Rockstar VC Arlan Hamilton charts her journey from homelessness to managing a $5m fund for under-represented founders.
When I finally get to have a conversation with Inspirefest 2017 speaker Arlan Hamilton, the world is wading through the aftermath of US president Donald Trump’s noted, notorious ‘first 100 days’.
“Tiny hands”, as she calls him, has certainly changed things in the US but, for her, it’s hard to distinguish a dramatic shift. “It has definitely dialled things up a notch, but I’ve always been a gay black woman in America so it’s hard to tell. It’s like a frog in boiling water – it’s hard to tell how much worse it has been.”
Trump’s election, however, has made Hamilton’s position as a gay black woman VC all the more significant. “Obviously, it’s more important than ever to have representation, which is my main objective in all of this,” she said, after explaining that her team’s main response has been to “try to stay heads down and just do the work”.
What’s ironic is that the harder Hamilton and her team work, the closer they’ll come to their own extinction. “The result of what we’re doing at Backstage, for me, is about representation, so that I am obsolete and the fund is obsolete within a few years. That’s our goal.”
‘My hope is that, in a few years, women and people of colour are not considered under-represented in venture and in tech’
– ARLAN HAMILTON
This fund that Hamilton started just to put it out of business is Backstage Capital, which specifically targets early-stage start-ups (pre-seed and seed fundraising) from under-represented founders: that is, women, people of colour and LGBT people.
“My hope is that, in a few years, women and people of colour are not considered under-represented in venture and in tech,” she said.
The $5m fund is still in its early days with less than two years of investment behind it, but Hamilton is expecting to hit 50 companies in her portfolio soon enough. Even over the phone, I can tell she is excited by every one of them.
“They’re all doing amazing things,” she said. “In venture, when you’re looking at a portfolio, there’ll be something like a five to 10pc shutdown rate at this point, and none of the companies have shut down, so I’m really proud of that.”
The fund’s first investment ever went to Kairos’s facial and emotional recognition technology, currently closing a Series A funding round with Brian Brackeen at the helm. Tomboy-clothing purveyor Wildfang from Portland-based Northern Irish founder Emma McIlroy is another ‘headliner’ in the diverse Backstage Capital portfolio.
The first investment from Backstage Capital’s second fund was On Second Thought led by Maci Peterson, which allows users to rescind text messages they wish they hadn’t sent. (We’ve all been there.)
“[Maci is] one of fewer than 20 black women to have raised $1m or more in venture, in the 70-plus years’ history of venture,” Hamilton explained, and acknowledged my heavy sigh at such a stark statistic. “That’s a scary number but, also, she inspires me.”
Peterson was inspired by her own pain point to come up with the idea for On Second Thought, which speaks to what Hamilton refers to as the resourcefulness of Backstage Capital’s founders. “What sets them apart is that they’ve all done more with less.”
‘I don’t know how many reports we can have. I know that these men know how to read’
– ARLAN HAMILTON
Some members of the investment and tech community have met Hamilton’s motives with confusion. She recounts how one successful, well-off (and apparently well-meaning) white male VC expressed his understanding that people of colour and LGBT founders were under-represented but did not see the need for added support for women who he said “are treated equally in this country”.
Hamilton’s response? An astounded, “What country do you live in?”
This VC’s reckoning is dramatically incorrect, as the funding figures show. But this fact is often missed by those who need to embrace it most.
“I do have these conversations all the time with people who just don’t understand the need for this type of fund, and they’re usually people who are doing just fine, so that’s why they don’t understand it,” said Hamilton. “I think it’s going to take a while for people that are already making it to be educated on it.”
It strikes me as a further injustice that Hamilton is shafted with the burden of explaining the very issue she has taken it upon herself to address, particularly since this information is so readily available. “I don’t know how many reports we can have. I know that these men know how to read,” she agreed, flatly.
It was these reports, these frustrating figures that drove her to start blogging and calling out VC funds and angel investors, putting it to them to allocate more capital to under-represented groups.
“It was sort of met with, like, pats on the head rather than listening to what I was saying. And so, to me, all I was doing with the fund at the time we started was … paying the entrance fee to be able to have other investors listen to me in a more legitimate way. And saying, if you guys aren’t going to do it, we will.”
And so, she is teaching by doing. “I definitely didn’t set out to educate. I set out to do, more than say. And, as we’re doing, there’s action. There’s cheques being written. There’s money being deployed. That is educating people in its own way.”
