From Lawsuits to Leadership: Protecting Diversity Efforts in Venture Capital

Kauffman Fellows
14 min readAug 28, 2023

The news of a lawsuit against the Fearless Fund, a venture capital firm dedicated to investing in businesses led by Black women, has deeply concerned many of us within the venture industry. The lawsuit claims that the Fearless Fund’s grant program, designed to support Black female entrepreneurs, is in violation of Section 1981 of the Civil Rights Act of 1866. This legal action has the potential to undermine the strides made in promoting racial equality in venture capital funding, thereby putting at risk the crucial efforts of organizations such as the Fearless Fund and others with similar critical missions.

This is a crucial moment to unite in backing the Fearless Fund. Here’s how you can help:

  • Sign the letter: Join the movement by adding your name to this Fight for Fearless Freedom letter.
  • Donate to the cause: Support the Fearless Fund's legal defense.
  • Raise Awareness: Utilize your voice on social media to spread the story of Fearless Fund and the powerful work of the firm’s founders.

Black founders raised $212 million out of $29 billion this Q2, picking up just 0.71% of the capital allocated to U.S. founders this quarter, according to Crunchbase. In Q2 2022, Black founders raised $602 million out of $62 billion, or 0.97%, of the capital allocated. In total, Black founders raised around $565 million out of $75 billion in H1 2023, which is 0.75% of all capital raised in the U.S. so far this year.

This glaring inequality underscores the urgency of initiatives like the Fearless Fund, designed to provide crucial economic support to underrepresented communities striving to establish and expand their businesses.

Kauffman Fellow Yasmin Cruz Ferrine (Class 28), Co-Founder and General Partner of Visible Hands, articulates a prevailing sentiment: “Despite those who think that the pendulum is merely swinging back to a pre-George Floyd era when DEI initiatives and prioritizing underrepresented founders often took a backseat, we are now in an environment where any equity alignment is seen, not as net-neutral, but as a legal liability.”

Yasmin continues, “If this lawsuit successfully deters LPs from supporting funds with racial mandates, especially in a further deteriorated fundraising environment, it will be hard for these funds to grow beyond Fund I or Fund II, which replenish sources of capital for entrepreneurs.

In VC’s history, only one Black female funder — Miriam Rivera (KF Class 15), Co-Founder, CEO & Managing Director of Ulu Ventures — has raised beyond Fund III. Ultimately, this lawsuit could have lasting effects on the evolution of the startup ecosystem where inclusion improves innovation.”

A Call to Unity: Voices of Resilience

Beyond the venture world, the Fearless Fund lawsuit holds the power to influence a diverse spectrum of entities, from corporations to foundations and beyond. The case becomes a crucial juncture for redefining equity alignment and its implications in a world where the pursuit of inclusivity may now be fraught with legal considerations. This is dangerous territory and requires the utmost attention and collaboration among our colleagues and peers. Now is not the time to retreat. We urge LPs, VCs, corporations, and all stakeholders to stand together, thwarting the chilling effect sought by the lawsuit.

Kauffman Fellows sat down with Sydney Thomas (KF Class 26), Founder and General Partner of Symphonic Capital, and Yasmin Cruz Ferrine (KF Class 28), Co-Founder and General Partner of Visible Hands, to share their insights on the ongoing lawsuit and the path forward. Both Visible Hands and Symphonic are among the staggering 30 funds in the US that are led by Black women.

Q: Yasmin, you’ve dug in her heels to unearth some staggering data on the topic. What have you found?

Yasmin: The claims of racial discrimination create a clear and present threat to the already limited funding available to Black-and women-owned companies in the venture capital industry. Black women lead or co-le a small percentage of active US VC funds. Based on our research, these funds combined have yet to cross one billion dollars raised, compared to the combined $33 billion dollars funded in the 1H2023 by Limited Partners (LPs) for US VC funds not led or co-led by Black women, which results in a severe imbalance in investment opportunities.

