Courts must not give ‘white rage’ another win in sister-to-sister investment case

Many readers of this column may have heard of venture capitalism but probably have little idea about what it is. If so, it is way past time to become informed because this is another economic area where African Americans are mostly shut out.

This is how it works: “In essence, the venture capitalist buys a stake in an entrepreneur’s idea, nurtures it for a short period of time and then exits with the help of an investment banker,” Bob Zider, president of the Beta Group, explained in the Harvard Business Review in 1998.

It is a high-risk business but it must be lucrative because venture capitalism has been around since 1946. By 2022, the number of venture capital companies totaled 1,000, with a market size of $63 billion. The industry deserves close scrutiny for at least two reasons: a shortage of African Americans in venture capitalism and in senior positions and, secondly, a lack of investments in African American-owned companies.

African Americans own only four percent of such businesses, Anne Field reported in the Wall Street Journal in February, citing the VC Human Capital Survey. Even worse, they comprise only three percent of key decisionmaking executives.

Following such findings, BLCK VC, a non-profit that promotes African American venture capitalism, prepared a report, based on a survey of 225 African American investors at various stages in their careers, as well as other research such as a 2022 study of partner-level investors. The survey also looked at the involvement of African American women in the industry. The key finding: “It’s still a difficult experience to progress in your career as a Black investor,” Sydney Sykes, BLCK VC cofounder and board chairwoman, concluded.

The survey noted some “positive findings,” one being that the number of first-time African American fund managers is growing, with around 28.6 percent launching their first fund in the last year. Also, 29.9 percent of African American investors are at funds with assets under management greater than $1 billion. And 72.4 percent of African American junior-level investors have an African American mentor in the industry, prompting Sykes to comment, “There’s a community of people lifting others up as they climb.”

But the study also pointed to the absence of meaningful African American involvement in the industry. For instance, those at the larger funds are likely to be at junior to middle level, with only a “relatively small proportion” in decision -making roles. And they are raising funds that are 35 percent smaller than their target fund size. So, despite a growth in their number, “persistent barriers impede their ability to achieve their target fund size.”

African American women, meanwhile, are “disproportionately represented in non-partner level roles and account for only 16.7 percent. Also, they typically write smaller investment checks, averaging $350,000, compared to $625,000 for their male counterparts. As for investing, African Americans companies receive less than one percent, data from Crunchbase, a business information provider, showed.

In terms of capital, companies founded by African Americans raised just $2.254 billion last year of $215.9 billion overall, which was just one percent of the total and less than the 1.3 percent raised in 2021.

CNBC’s Gabrielle Fonrouge reported in February that, following the police killing of George Floyd in 2020 and the ensuing soul-searching over racism, venture capital firms “pledged to make diversity a top priority and Black founders saw historic year-over-year gains in securing VC funding.” However, by the end of 2022, “adverse market conditions led to a 36 percent drop in overall VC dollars; for African Americans, the decrease was 45 percent.

To make matters worse, a modest effort to boost African American businesswomen has hit a legal roadblock. The Atlanta-based Fearless Fund, founded by African American investors Arian Simone and Ayana Parsons in 2018, runs a Fearless Strivers Grant Contest four times a year that is open to businesses that are at least 51 percent owned by an African American woman. Winners receive $20,000.

Anti-affirmative action campaigner Edward Blum and his American Alliance for Equal Rights sued Fearless Fund, arguing that the contest violates the Civil Rights Act of 1866 prohibition against racial discrimination in contracts. The plaintiffs sought an injunction blocking the contest and “relief.”

Senior federal judge Thomas Thrash refused to issue the injunction. He ruled that the grants are “charitable donations” designed for African American women business owners who have suffered discrimination. The money provided to contest winners, the judge said, is “expressive conduct” protected under the First Amendment, the Associated Press reported.

But the victory was short-lived. The 11th U.S. Circuit Court of Appeals overruled Thrash 2-1.The appellate court ruled that the Fearless Fund contest is “racially exclusionary” and that the plaintiffs are likely to prevail in a trial. Fearless Fund said it will not be deterred. “We strongly disagree with the decision and remain resolute in our mission and commitment to address the unacceptable disparities that exist for Black women and other women of color in the venture capital space,” it said in a statement.

The attack on Fearless Fund contrasts sharply with several instances in which the Supreme Court has allowed businesses to discriminate simply by citing religious grounds. Those rulings, for example, allow companies to exclude birth-control from their health insurance plans; supported a baker who refused to make a wedding cake for a gay couple; supported a web designer who refused to create a web page promoting same-sex marriage, even though she had not been asked to do so; and granted a Christian school a right to fire a single teacher who became pregnant.

A sarcastic response could be that Fearless Fund and others in its situation should follow suit and cite as their reason something along the lines of: “It is our sincere belief that our religion requires us to help the less fortunate among us.” In fact, religion teaches just that.

It is difficult to separate the assault on Fearless Fund from the sustained assault against initiatives intended to uplift African Americans. They include the claim that slavery was a skills training program, as well as the sustained bullying campaign against diversity, equity and inclusion (DEI) programs in schools and colleges and environmental, social and governance policies (ESG) at corporations.

It is reasonable to ask why, instead of setting his sights on Fearless Fund’s very modest aid to African American businesswomen, Blum did not focus attention on why the 1,000 venture capital firms are owned and controlled mostly by European Americans and that the billions of dollars they have to invest go almost exclusively to European Americans.

Scholar and writer Carol Anderson’s 2016 book “White Rage: The Unspoken Truth of Our Racial Divide” offers an answer. The African American Studies professor at Emory University in Atlanta argues that problems besetting the country are caused not by “black rage” over the effects of institutional racism but by “white rage” which, she says, “is not about visible violence, but rather it works its way through the courts, the legislatures and a range of government bureaucracies. It wreaks havoc subtly, almost imperceptibly.”

That “’white rage,” Anderson says, is triggered “by black advancement. It is not the mere presence of black people that is the problem; rather, it is blackness with ambition, with drive, with purpose, with aspirations, and with demands for full and equal citizenship. It is blackness that refuses to accept subjugation, to give up.”

According to Anderson, “A formidable array of policy assaults and legal contortions has consistently punished black resilience, black resolve. And all the while, white rage manages to maintain not only the upper hand but also, apparently, the moral high ground.”

However Blum and others of his ilk portray their efforts to stifle that “black advancement,” whether in college admissions or business investments, the goal is the same: to keep African Americans at the bottom of the socio-economic ladder. And the Supreme Court enables these good ole boys in suits.

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