The 2-1 decision by a federal appeals court panel in American Alliance for Equal Rights v. Fearless Fund earlier this year raised legal questions about how philanthropies can address pressing issues of racial inequity and provide grants to Black women entrepreneurs. The subsequent dismissal and out-of-court settlement of the case, announced on September 11, still leaves much unanswered and many opportunities left to explore.
I am not a lawyer and cannot begin to address the legal intricacies, which already include such esoteric issues as whether a grant is a form of free speech or a contract. But the need to act is still a clear imperative as, subsequent to the settlement, the Fearless Fund announced a new, multimillion-dollar loan program for “under-resourced entrepreneurs” within its mission “to bridge the gap in venture capital funding for women-of-color founders building scalable, growth-aggressive companies.”
What I do know from decades spent working with cities on downtown revitalization, including many that are majority Black or Hispanic, is that the racial inequity that philanthropies seek to address is widespread and profound. And instead of jeopardizing future funding programs, the settlement is designed to allow the Fearless Fund and philanthropy to continue to address racial inequity and recognize that day-to-day small business reality is filled with bias.
According to Reuters, Black founders “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.” A recent study by BYU showed that Black entrepreneurs received less favorable terms for loans than their white counterparts when presenting similar or better business profiles.
I see that inequity firsthand in my work with many of America’s cities to create great downtowns and support small business growth. It is evident in the all-white, main street businesses in a small city that is majority Black; in local loan programs that invest only 10% of funds in Black or Hispanic-owned businesses when those populations comprise the majority of the overall population; in “innovation districts” that are only accessible by car, thereby excluding many local residents.
Ironically, cases like American Alliance for Equal Rights v. Fearless Fund could make it harder for property owners of America’s downtowns to fill their vacant storefronts and make their often-struggling properties profitable again. The days of filling storefront vacancies with major retail companies are gone. The retail companies are restructuring, and there are too many vacancies and too many places with minimal foot traffic. The only solution is to support entrepreneurship, and that means supporting historically excluded entrepreneurs — precisely the people whom this lawsuit intended to undercut.
One of the best ways to support those entrepreneurs and fill vacant storefronts is to support small-scale manufacturers. They create products — from hardware to handbags to hot sauce — that are sold in retail shops and online, and are thus not solely dependent on foot traffic for revenue. That makes them well-suited to neighborhoods and business districts seeking to revitalize from significant vacancies.
Helping small-scale manufacturers overcome barriers, as the Fearless Fund does, is vital for startups, including those of entrepreneurs of color, to fill the storefronts that America so desperately needs filled. That requires creative philanthropic approaches to become widespread.
Funders can use their investment power, for instance, to convene small business technical assistance programs in historically underserved neighborhoods, and provide mentors for business growth. In Baltimore, the Abell Foundation, Bunting Family Foundation and Baltimore Community Foundation, and others, fund Innovation Works Baltimore to convene small-scale manufacturers and other growing businesses, conduct pitch competitions to attract investors, and offer technical assistance. These community leaders use their philanthropic capacity to bridge the racial wealth gap and provide key funding and support for business growth.
Funders should also purposefully invest in and create affordable space for these businesses in storefronts and on main streets through pre-development grant programs, partnerships with local nonprofits, and owning commercial space for historically excluded populations. In Cincinnati, the Haile Foundation funded work to determine how to ensure affordable spaces in a state of good repair for small-scale manufacturers. A first step in building up Cincinnati’s civic capacity was to work with the nonprofit First Batch to understand the small-scale manufacturing sector and its need for space. In Atlanta, the Kendeda Fund partnered with Atlanta Beltline Inc. and The Village Market to fund affordable storefront spaces along the Beltline to help underserved businesses grow.
There is also a need to pay close attention to local government programs. Regional loan programs should, at a minimum, reach the demographic diversity of the community. The Bloomberg Foundation has funded the placement of economic development fellows in several cities to stimulate equitable economic roles to focus on bridging the racial wealth gap purposefully. Purposeful investment is essential.
For America’s downtowns to thrive, the nation will need to invest in historically excluded and underserved populations. Let’s follow Fearless Fund’s lead. Now is the time to double down on philanthropic investment, not shy away.
Ilana Preuss is Founder and CEO of Recast City and author of Recast Your City: How to Save Your Downtown with Small-Scale Manufacturing (Island Press, 2021).
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