[THE UPLOAD] The ABCs of Venture Capitalism

[THE UPLOAD] The ABCs of Venture Capitalism

Arlan Hamilton of the Backstage Capital explains her grand plan for investing in startups from Black, female and LGBT tech entrepreneurs

by Lynne d Johnson, December 9, 2015

Comments
[THE UPLOAD] The ABCs of Venture Capitalism

Before she founded a venture fund, Arlan Hamilton was a popular lesbian blogger and tour manager working on live shows for artists like Jason Derulo and Pharrell Williams. But about three years ago she caught the VC bug, with an interest in the tech startup ecosystem and underrepresented founders who are Black, Latino, LGBT or women. So when the big firms wouldn’t let her in, she decided to launch her own. Enter the AngelList Syndicate.

Since the VC industry is majorly comprised of White males primarily backing companies lead by other White males, Hamilton sees opportunity in a shifting demographic that projects that the minority will become the majority. Here’s her story.

EBONY: What’s it like being a Black gay woman in the venture capital space?

Arlan Hamilton: I’m used to being the only Black person in the room. When I walk out the door—Black, female and gay—it’s like what’s going to happen today.

In venture, it’s been interesting. I have imposter syndrome big time. There are many people working on this already. There’s Kesha Cash, Sarah Kunst, Richard Kerby, Charles Hudson and Marlon Nichols. All of these people were here, so I’m certainly not the first. In a couple of years, you’re going to see the Andreessens and the Sequoias, and the smaller funds, all with associates whose jobs will be finding diverse founders.

Comcast Ventures, Intel and Cross Culture Ventures saw it sooner. When people ask where are the Black founders that are killing it and could be acquired for hundreds of millions of dollars, I’m seeing them now.

EBONY: There’s been a lot of talk about the culture shock Black people in tech experience when moving to Silicon Valley. Is it important to have people who look like you there to acclimate?

AH: I’m not so interested in having Twitter or Facebook get me. I’m interested in backing the people who are creating the next Facebook, and then creating their own culture. I’m also not interested in beating down the doors of venture capital firms and getting them to understand this. Let’s create something new instead of teaching the old guard how to treat us. Let’s create wealth for ourselves and then we can be the example.  

After I wrote “Dear White Venture Capitalists,” high-level execs told me I was saying what they wanted to say but they didn’t want to rock the boat. I’m doing the Bankhead bounce on the boat.

EBONY: With your AngelList Syndicate, there’s a sense that you’re microfunding. Your plan is bigger than that, right?

AH: I had to hack my way in. The AngelList was my MVP to breaking in and being able to invest at all. Lisa Mitchell, who worked at the Kauffman Foundation for many years, said that in all her years, she’s never seen anyone do what I’m doing, which is raising a fund without any money to start with. Usually you come from an MBA program or from a traditional venture fund like Grey Lock Partners or you’re already an angel. You never see people with zero dollars bootstrapping a venture fund. There are people who have been doing this for several years and they tried to raise a small fund and they failed, because it’s very difficult.

Now I’ve launched an official fund called Backstage Capital that has LPs and that has investors. It’s not me just putting $1,000 in, hoping others pile on. We’re investing from $25 to $125K. Small amounts per company, but still significant for those founders.

EBONY: Why didn’t you just join a traditional venture fund?

AH: I did try for two years, but it’s competitive. There are thousands of people trying to get in and there are only around a dozen jobs at any given time. I asked for fellowships and apprenticeships. The response I got was, “talk to us later in your career.”

I do think about it when things are really tough financially and emotionally. Every time I think “let me go under someone’s umbrella and do this,” I’m reminded they make the rules. I want to switch things up and change thinking. I’m going to bring them companies that are founded by people of color, LGBT and women. If I have to go get them vetted by someone else, how is that helping? That’s just making sure I’m safe.

EBONY: Who are your investors?

AH: My first significant backer was Susan Kimberlin, who built the Salesforce search team. And then there’s Lars Rasmussen, the co-creator of Google Maps. He’s an angel investor, and of all the company’s that he’s invested in, the one doing the best for him is lead by a woman. So he really understands this.

EBONY: What type of companies are you investing in?

AH: One is Kairos, a facial recognition and emotional analysis company out of Miami that has deals with IBM, Volkswagen, Nike and others. Another one is Wedspire, a company out of Canada that connects people who are planning their weddings with vendors through their wishlists. Kairos has raised $4 million plus and doesn’t need my money, but they want to see me do well. With Wedspire, I’m their first outside check. It’s running the gamut of those two types of companies, and I believe both of them are going to make me a lot of money.

With the majority of my investments, I am the only person of color at their capitalization table. But it’s not all about race or gender or orientation for me. I don’t wake up thinking about that every day. I wake up thinking, “where can I find the best founders and the best companies?”

I have the best shot of that with diverse teams. I know that anyone who has had to overcome any sort of bias, whether it be race, gender or orientation, there’s a grit there, which is what makes a great entrepreneur. There are entrepreneurs in my portfolio that went to Ivy League schools and they had to work twice as hard. They are operating on this level that I totally get, and I’m putting all my chips on these underrepresented founders.

EBONY: And your vetting process, to be clear, is not just about investing in diversity for diversity’s sake.

AH: That’s the reason I wrote the blog post, “Why Do Investors Say No More Than Yes,” because I have to say no 90% of the time. If I went to Nebraska and I saw there were no VCs in Nebraska and I walked around and met founders and I saw amazing ones who were being overlooked, I would start a venture fund there. To get in the door, initially you’d have to be a resident of Nebraska. That’s the same thing I’m doing. To get in the door you have to be underrepresented within the definitions I’m using—being female, a person of color, or LGBT. In Nebraska, you would find the best of the best, and that’s exactly what I’m doing.

I have a legal duty to my investors to make them a return over the next seven to 10 years.

My check is worthless if that company cannot get funded again by a traditional venture fund for Series A and Series B. So I have to look for the companies that are not only doing well now, but have the potential to be amazing several years from now. I’m looking for gems just like other VCs. I just happen to be looking in a different place.

EBONY: How did you earn your VC education?

AH: I took advantage of the fact that you can learn about almost anything on the Internet.

I became hyper curious about this three-and-a-half years ago. And as soon as I realized I felt a kinship with entrepreneurs and this ecosystem, and even more so, that I could have impact on several companies at once if I were to invest in them and advise them, I just set out to learn everything I could.

I bought and read every book I could. I watched hundreds of hours of video. I met with and spoke on the phone with dozens and dozens of VCs, founders, angels, operators and execs. I think of this as a four-year college and I’m a senior now. My teachers have been investors like Joanne Wilson, Brad Feld, Chris Sacca, Sam Altman; people who have been generous with their time and information.

I also rolled up my sleeves and got in the trenches with founders, which gives me an edge over the people who just got their MBA. I’ve been gaining experience since day one.

Lynne d Johnson has been writing about music since the early 1990s, tech since the late ’90s, and the intersection of music and technology since the early 2000s. She currently writes, teaches and consults companies on how to better engage with their audiences. Follow her on Twitter @lynneluvah.

 
Stay in the Know
Sign up for the Ebony Newsletter