‘It All Fell Apart’: Fearless Fund Founder on Impact of DEI Lawsuits

It’s been roughly six months since conservative groups began suing companies and investment firms that offer grant programs exclusively to historically disadvantaged groups–calling the funding discriminatory and, therefore, unlawful. Fearless Fund CEO Arian Simone revealed in an interview with Inc. that the conservatives’ strategy is essentially working and that her organization is on the ropes.

The firm, which launched in 2019 and grew to a team of 19, has since scaled back to six. “It all fell apart due to litigation,” says Simone. “You’re talking millions of dollars we’ve lost, and it’s truly impacting our operations.”

Back in August, the American Alliance for Equal Rights, a nonprofit membership organization ​led by conservative litigator Edward Blum, sued Simone’s Fearless Fund, an Atlanta-based venture firm. The suit claimed the Fearless Fund’s grant program–geared toward funding Black women entrepreneurs–violated a section of the Civil Rights Act of 1866. The law, which was initially put in place to protect the right of anyone to win contracts, regardless of race, is now being used to dismantle a private-money effort designed to correct the imbalance of funding to historically disadvantaged groups.

The lawsuit came two months after the firm received multimillion-dollar investments from Bank of America, Costco, and Mastercard, in June 2023, to “financially support and provide resources for women of color,” according to a press release. For context, Black and Latino women entrepreneurs received 0.1 percent of VC funds, according to a 2023 study from McKinsey and Company.

Following the suit, a judicial panel officially blocked the Fearless Fund from awarding $10,000 to $20,000 and business-development services to early-stage Black-woman-owned businesses as part of the firm’s Fearless Strivers Grant program. The grant program is now on hold.

DEI funding dries up

Over the past four years, the Fearless Fund has partnered with corporations to supply diverse business owners $3.7 million in grants. Now, according to Simone, all but two of the firm’s partners have backed out.

“I didn’t plan for this,” she says. “I’m definitely equipped for it, but I didn’t prepare for the mental and emotional toll this has taken on me and my team.”

Simone adds that the venture side of the firm is also struggling. Since she started the fund in 2019 with co-founder and COO Ayana Parsons, it has invested nearly $27 million in roughly 40 women-owned businesses, including fast-growing startups Slutty Vegan and Partake Foods (No. 151 on the 2023 Inc. 5000). Before the lawsuit, the pair expected to raise another eight-figure round of funding to continue their investments. Since the lawsuit began, however, they haven’t raised a single dollar. 

The Fearless Fund isn’t the only capital provider facing financial hardship following lawsuits. After right-leaning nonprofit America First Legal (AFL) sued Hello Alice, an online platform for business owners, claiming its grant program for Black-owned small trucking companies was discriminatory, co-founder Elizabeth Gore says the company recently had to lay off 69 percent of its workforce. 

“It still breaks my heart, actually,” says Gore, who launched the company in 2017. “It happened right before the holidays in December, and we had to lay off people who have been with us for years.”

“Onslaught” of litigation expected

Gore says the lawsuit has also greatly impacted her ability to raise capital. When Hello Alice was first sued in August 2023, she and co-founder Carolyn Rodz were in the middle of closing a Series C funding round. Within two days of notifying investors about the suit, says Gore, the entrepreneurs lost two-thirds of the entire round.

And the damage may not be entirely done. The plaintiffs are pushing the suit toward class-action status, which Gore believes could set a “dangerous precedent.” In essence, she says, it opens the door so that “any white male can sign on to the suit for damages.”

The legal battle exposes how some of America’s deepest culture wars are bleeding into business. 

“The venture capital funding gaps between the races is never a legal or moral justification to exclude certain men and women from public programs by race or ethnicity,” Edward Blum, president of the American Alliance for Equal Rights, said to Inc. about the lawsuits last year. “The American Alliance for Equal Rights believes it is legally permissible to provide benefits to businesses and individuals who are underresourced, but those benefits must be made available to all races and ethnicities.”

Hello Allice’s attorney is Neal Katyal, a former principal deputy solicitor general of the United States, who has been involved in affirmative action cases in the U.S. Supreme Court over the past 25 years and, for the past seven, represented Yale University in its high-profile admissions lawsuits.

“Every minute they’re spending on this lawsuit is a minute they’re spending not doing what they want to do–which is helping business owners,” says Katyal. 

Given that funding support for some of these conservative groups continues to grow–America First Legal Foundation reportedly raised $44 million in 2022–Katyal expects there to be an “onslaught” of upcoming litigation. Ultimately, he says, the motives of these groups are to “scare people away from DEI programs.”

Government warning

Last year in July, shortly after the U.S. Supreme Court overturned the use of affirmative action in admittance practices at colleges and universities, attorneys general from 14 states sent a letter to 100 Fortune 500 CEOs warning them to “refrain from discriminating on the basis of race, whether under the label of ‘diversity, equity, and inclusion’ or otherwise.”

Since then, many large companies have notably pulled back on initiatives that were primarily put in place after the murder of George Floyd in 2020. Last year, Meta, Tesla, DoorDash, Lyft, and Wayfair all cut workers who were part of DEI efforts; in recent weeks, both Zoom and Snap did the same.

Yet neither firm plans on shuttering anytime soon — at least not on their own free will. Gore says the core revenue driver of Hello Alice, which offers enterprise software to help corporations track, retain, and manage their small-business transactions, remains healthy. As for Simone, she says she is focused on looking for investors in it for the long haul rather than trying to change the minds of the corporate partners and investors who have pulled out. 

“If I want to, I could pick up the phone and call them now,” Simone says. “But I’m not gonna use my time and energy over spilled milk. I have to get back out there and find who is willing to cut us a check.”

Since the lawsuit, Simone notes that JPMorgan and Costco have remained Fearless Fund partners.

Through a spokesperson, JPMorgan Chase declined to comment on the Fearless Fund case specifically. Even so, the New York-based lender says it “remains committed to supporting business growth and entrepreneurship among underserved communities as part of our mission to help build a more inclusive economy that benefits everyone, which is good for business.” 

Inc. did not hear back from Costco in time for publication.

Big banks drop DEI

Many other large financial institutions are shutting down their DEI-based investment programs. Last month, Goldman Sachs shut down its diversity-driven investment fund, which it founded in 2018, hoping to invest $1 billion in companies led by women of color.

Advocates for DEI initiatives are starting to speak out. Earlier this month, more than a dozen trade groups representing minority business owners across the country sent a letter to Fortune 500 CEOs asking them not to give in to political pushback or the threat of legal action. That should provide some semblance of hope for the founders on the front lines of this war against DEI.

“So I have the current industry, the macro-economic climate, the affirmative action ruling in June, the attack on DEI, and now, on top of that, my company is in litigation,” says Simone. “I have five things, a whole hand, but guess what: A hand is powerful because it creates a fist and I’m going to continue to fight.”

Corrections & Amplifications: An earlier version of this story misstated the status of the American Alliance for Equal Rights lawsuit against Hello Alice. The courts have yet to rule over the suit’s class-action status. Also, the location of JP Morgan Chase’s headquarters has been corrected.