US court decision casts shadow on diversity venture capital funding

- Just weeks after a U.S. appeals court blocked a Black-owned venture capitalist from funding women-of-color-led businesses, the ruling has had a chilling effect across the small industry of diversity-focused venture capital funds, according to founders, investors and lawyers who spoke to Reuters.

“We are already seeing the interim effect, where people say, ‘We are either going to restructure the descriptions or documents we use, or we’re not going to say things out loud but will engage in the same practices,’” said Ed Zimmerman, a lawyer at Lowenstein Sandler who advises venture capital clients.

The outcome of the Fearless Fund lawsuit could affect over $200 billion committed in similar programs and roll back the scant benefits these funds have so far given to Black founders, who received less than 0.5% of the $140.4 billion of venture capital funding of U.S. startups last year, according to data firm Crunchbase. Venture financing of Black founders, which surged in 2021 after corporations pledged more diversity spending, has plunged since then, Crunchbase data shows.

Other venture capital funds are exploring ways to mitigate the risks of running diversity-focused programs, investors say.

Source: Law Daily Report (lawdailyreport.net)

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