By Nate Raymond

(Reuters) – An Atlanta-based venture capital fund on Wednesday agreed to stop operating a program that awarded grants to small businesses run by Black women to settle a lawsuit by an anti-affirmative action group that claimed it discriminated based on race.

Fearless Fund agreed to settle the case after a federal appeals court in June agreed with the non-profit American Alliance for Equal Rights that the program likely violated a Civil War-era law barring racial discrimination in contracting.

The non-profit was founded by Edward Blum, who through a different group spearheaded the litigation that led the conservative-majority U.S. Supreme Court last year to bar the consideration of race as a factor in college admissions.

The lawsuit against Fearless Fund was filed in August 2023 and targeted the fund’s Fearless Strivers Grant Contest, which awarded Black women who own small businesses $20,000 in grants and other resources to grow their businesses.

According to the Fearless Fund, businesses owned by Black women in 2022 received less than 1% of the $288 billion that venture capital firms deployed.

The fund, headed by CEO and founding partner Arian Simone, has said its goal was to address that disparity. Fearless Fund counts JPMorgan Chase, Bank of America, and MasterCardas investors, and the fund has invested nearly $27 million into 40 startups led by women of color since 2019.

Lawyers for Blum’s group argued that by only considering Black women for grants, Fearless Fund had adopted a categorical racial bar against other applicants in violation of Section 1981 of the 1866 Civil Rights Act.

A trial court judge initially sided with Fearless Fund. But a 2-1 panel of the Atlanta-based 11th U.S. Circuit Court of Appeals in June held the program likely violated the law, warranting a preliminary injunction pending further litigation.

Blum in a statement on Wednesday said his group had “encouraged the Fearless Fund to open its grant contest to Hispanic, Asian, Native American and white women but Fearless has decided instead to end it entirely.”

Alphonso David, a lawyer for Fearless Fund, in a statement called the settlement agreement “very narrow,” as it does not restrict or relate to any other investment or charitable activity by Fearless Fund going forward.

“The Fearless Fund can now continue their work toward expanding economic opportunity,” he said.

(Reporting by Nate Raymond in Boston, Editing by Alexia Garamfalvi and Marguerita Choy)