On June 11, 2020, PayPal launched a $530 million program to invest in "minority-focused investment funds" and "address economic inequality." One of the first people to inquire about the program was Nisha Desai, the CEO of Andav Capital.
Born to Indian immigrants who had been expelled from Uganda during Idi Amin’s ethnic cleansing, Desai launched Andav in 2018 to support founders from disadvantaged backgrounds. The firm invests in start-ups "whose core businesses drive solutions for socio-economic disparity," according to a 2020 profile in Emerging Manager Monthly, and since many of those companies are run by minorities, Desai believed Andav would be a good fit for the PayPal fund. She contacted company executives about the program the day it was announced.
But Desai, a first-generation college graduate, soon hit a snag: According to a lawsuit filed on Thursday in federal court, PayPal officials told her that the program gave "preference" to black and Hispanic-led firms. Andav was ultimately denied an award from the fund, which announced its first round of investments in October 2020. Each recipient had at least one black or Hispanic general partner—a pattern Paypal trumpeted in a press release.
"Black and Latinx founders have been underrepresented in venture capital funding for far too long," then-PayPal CEO Dan Schulman said. "By directing our dollars to investors from underrepresented communities, we're supporting their investment in Black and Latinx entrepreneurs at the earliest stages."
Now, more than four years later, those statements are coming back to haunt the payment processor. Desai is suing Paypal for excluding her from the program based on race, alleging that the exclusion cost Andav millions of dollars in "vital capital." The lawsuit resembles the case against the Fearless Fund, the venture capital firm that set aside grants for black women business owners and then agreed to abandon the program as part of a legal settlement last year.
"Funds majority-owned by individuals of other races, including Asian Americans, are not given equal consideration," Desai’s lawsuit reads. "Worse, PayPal and its senior management have repeatedly trumpeted the program’s focus on race, bragging in statements and press releases that PayPal’s program is for some races and ethnicities and not others."
A spokesperson for PayPal, Taylor Watson, said that the company does not comment on pending litigation.
The lawsuit highlights how the corporate diversity quotas embraced in 2020 sometimes came into conflict with other progressive goals. Andav focuses on founders who don’t come from "generational wealth," according to the lawsuit, and invests in companies that help poor people obtain refunds for overdraft fees. But the lawsuit alleges that it was excluded from Paypal’s largesse based solely on the race of its founder, who was raised in the Deep South and worked for civil rights leader John Lewis.
"Some of the funds PayPal invested in lacked relevant track records comparable to Andav’s," the lawsuit states. "Yet PayPal became the first major investor for those funds."
While the program appears to have distributed its last round of grants in 2021, PayPal speaks of its "opportunity fund" in the present tense and indicates that the racial criteria remain in play. The fund’s manager, Lisha Bell, said in November that the fund "invests" in "diverse" founders and referenced a "portfolio of over 20 black and brown-led funds."
"‘[B]rown’ meant Hispanic, including white Hispanics, but not brown Asian-American women like Ms. Desai," the lawsuit reads. "To PayPal and its executives, Asian Americans might be minorities, but they’re the wrong kind of minority."