Today, Explained - Is DEI DOA?

Episode Date: November 3, 2023

The lawyer behind the Supreme Court case that overturned affirmative action in university admissions has a new target: a small venture capital firm that gives money to Black women founders. The Atlant...a Journal-Constitution's Mirtha Donastorg and TechCrunch’s Dominic-Madori Davis explain how it’s part of a broader backlash to diversity, equity, and inclusion initiatives. This episode was produced by Siona Peterous, edited by Matt Collette, fact-checked by Laura Bullard, engineered by David Herman, and hosted by Noel King. Transcript at vox.com/todayexplained Support Today, Explained by making a financial contribution to Vox! bit.ly/givepodcasts Learn more about your ad choices. Visit podcastchoices.com/adchoices

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Starting point is 00:00:00 After Edward Bloom, the conservative activist who set his sights on ending affirmative action in college admissions, won, he didn't celebrate very much. He told the New York Times he went back to his hotel room, talked to his wife, had a little wine, a little Ambien, and went to bed. And then, apparently, he went right back to work. His new lawsuit is aimed at a smaller target than all of college. He's suing an Atlanta venture capital fund that invests in businesses led by women of color. The suit argues that the Fearless Fund's $20,000 grant that's explicitly for Black women entrepreneurs is discriminatory. A panel of judges agreed, and the grant has been temporarily blocked. Industry watchers say after a so-called reckoning three years ago, they're now seeing more attempts to end diversity programs and initiatives and grants.
Starting point is 00:00:52 And all of that is coming up on Today Explained. This NFL season, get in on all the hard-hitting action with FanDuel, North America's number one sportsbook. You can bet on anything from money lines to spreads and player props, or combine your bets in a same-game parlay for a shot at an even bigger payout. Plus, with super-simple live betting, lightning-fast bet settlement, and instant withdrawals, FanDuel makes betting on the NFL easier than ever before. So make the most of this football season and download FanDuel today.
Starting point is 00:01:23 19-plus and physically located in Ontario. Gambling problem? Call 1-866-531-2600 or visit connectsontario.ca. It's Today Explained. I'm Noelle King. Mirtha Donna Storg is a business reporter at the Atlanta Journal-Constitution. She covers the space where diversity and business intersect, and so she's been following this lawsuit by Edward Bloom's American Alliance for Equal Rights
Starting point is 00:01:50 closely. And even before the suit, she was familiar with the Atlanta-based Fearless Fund. So the Fearless Fund is an investment firm, a venture capital firm based here in Atlanta. They're relatively new on the scene. They invest specifically in women of color, and it was started by Black women. Women of color are four times more likely to start a business than any other group, but they face a lot of barriers when it comes to getting money, whether it's a business loan or securing investors. It's a problem the Fearless Fund is working to solve. They invest in businesses that are in like the food and beverage or beauty
Starting point is 00:02:33 and technology spaces. Those are their industry focuses. They've invested in businesses that you might have heard of before, like Slutty Vegan. We have thousands of people out here waiting for a plant-based vegan burger. They've also invested in Hairbrella. Which is the world's first rain hat that insulates women's hair from the rain and protects their style. So it solves the problem of women running around with bags on their head.
Starting point is 00:02:58 They've invested in Bread Beauty, which is in Sephora. Bread Beauty is a Black-owned brand that caters to all curl types, and I'm already a fan of... Total, they've invested in about 40 startups. So the founders of the Fearless Fund are Arianne Simone. She is an entrepreneur. I have loved entrepreneurship since I was a child. People say that I would have sold my mother's placenta had I known it had value. There is also Ayanna Parsons, who is an organizational consultant. There's no shortage of women of color founders. What truly is the issue is the funding needs,
Starting point is 00:03:35 and that's the problem that we're here to solve. The third founder of Fearless Fund is Keisha Knight-Pooleum, who is better known as Rudy from The Cosby Show. Hey, lady, why don't you talk back to me? A no is a no, understand? But, Mommy, you're making me feel bad. Oh, Rudy, if you don't listen to me, you're going to feel much worse. When the founders of the Fearless Fund talk publicly about what their goals are, what they want to do, what do they say? What's the mission?
Starting point is 00:04:05 So they say that they are trying to essentially even the playing field. Between 2009 and 2017, only 0.0006% of venture capital funding went to businesses started by Black women. We knew we had to definitely step up and solve an amazing problem that should have just been in play anyway. And so Fearless Fund is coming into this space to try to bridge that gap and to level the playing field, not just for Black women, but women of color founders overall. So the thing that got them into contact with or trouble with Edward Bloom was they created a grant for Black women. What is this grant? Who is it for? What does it promise? Tell me all about it. Specifically, it's a fearless strivers grant. It's been around since 2021. They run it in partnership with MasterCard. Even though MasterCard is not named in the lawsuit, they're not a defendant. But essentially, it gives $20,000 grants to Black women small business owners.
