Venture Fund Founder Sues PayPal for Racial Discrimination

PayPal Faces Lawsuit Alleging Discrimination in Diversity Program

PayPal is currently facing legal action initiated by Nisha Desai, the founder of Andav Capital, a venture firm. The lawsuit alleges that Desai was unfairly excluded from the payment company’s diversity and equity initiatives due to her Asian ethnicity.

Commitment to Minority-Led Businesses

In 2020, PayPal publicly announced a $530 million commitment aimed at bolstering businesses led by Black and minority entrepreneurs. This followed the heightened focus on racial equity sparked by the Black Lives Matter movement.

Desai’s lawsuit contends that despite applying for consideration under this financial commitment, she was passed over. The claim is that the program intentionally prioritized enterprises with Black and Hispanic leadership, effectively excluding others.

Andav Capital's Investment Portfolio

Established in 2018, Andav Capital focuses on providing early-stage funding to promising companies. According to PitchBook, the firm has completed at least 13 investments to date.

• These investments include Acorns, a fintech startup.
• IFundWomen, a platform for startup funding.
• Kubik, a company specializing in environmental technology.

Allegations of Racial Bias

The lawsuit asserts that funds with majority ownership by individuals of Asian descent were not given equitable consideration. Desai alleges that PayPal and its leadership openly emphasized the program’s racial focus.

Specifically, the suit claims that PayPal representatives “bragged” about the program’s selective nature, stating it was designed for certain racial and ethnic groups, and not others.

PayPal's Response

When contacted for comment by TechCrunch, a PayPal spokesperson, Taylor Watson, stated that the company would not be commenting on the ongoing litigation.

Direct Account of Program Preferences

Desai’s suit details multiple meetings with PayPal and PayPal Ventures executives regarding her firm’s eligibility for a grant. During a July 2020 meeting, Desai alleges that PayPal’s head of public policy and research explicitly stated the program favored Black and Hispanic-led firms “over other races and ethnicities, including Asian Americans.”

Investment Patterns Reflect Racial Focus

The lawsuit points to PayPal’s initial investments from the $530 million commitment as evidence of a clear racial pattern. The company invested in firms with at least one Black or Latino general partner, reinforcing what the suit describes as a “stated race-based purpose.”

Continued Exclusion of Asian-American Funds

The suit further alleges that PayPal continues to make race-based investment decisions. It highlights that $100 million was invested in 19 venture capital firms led by “Black and Latinx managers,” while no funding was allocated to funds led by Asian-American women, despite demonstrated interest and suitability.

The lawsuit contends that PayPal views Asian Americans as minorities, but not the “right kind” of minority, and that the program remains active.

Financial Impact on Andav Capital

Desai claims that her firm’s rejection from the investment commitment resulted in a loss of “vital capital worth millions of dollars.” The suit also argues that recipients of PayPal’s funding benefited from increased investment opportunities, brand recognition, and overall success.

Conversely, firms like Andav Capital, which were denied funding, suffered reputational damage, with the perception that PayPal’s decision was based on race rather than merit.

Legal Basis of the Lawsuit

Desai alleges that PayPal violated the Civil Rights Act of 1981 and that its “racially exclusionary investment program” is unlawful under New York state and city laws prohibiting racial discrimination.

Legal Representation and Prior Cases

Desai is represented by Consovoy McCarthy, a conservative law firm known for challenging race-based programs. The firm previously sued Pfizer over its diversity program, alleging discrimination against white and Asian American applicants, though that case was dismissed.

Consovoy McCarthy also played a role in lawsuits against Harvard University and the University of North Carolina, which ultimately led to the overturning of affirmative action in education.

Statements from Legal Counsel

Consovoy McCarthy partner Patrick Strawbridge stated in a brief statement to TechCrunch: “PayPal discriminated against Ms. Desai based on her race. This discrimination is antithetical to our laws and to the very spirit of the alleged purpose of PayPal’s program.”

Strawbridge added that the firm looks forward to proving Desai’s case and securing justice in court.

Broader Trend of Lawsuits Against Diversity Schemes

Desai’s lawsuit is part of a growing trend of legal challenges to diversity initiatives that exclusively target Black and Hispanic communities. Edward Blum, who also worked with Consovoy McCarthy to overturn affirmative action, launched the American Alliance for Equal Rights (AAER).

AAER sued the venture firm Fearless Fund, alleging that its grant program discriminated against white and Asian Americans by awarding funds only to Black women. That case was settled, but numerous similar lawsuits have followed.

Sean O’Kane contributed to this report.

Updated with a statement from Consovoy McCarthy.