Discrimination lawsuit against Atlanta VC firm has far-reaching impacts

“Black-owned businesses have historically attracted a paltry amount of startup funding in the U.S., but it’s especially so for Black women-founded companies.

In 2022, female founders of color received just 0.39% of all venture capital investments, according to the fund.

Through its Fund I, Fearless invested $26 million into dozens of startups founded by Black, Latina and Asian women, at least eight of which were based in Atlanta, including the hit restaurant concept Slutty Vegan.

Some of the first funding Atlanta entrepreneur Veronica Woodruff got for her travel services startup Travelsist was from Fearless. The VC firm put $250,000 into her company, which then led her to raise an additional $900,000 of seed money, she told The Atlanta Journal-Constitution.

‘If I didn’t get the opportunity, like I wouldn’t be where I am today,’ Woodruff said.

Simone and her team began securing investment for their Fund II in 2022. They had raised at least $16 million as of May 2023, according to a Securities and Exchange Commission filing. Two months later, the Alliance sued Fearless.

‘My life changed in that moment,’ Simone said on her podcast. ‘I went from being literally a VC founder, just a businesswoman, to having to be a public figure and a face for women and civil rights without even necessarily choosing this.’

Though the lawsuit did not target the firm’s venture investments, Fearless has not filed any Fund II updates with the SEC since the Alliance’s suit, indicating it has not raised any new significant funding. The Fearless Foundation’s revenue also dropped nearly 38% to $2.6 million in 2023 compared to the year before, according to the nonprofit’s tax filings.

Simone told Inc. magazine in February that all but two of the firm’s corporate partners have backed out in the wake of the lawsuit’It all fell apart due to litigation,’ Simone said. ‘You’re talking millions of dollars we’ve lost, and it’s truly impacting our operations.’

That worries Sequoia Blodgett, founder of the artificial intelligence content creation startup Frame Me. She moved to Atlanta in early 2022 from California for a better community, which she found, but didn’t realize she would also encounter a difficult fundraising environment.

‘Atlanta is an ecosystem that supports each other, the issue is there’s just not enough capital being dispersed,’ Blodgett told the AJC. She’s had to go to investors in Silicon Valley to try to get funding for her startup.

Across the U.S., venture capital investment for Black-owned startups plummeted last year, with metro Atlanta seeing one of the worst declines, according to data firm Crunchbase. Funding for Black-owned businesses fell 71% nationally in 2023 compared to 2022. In the Atlanta area, such funding declined by 79%, Crunchbase found.

lodgett said Fearless was a crucial part of the city’s funding ecosystem, so “taking them out of the system, now you have even less access to capital.”

That’s part of the reason why Blodgett recently signed a letter alongside dozens of other entrepreneurs and investors asking U.S. senators to support two bills they say would increase access to loans and venture capital.

On the investor side, the Fearless lawsuit has not impacted fundraising, said Jewel Burks Solomon, managing partner at Collab Capital, an Atlanta-based VC firm that invests solely in Black-owned firms. In 2021, her firm closed its first fund at $50 million and she is currently raising a second fund.

‘I’ve talked to probably hundreds of limited partners and although there is conversation about the lawsuits, it’s not cited as a reason that they would not invest,” Burks Solomon said. ‘The reason that is most typically cited is that they do not have the dollars to allocate because they’re waiting on liquidity in the market.'”

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