The Atlanta Journal Constitution reported on 11 June 2024 that the CEO and co-founder of the Fearless Fund, a venture capital firm, would like President Joseph Biden to issue an executive order to protect the right to fund specific marginalized groups as a result of a ruling by the United States Court of Appeals-11th Circuit that a grant program focused on black women owned businesses likely violated the Civil Rights Act of 1866 (42 USC sec.1981).
42 USC sec. 1981(a) says the following:
“a) Statement of equal rights
All persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts, to sue, be parties, give evidence, and to the full and equal benefit of all laws and proceedings for the security of persons and property as is enjoyed by white citizens, and shall be subject to like punishment, pains, penalties, taxes, licenses, and exactions of every kind, and to no other.”
Under 42 USC sec. 1981(b), the making of a contract is defined as:
(b) “Make and enforce contracts” defined
“For purposes of this section, the term “make and enforce contracts” includes the making, performance, modification, and termination of contracts, and the enjoyment of all benefits, privileges, terms, and conditions of the contractual relationship.”
Appellant American Alliance for Equal Rights argues that the contest framework that Fearless uses to award winners of its grant contest amounts to the making and enforcement of a contract. In exchange for the $20,000 award, the winner promises to share its expertise with the Fund as consideration for the award. Since the contest rules limit participation and reward to black women, then such contract making discriminates against members of other races.
The case has been remanded back to the United States District Court-North Georgia for a finding based on the appellate court’s instructions.
Strategically, it makes sense that Fearless Fund would seek to apply one prong of the State’s power, the Executive, to help settle whether a mechanism that creates, extracts, and distributes capital is being fairly deployed. Alliance was the first to pull the State power trigger when it filed its suit last year. The issue here is should Mr. Biden issue an executive order? My answer is no.
First, how would such an order optimize the creation, extraction, and distribution of capital such that a taxable event is created? Twenty-thousand-dollar grants to a handful of small businesses four times a year does not put much of a dent in the political economy. Eight out of ten venture capital recipients fail and while the Fearless Fund is not asking the Administration to put in any cash, can the Administration afford the poor optics?
Second, how would an executive order win more votes for the Biden-Harris administration this November? Will issuing an executive order win more votes from members of the black community? The vast majority of the black community has never heard of venture capital. A significant number of blacks may sympathize with the failure of capital to flow to black women, but more blacks are concerned with higher wages, more jobs, and lower utility rates versus whether well-dressed and well-educated black women have greater access to capital that funds projects that may or may not directly impact the black marketplace.
Third, how well can a Biden-Harris administration sell a light form of reparations for black women to the proportion of the population that calls itself white? It appears to me that a small group of non-black women took issue with a contest that moves money to black women. An executive order would only elevate the angst opening up the possibility that writes an even larger negative narrative for the Biden-Harris administration.
Issuing an executive order that protects funding of marginalized groups in the longer run does not amplify the Biden-Harris’ political power.
My role here is to counsel decision makers on applying State power, but I would digress a bit and counsel groups like Fearless Fund by saying this. Your actions are always under the strictest political scrutiny. Avoiding this dilemma is simple.
First, stop describing yourself as a group that wants to bridge the gap between venture capital and women of color. The phrase, women of color, allows non-blacks into your house and puts control of your true agenda in their hands. In other words, a non-black woman will naturally want to modify your agenda where she sees her benefits being challenged.
Second, focus on the potentially successful businesses in your Fearless Fund I and Fearless Fund II portfolios. There are a number of winners in those portfolios that can make a long term difference in providing world changing solutions while earning profits. Stick to investing in those firms and get out of the donation game.
Lastly, take investments solely from your communities, i.e., sororities, fraternities, churches, mosques. Outside groups that do not support your agenda should not be appeased.
Alton Drew
16 June 2024
For more on my take on the political economy, buy my book at amazon.com/author/altondrew.
Lawyers Write the Bets. Bankers Sell the Bets. 