Starting point is 00:05:12 Okay, so there is a tangible gap in the funding that Black women entrepreneurs get. The founders of this venture capital firm say, we're going to do something about it. We're going to create a grant that is explicitly for Black women. That doesn't sound like it's hurting anyone, but it ends up becoming central to a lawsuit. What happened? So about a month after Edward Bloom and a group that he started successfully challenged affirmative action at the Supreme Court, he decided to sue Fearless Fund over this grant because he said that three members of this other group that he had started, the American Alliance for Equal Rights, that three white and Asian female business owners were being racially discriminated against because this grant was explicitly for
Starting point is 00:06:07 Black women only in the eligibility criteria. And Bloom is saying that the members of his group who otherwise would fit the rest of the criteria are being discriminated against because they're not Black. They are the plaintiffs in this case against Fearless Fund. What does Bloom's team argue is illegal about the Fearless Fund's grant program? So after the Civil War, during Reconstruction, there was a Civil Rights Act passed in 1866 in order to try to establish legal rights for newly freed Black people, including in business. There is a section that says basically you cannot use race when creating, making, enforcing business contracts, that we are trying to give the rights that white people have enjoyed to Black people. That is the central argument of if these grants are illegal.
Starting point is 00:07:14 Is Fearless Fund going into a contract with the applicant, and the applicant has to be a Black woman because his grants are for Black women small business owners. The Alliance is trying to argue that it is illegal because this is a contract and you cannot make or enforce contracts on the basis of race. According to this law, the Fearless Fund says this is a contract in name only, but not in actuality. This is a contract in name only, but not in actuality. This is a charitable donation. And because it's a charitable donation, we get to decide who we want to give money to, who we want to support. That is our First Amendment right. When the founders were asked about their reaction to the lawsuit, what are they saying publicly?
Starting point is 00:08:06 They're saying that they don't necessarily know why they were targeted. My initial thought, I didn't think that this was real. You didn't think it was real? What did you think it was? What did you think? When the emails came through, I honestly thought it was chat GPT. You did? You thought maybe you were being punked somehow? Yes. Mostly they are saying that we're in it for the long haul, like we are here to fight this. They're really positioning it and see it as an important civil rights fight, not just for themselves and the fund, but they can see potential larger implications if they lose in this lawsuit.
Starting point is 00:08:39 This guy, Ed Blum, that got affirmative action overturned. He also went after some law firms for their diversity programs. Of course, he sued us. But what he's trying to do is eliminate any race conscious decision making in America. Fearless Fund and its supporters kind of see this as a seminal civil rights fight of our time because they have seen what happened at the Supreme Court with affirmative action in college admissions. And so it feels like there is now this larger effort in their mind to roll back any sort of programs or progress that have been moving the needle or trying to address systemic inequalities for Black folks and folks of color overall. Okay, so the American Alliance for Equal Rights, this conservative nonprofit helmed by Bloom,
Starting point is 00:09:36 sues the Fearless Fund. And then what happens next? The suit initially went to district court here in Atlanta, where the district court judge sided with Fearless. The judge said a lawsuit claiming discrimination can't stick for now. And said that because of their First Amendment rights, the grant program could continue. The alliance then appealed that decision to the 11th Circuit Court of Appeals. And at the end of September, the appeals court sided with the alliance. The 2-1 decision by the Atlanta-based 11th U.S. Circuit Court of Appeals,
Starting point is 00:10:15 they have now blocked the program, writing that it is substantially likely to violate a federal law prohibiting racial discrimination in contracting. Now the appeal process is going on. So the alliance has to file a brief to a three-judge panel by November 6th about why the district court's ruling should be overturned. And then the fearless fund will reply to the response. Essentially, it's back and forth legal challenges, at least through the end of the year. You cover this. This is your beat. This is your job. You were surely watching as the decision on affirmative action was handed down earlier this year. I would think of this as kind of Edward Bloom's
Starting point is 00:11:05 next step. This is the next thing that he's going to target is workplaces or contract agreements. What do you think this lawsuit tells us about where this fight is headed? I think this lawsuit tells us that any programs that seem to be favoring or trying to rectify challenges for Black people, for people of color in this country, are going to be scrutinized, that they are potentially going to be targeted, if not with lawsuits, with the threat of lawsuits. And I think business leaders, executives now have this in the back of their mind. Like, you know, if I put in place this diversity program that is specifically for Black people or Hispanic people or other people of color, am I going to be sued? Do I need to change language? Do I need to broaden this? Do I need to make this a little bit more vague to protect myself, protect my company. And I think that chilling effect is probably one of the bigger impacts that Edward Bloom, the alliance in this lawsuit is having on the business community. That was Mirtha Donestorg of the Atlanta Journal-Constitution.