In monetary terms, this lawsuit is the equivalent of The American Alliance for Equal Rights wanting to sue over 35 cents being offered to Black women founders, while the other 99.65 dollars out of every 100 in VC are almost always guaranteed to go into the pocket of the majority.

Suing firms like Fearless Fund does not bring justice to the majority; it only reinforces existing inequities and imbalances within the venture capital sector. Consider that out of the 30 US-based VC firms led or co-led by Black women, only 3 have reached a scale beyond $100 million dollars.

Q: Can you share more about how this lawsuit is impacting you and your community?

Sydney: Our community is reeling from the lawsuit and really scared. While the affirmative action case was a significant blow to equality, we still didn’t see this coming. Many of us, especially on the fund manager side, haven’t lived long enough to experience the legal fights of the civil rights movement and so we are actively learning from our elders how to prepare for this moment in time.

We’ve been buoyed by the quick response — we have seen fundraising for Fearless Fund’s legal fees, solidarity across underrepresented groups supporting Fearless Fund, and more.

Yasmin: What’s interesting is I asked our legal counsel, lawyer friends, and practically anyone from DC if this could be a reality. Much like Sydney’s perspective, the consensus was the scope of affirmative action being struck down would likely be restricted to higher education. And yet my barometer as a fund manager with a DEI mandate, read something different. I have recognized a growing unsaid discomfort and politicizing from unexpected investors when discussing capital access and the elimination of historical, institutional, and systemic barriers and privileges. It seemed like fertile ground for an additional cross-current beyond the economy.

From a practical standpoint, at Visible Hands, we share portfolio companies with Fearless Fund. We continue to see firsthand the void Fearless Fund fills for companies as a source of meaningful funding. The broader implications of this lawsuit reverberate far and wide.

In essence, this lawsuit magnifies the importance of our shared vision for an ecosystem where women and POC can and should lead companies.

Q: Both Visible Hands and Symphonic Capital are among the 30 funds in the US that are led by Black women. Tell us more about the other 30 Black women-led funds.

Sydney: They are mothers, wives, sisters, aunties. They are leaders in their communities and, in almost every case, created a venture firm in order to build something for their communities that didn’t exist otherwise. Most venture firms are exclusively white and there was no seat at the table for them. Yet they saw how much impact venture capital could have and decided to jump into an industry that isn’t traditionally hospitable to them.

That means they are relatively new to the industry and were buoyed to get into business because of the outcry of support following the George Floyd murder. Many of them are just getting started, which puts them in an especially vulnerable position to weather attacks like this.

Black women who start venture firms are extremely resilient; they have to be in order to have the wherewithal to even attempt such a feat, but that doesn’t mean they don’t also need support.

Statistically, we represent almost 0% of the total AUM collected by venture firms and are almost all on Fund Is or IIs, meaning that many of them haven’t had the time to create real returns for their LPs or themselves yet.

Launching a venture firm is an extremely financially taxing endeavor as well, so they are entrepreneurs themselves and, in many cases, investing their entire life savings into their firms. Any small business owner knows how devastating it can be to one’s life to lose their business. That is the impact that Blum is trying to have on these Black women and their families' livelihoods.

Yasmin: Rooted in a quest for data that has been conspicuously absent, I delved into the landscape of Black women-led funds. My pursuit of this data was propelled by the glaring gap in our understanding of the experiences and challenges faced by Black female fund managers. While valuable research has been conducted by esteemed organizations such as The Diana Project and Digital Undivided on Black female founders, there remained a distinct void when it came to comprehending the dynamics within the investment space.

As Black women, we live at the intersection of a racial and gender identity, each identity compounding and complicating the other. This is the idea of intersectionality, and it’s a concept, originally coined by Kimberlé Crenshaw, which has begun to gain recognition but is far from universally understood. In this case, it means that there’s data about Black investors and data about women, but it’s hard to get the cross-section of a group dealing with a double consciousness. We need to be open to acknowledging the fact that, while we are all human, Black women are not treated the same as white women — and at the same time — not treated the same as Black men. So I wanted the data on Black women.

