A US federal court has ordered The Fearless Fund, an Atlanta-based venture capital firm that invests in minority-owned brands to pause applications for its grants amid a legal battle with a conservative group that opposes race-based programmes.

The fund, which has invested in beauty brands Bread Beauty, Brown Girl Jane and The Lip Bar among others, was sued in August for racial discrimination by American Alliance for Equal Rights, a group headed by Edward Blum, the conservative activist who successfully challenged race-based college admissions in the US Supreme Court.

The order temporarily blocked the fund from selecting a winner for its Strivers Grant Contest, a Mastercard-backed event that awards $20,000 small business grants to Black women four times a year, pending the outcome of the lawsuit, which is being heard in federal court in Georgia.

In its suit, filed in August, the American Alliance for Equal Rights had claimed the programme violates the Civil Rights Act of 1866 because only Black women are eligible for the award.

The litigation stoked fears among diversity advocates, minority founders and other leaders across fashion and other industries that corporate diversity efforts were the next target following the Supreme Court’s June decision striking down affirmative action programmes in higher education.

Danika Berry, a beauty entrepreneur and public relations consultant who has worked with Mielle Organics’ Monique Rodriguez and Janell Stephens of Camille Rose, among other founders, described Blum’s targeting of Fearless Fund as a “critical moment in the fight for diversity and inclusivity within the beauty sector.”

“I have witnessed the incredible talent and potential of these [Black women] entrepreneurs,” she wrote in August. “It deeply troubles me to see the obstacles they face in accessing funding on par with their counterparts in the industry.”