Starting point is 00:12:21 We did reach out to Edward Bloom for comment, and he told us the country's civil rights laws don't permit racial distinctions, adding a useful way of determining the fairness and ultimately the legality of a policy is to apply the shoe on the other foot test. In the case of the Fearless Fund, would a different venture capital funds requirement that only white men are eligible for its funding and support, be fair and legal? If the answer is no, then it must follow in the law that racially exclusive policies that target a different race and sex must be unfair and illegal as well. Coming up, how the clubby world of venture capital is reacting to this lawsuit. Thank you. team's unprecedented control and insight into company spend. With Ramp, you're able to issue cards to every employee with limits and restrictions and automate expense reporting
Starting point is 00:13:53 so you can stop wasting time at the end of every month. And now you can get $250 when you join Ramp. You can go to ramp.com slash explained, ramp.com slash explained, R-A-M-P dot com slash explained. Cards issued by Sutton Bank, member FDIC, terms and conditions apply. it's today explained we're back with dominic dominic go ahead and give me your full name and tell me what you do i'm dominic madori davis and i'm a senior reporter at tech crunch covering venture capital what did you think when you heard that Edward Bloom was suing the Fearless Fund? I was stunned. And I usually predict everything. Like, I go through my head and I have like a bazillion scenarios in my head. I could not have predicted this. I think I
Starting point is 00:14:54 was actually like breathless. Like, I was like, oh my gosh, this is insane. I was on a plane, I think, when I saw this. I was like, I have to like land the plane or something. Like, this is insane. Stunning, like absolutely stunning. So let's talk about the venture capital world. The women who founded the Fearless Fund say there are particular inequities that they want to address. And in the first half of the show, we heard from Mirtha Donestorg about what the numbers around those inequities look like. But let's get it from you who covers venture capital specifically. What does the venture capital world look like? Who gets to be a part of it? Yes. You know, something I do with Crunchbase is we team up and we we track the amount of venture funding that goes to specifically
Starting point is 00:15:34 Black founders. And basically, like even this quarter, Black founders raised point 13 percent of all capital, which is like a significant drop from the like 1.2% they got last quarter. When I was doing the numbers for last year as a whole, I reported that Black founders raised about $264 million out of the $33.6 billion that was allocated to startups in Q4 last year. In total, Black founders raised about $2.2 billion out of $215 billion. $2 billion is a lot of money. But when it's out of $200 billion, you're like, OK, well, that's, you know, not that much. Same with women.
Starting point is 00:16:13 The percentage is always around 2%, 1.9% for all women teams. And even when you break it down by race, it's like, you know, Black women get like 0.5%. Basically, women and Black founders and Latino founders are not getting money. What's broadly understood, Dominic, about why this disparity exists? What's behind it? You know, I think that depends on who you ask, right? In my coverage, I always frame this as racism. I'd always map it out.
Starting point is 00:16:43 I'm like, this is, you know, economic discrimination, and it's always existed in this country. If we think about the Black-owned businesses that we've grown up with, they're smaller, they're individual entrepreneurs, they weren't well-capitalized before, and their relationship to the banking sector and community banks or big banks might have been limited. There's clearly a reason that funds and investors are not giving money to Black people consistently for the past history of venture capital. There's also the excuses of maybe not a lot of Black founders are pitching.
Starting point is 00:17:16 Maybe there's just not a lot of Black companies. Maybe the companies aren't good enough. And that's why, like, always in my reporting, I'm like, well, OK, that could be true, but that doesn't explain why you're saying these things, right? Because then you get, like, always in my reporting, I'm like, well, OK, that could be true. But that doesn't explain why you're saying these things. Right. Because then you get like social proof of investors telling black founders like your company is great. But do people really buy like black hair care, like stuff like that? It's there's obviously something going on.