In my experience, the moral imperative to “do good” and the pragmatic considerations of business are easily deemed incompatible. The outperformance business case also seems to easily wash over folks without any impact, prompting me to recalibrate my approach. Ed Blum’s campaign can be reduced to an intellectual argument that you can’t solve discrimination with discrimination.

Despite desires to eliminate racial identifiers and rely on notions of color-blindness or a post-racial era, the raw statistics unveil disparities it would be premature to overlook.

The outcome was both illuminating and unsurprising: the Black women-led funds, on average, were considerably smaller, with a predominant presence of Fund I’s and II’s. According to Pitchbook, in the 1H23, the average fund size in a down fundraising environment was $141M or 5X the average that the 30 funds led by black women have ever raised in any environment — an average of $28M.

Yet, beyond the numbers, I came away with a profound appreciation for the contemporary strides made by Black women fund managers. The notion of ‘standing on the shoulders of giants’ often conjures images of historical figures, but the pioneers I encountered are very much present, redefining current paradigms.

Miriam Rivera’s enduring legacy has spanned several decades, culminating in her stewardship of the most substantial AUM in VC and her trailblazing as the first to raise a fund IV.

The mantle borne by these living legends is weighty. Their pursuit of a voice and representation within an industry characterized by monumental AUM numbers stands as a testament to resilience and determination. As we champion funds that constitute a mere rounding error in the context of broader AUM metrics, the resolute commitment to amplify these voices remains unwavering.

Q: Why do you think Blum targeted Fearless Fund?

Sydney: The Fearless Fund is a great target because they are a small fund operating a grant program and are based in Georgia. Generally, funds can only contribute 2.5% of their fees to operational expenses like legal fees, so they cannot foot the bill for large legal fees like the ones that will pile up from this lawsuit. Additionally, because they are based in Georgia, the courts will be more conservative than if they were based in California.

Q: Why do you think Blum brought the suit now?

Sydney: Black women are the fastest-rising group of entrepreneurs in the country, yet receive the least amount of venture capital funding. Black women are America’s fastest-growing group of entrepreneurs (source) and, as a result, are extremely threatening to the status quo of startups/investing, where the majority of capital goes to white men. Black women are gaining traction and gaining ground, and the lawsuit comes at a perfect time to scare us out of this behavior. This is a common scare tactic that our community is unfortunately very used to.

Q: Why do so many Black women start their own companies and/or funds?

Sydney: Black women are the most discriminated group in America. As a result, they have a unique vantage point on what innovations need to exist and have difficulty finding places that accommodate their unique perspectives. That means that they often have to, as Shirley Chisholm once said, bring their own folding chairs in order to have a chance of making the impact they know needs to happen. Investing in and supporting the most disenfranchised is proven to have remarkable effects on all of society.

Yasmin: “Inclusion is an experience, not a mere invitation.” While our ultimate goal as investors is to generate returns for our funds, we can hold multiple truths and strive for progress on multiple fronts.

When working for someone else’s fund, Black women, by design, face limitations in terms of carry economics and influence over which founders are funded. This can create pressure to navigate biases and clichés, and be taken seriously. However, fund managers have realized that great companies are available at a discount when they expand the pipeline by focusing on net new deals. I think fund managers know there are great companies you can buy at a discount when you are net new deal creators expanding the pipeline.

In my observation, Black women start companies when they identify a void in the market and possess a unique perspective that deserves recognition and celebration. Their entrepreneurship goes beyond tapping into untapped consumerism; it also challenges previous mental models and expands our understanding of market opportunities.

By starting their own companies and funds, Black women have the chance to shape their industries, provide opportunities for underrepresented entrepreneurs, and drive meaningful change. It’s an empowering and necessary step towards a more inclusive and equitable business landscape.

Q: How can our peers stand together and effect real change?

Sydney: We don’t need to give in to fear. The outcome of this lawsuit is not predetermined. Our ability to use our voices and agency for change matters and has an impact beyond what we dream is possible.

