mature and help create more Black wealth.

Black founders often don’t have networks of people willing to give thousands of dollars toward their ideas, Porcher says. So without these programs, the racial wealth gap could become further entrenched.

“We cannot allow this disruption to take place because otherwise, we’re going back to post-reconstruction, where it was good for a while, then Jim Crow raised its ugly head,” Long says. “We have to understand that if we’re not careful, history will repeat itself.”

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