Starting point is 00:17:37 I do think it depends on who you ask, but I think the numbers aren't lying and there is some sort of economic discrimination happening. What then do you know about this type of lawsuit? Is it common? Is it unprecedented? Actually, when I was doing my research, because at first I was like, oh my gosh, this is crazy. But then when I looked it up, it turns out the Small Business Administration and the Minority Business Development Fund are also being sued for having programs that target like underrepresented communities. According to the lawsuit, the agency serves minority businesses owned by African-Americans, Asian-Americans, Hasidic Jews, Hispanic Americans, Native Americans, and Pacific Islanders. Piper says that violates his rights. Another organization called Hello Alice is also being sued for offering grants to Black women. Howdy y'all, Elizabeth Gore here from Hello Alice. And as you might have seen, we are getting
Starting point is 00:18:29 sued for our support of small business owners. The person who sues typically says what exactly? Why is this illegal? So basically for the Minority Business Development Agency, three white men filed to sue them, saying that how the funds were allocating money was racially discriminatory and violated the Constitution's Equal Protection Clause. I couldn't believe that we still have these race-based problems in America. I thought we got rid of this a long time ago. And here I see me and more importantly, millions of other people who happen to have the same skin color as me don't qualify for certain programs. And basically, they were upset with that wording,
Starting point is 00:19:11 because that program said you had to come from a socially or economically disadvantaged background, which those three white men said presumably does not include white Americans. And so the judge agreed. And basically, that's there's like a preliminary injunction, which Fearless Fund is also under a preliminary injunction. It seems like this is a trend that is happening. And then also when you kind of take a step back, you see policy has become this kind of battleground in venture capital because California just passed a bill requiring firms to break down the diversity of who they invest in. It would force venture capital firms in California to disclose the race and gender of the founders they're funding. And Massachusetts is trying to pass some venture capital bills as well. And so you kind of see that there's this tug of war going on where there are people who are trying to push policy to limit the amount of money going to underrepresented founders. But then there's also people who are trying to say, well, actually, let's not do that, basically. So there's like a tug of war going on right now. Does everyone in the VC world know about this lawsuit? I mean, it strikes me,
Starting point is 00:20:16 it's interesting that these VC firms that are for Black women are niche. I mean, based on what you've told me, they are niche. Most of these firms, the people that they fund would be white founders, white entrepreneurs. Is this lawsuit widely known in the world of VCs? I think that really depends because like for me, it felt like it was everywhere. And then I spoke to people who weren't like black founders, black VCs, people who were not focused on DEI. And it seems like a lot of people did not know. I think people are starting to become aware. The main question now is how far up is this going? Like, I mean, I reached out to some billionaire. Can you tell me who?
Starting point is 00:20:58 Oh my goodness. Will he come after me, Mark Cuban? I reached out like when the news first broke, I said, you know, do you have any comment on this? He said, I had never even heard of this. And I was like, oh, snap. This is like everywhere. It felt like it. There's been a lot of big funds that haven't said anything. I don't know if that means they don't know or that they just don't care. What has been going on in this space, in the space of businesses saying we want to fill a gap, we're noticing inequities, and we don't think those inequities should exist. Where does this begin and how has this evolved over the past couple of years? Over the past few years, you've seen people of color
Starting point is 00:21:38 and women especially launching their own funds and being emerging fund managers and really giving back to their communities. And that's because, you know, the traditional old guard of venture capital is very, very gatekept. And so you saw these new emerging funds pop up trying to give back, trying to do these things. And what's happened to Fearless Fund is it's new, but also not new. Every time that Black Americans specifically have bought to fill a gap somewhere, it's always ended up in the court system, whether that's from like voting rights to, you know, even the bill that Edward Bloom is using to sue Fearless Fund was like a bill from the 1800s or whatever that was enacted right after slavery just ended. And it was, you know, hoping to give Black Americans, the formerly enslaved, free and equal market
Starting point is 00:22:28 participation. And so what's happened is kind of, I guess, what was always going to happen. Like you had this fund, you have these people who are coming trying to fill in these gaps, and maybe this is the next part of the fight. And so if this is the next part of the fight, what do you think the broader impact might be? What do you think might be coming? Well, something that's very important to note is that this issue, it's actually kind of split on party lines because Fearless Fund, initially they were given the go to continue with the grant. And that was by a Democratic judge. But then the preliminary injunction came from two Trump appointed judges who had the majority vote on a panel of judges.
Starting point is 00:23:07 They could win, but also given the makeup of the court system, given the makeup of the Supreme Court, it might just end up being a party issue. If they do lose, I don't think that would be good for grants. And we also don't know how far Edward Bloom wants to go with this. What happens if he wants to sue a fund that only targets like Black and Latino founders? How deep can this rabbit hole go? So that's what I think most people in venture are, especially emerging fund managers that care about this issue. I think that's what people are waiting to see. Today's episode was produced by Siona Petros and edited by Matthew Collette. It was engineered by David Herman and fact-checked by Laura Bullard. The rest of our team includes Avishai Artsy,
Starting point is 00:23:59 Amanda Llewellyn, Halima Shah, Hadi Mouagdi, Patrick Boyd, Isabel Angel, John Ahrens, father of a daughter, Miles Bryan, and mother of a son, Victoria Chamberlain. Our supervising producer is Amina El-Sadi, and our EP is Miranda Kennedy. We use music from Noam Hassenfeld and Brickmaster Cylinder. Today Explained is distributed by WNYC, and the show is part of Vox,
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