Yasmin: It is crucial to recognize that effecting real change calls for all stakeholders' active involvement and collaboration. I have witnessed Black women founders — who have achieved remarkable success at the Series A and beyond levels — refuse to return to the crushing environment of the pre-2018 era, where progress was severely limited.

To drive meaningful change, ecosystem builders have an important role to play. They can take calculated risks as coalition builders to push past the status quo. Ecosystem builders can also more effectively face an expanding crowd of opposition, including Attorney Generals, advocacy groups, and politicians.

It will require endurance to address the inequities in our industry. It has been— and will be — a marathon, not a sprint. For example, the landmark lawsuits against Harvard College and the University of North Carolina were first tried in 2014, highlighting the persistence required to make lasting progress.

It is essential to distinguish between mere flimsy gestures and a true desire to proactively tackle these complex issues. When a movement turns into a trend without a solid foundation, the risk of empty commitments and hollow promises becomes more prominent. We have already seen that movie.

It became clear more recently that some organizations never expected to be held accountable beyond issuing a press release, nor did they anticipate the need for sustainable, long-term commitments.

In order to aspire to create a sustainable and equitable future for all, stakeholders genuinely need to align themselves with real outcomes and move beyond superficial gestures and empty promises.

Q: How does the lack of capital that gets to the hands of Black women funders and founders impact the broader economy?

Sydney: The racial wealth gap costs the US economy $16T (source).

Yasmin: Women and people of color make up more than 70% of the US population. The impact can be seismic. Have you seen how Beyonce, Greta Gerwig, and Taylor Swift have impacted the economy in a quarter? I have seen even bigger estimates like $172B in latent economic value or $30T in untapped spending power.

Question: The lawsuit’s potential impact extends beyond the Fearless Fund. How might the outcome influence other organizations and initiatives that promote diversity in entrepreneurship and venture capital?

Sydney: We have already heard from lawyers that they are planning to target groups focused on women next — which makes sense — white women are the biggest recipients of efforts like Affirmative Action (source).

This trickles over into the venture capital world as well. BBG recently did a study that found that 79% of the dollars targeting diverse founders were invested in companies founded by white women (source).

Yasmin: As I said previously, if this lawsuit successfully deters limited partners (LPs) from supporting funds with racial mandates, it could have lasting effects on the evolution of the startup ecosystem. At a time when we all recognize the potential for productivity gains and breakthrough innovation, it would be disheartening to witness a simultaneous rollback of progress.

Funds like Fearless Fund and our own, Visible Hands and Symphonic, exist precisely to address the disparities and provide opportunities for underrepresented founders.

The ripple effect could play out in a number of ways in an already tough fundraising environment. Some of this is happening across the board, but the minuscule goes to even more negligible — the roster of funds shrinks, the already smaller scale funds decrease average check size, and the limited ability to lead investments wanes, which impacts the ability to protect against dilution and participate in series B+ rounds.

This creates a significant barrier for Black women-led funds to make a substantial and lasting impact in the venture capital landscape. By providing these funds with repeatable sources of capital over the long term, we can ensure that underrepresented entrepreneurs have the financial support necessary for their growth and success. The need for more investment in venture capital funds led by Black women is urgent.

Join Us in the Discussion: Kauffman Fellows is Hosting a Virtual Roundtable on Thursday, August 31st @ 1:00 pm PST → REGISTER HERE

Yasmin Cruz Ferrine (KF Class 28) is a General Partner and Co-Founder at Visible Hands (VH), a venture capital firm that funds and empowers exceptional underrepresented founders building high-growth technology startups by providing capital, community, and the hands-on support needed to thrive at the earliest stages of company building. At VH, Yasmin plays a pivotal role in driving the firm's capital raising and investment functions.

Sydney Thomas (KF Class 26) is the Founder and General Partner of Symphonic Capital — a venture capital firm that invests in companies making life better for the 99%. The launch of her fund was recently covered by TechCrunch. She has focused on this thesis for the past 6 years and has created a distributed network invested in this space by founding a podcast where she profiles these companies, launching a newsletter where she writes about these companies, and hosting events where she organizes people who care deeply about the impact these
companies can have on our society.

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