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Backing underrepresented founders without an explicit race or gender filter

“The first official piece of policy around diversity efforts in venture capital may soon see the light of day, but not because of any action by the government. In a complaint filed this week, the American Alliance for Equal Rights — founded by conservative activist Edward Blum, the man driving the effort to end affirmative action — sued a minority-focused venture capital fund for unlawful racial discrimination. In the complaint, the organization accuses Fearless Fund (an early-stage venture capital firm based in Atlanta that focuses on funding solely to women founders of color) of racially discriminating against non-Black individuals by having a $20,000 grant program for only Black women who are small-business owners.” (Source: Here’s what the Fearless Fund lawsuit could mean for venture.)

I published research some time ago in Techcrunch in which I found that Revenue-Based Finance (RBF) investors disproportionately invest in women & underrepresented founders, even though most such VCs don’t have an explicit race or gender filter. The Fearless Fund lawsuit may make VC funds with an explicit race filter no longer tenable.

Realistically, allocators and VCs interested in DEI will then consider other avenues of pursuing their goal of financing more underrepresented founders. One obvious pathway is allocating more capital in alternative VC models. These accomplish the goal of funding diverse founders, without the legal and signaling risk of an explicit race- or gender-based filter.

I continue to see great opportunity for allocators, VCs, and founders in alternative VC models. Contact me if you’re interested in this space.

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