‘I understand that I have a very limited view from my point of view, just like I would be accusing a straight white male from Boston of doing, and I certainly don’t want to be a hypocrite’
– ARLAN HAMILTON
One identified source of the problem of homogeneous VC funds funding homogeneous businesses is ‘pattern matching’, whereby people are naturally more inclined to relate to – and, in these scenarios, invest in – people that reflect themselves somehow, be that in appearance, ideology or other aspect. There’s also the issue of people’s inherent, often unconscious, biases at play. Essentially, the more similar the cohort of VCs, the more similar their biases will be and the more apparent the homogenisation of funded start-ups.
Hamilton counters the issues of bias and pattern matching by building a diverse team by design. While she makes the final call, she is cognisant of her own limitations as a decision-maker. “I understand that I have a very limited view from my point of view, just like I would be accusing a straight white male from Boston of doing, and I certainly don’t want to be a hypocrite.”
She put this reasoning into action, with the stats from the Backstage Capital fund in 2016 showing that Latinx founders represented 10pc of recipients. “That’s still, like, a thousand times the industry average, but it wasn’t good enough. So what I’ve done is hired someone who is a Latin male founder, who can give us more insight, and also we brought on more people to look at that.”
Taking the Backstage Capital approach to inclusion and diverse perspectives isn’t merely a moral or ethical standpoint, it is practical when it comes to identifying markets your own biased blinkers have obscured from view. Like when Hamilton herself couldn’t understand why her head of operations, Christie Pitts, would wear a smart ring.
“I’ve never worn a purse unless I’m wearing a costume, in my life, so my phone is always at my hip. It’s always on me. I always know if someone is emailing me, texting me, writing me – there’s never been a problem.”
In a 10-minute chat, Pitts had sold her on the smart ring’s necessary use cases. “She taught me in just those few minutes that I was completely blind to the fact that most women who wear purses are disconnected from [their phone], for better or for worse, and that I had simply overlooked it.”
This perfectly simple scenario gave Hamilton a major revelation. “It made me think about so many things I get upset about men not automatically knowing, or white people not automatically knowing, about the black experience,” she said, and she took away a valuable lesson.
“I test myself a lot, and I check myself a lot, and I try to surround myself with people that I know who will challenge me to look at things even further.”
‘I didn’t have any money and I didn’t have any connections, so I just started cold-calling people’
– ARLAN HAMILTON
By creating an attractive platform so she can seek out undiscovered gems, Hamilton sees herself as a bit of a Simon Cowell – and she doesn’t say that to be boastful. “I really don’t have that much talent, but I can spot it!” she laughed.
She’s humble, to the point that she balks at my asking about her career story so far. (“A career? I need to call my mom!”) But she quickly relents, and tells me that she started working and helping to pay the rent at age 14, initially sticking to the traditional nine-to-five grind. In her twenties, she started a magazine. She then got into tour management and production coordination until around 2012, when she got wind of celebrities investing in Silicon Valley and wanted to learn more about this seemingly fictional place.
“Since I was five years old, I’ve been obsessed with Monopoly … and I was the one who had the company at eight years old … so I’ve always been like an entrepreneur, and I was fascinated by this whole world that people could just take their destinies into their own hands.”
The Backstage Capital spark came while she was working with Wildfang, where she was struck by how well it understood its customer. “No amount of technical talent or financial talent could replace that,” she said.
Yet, even though Wildfang was, as far as Hamilton was concerned, winning in its space, investment didn’t come easy. “That company and several others that I worked with were, to me, an obvious, obvious bet. If I had my own money, I would be writing them a cheque at that point. And to others who I was talking to – other investors who were more traditional (quote, unquote) investors – it was like pulling teeth to get them to even consider a world where they could be successful in this investment. And so that was, to me, really frustrating, but then super inspiring.”
Hamilton had identified a treasure trove. She saw the under-represented and misunderstood as a goldmine for smart investment. Though, at that time, she didn’t realise it would be her fund that would take them on.
“I didn’t have any money and I didn’t have any connections, so I just started cold-calling people.”
‘It wasn’t a matter of if but when for me. If I stopped at any point, I wouldn’t have gotten here’
– ARLAN HAMILTON
New impromptu bonus episode of The Bootstrapped VC:
— Arlan 👊🏾 (@ArlanWasHere) June 12, 2017
Backstage Capital as we now know it started as a germ of an idea in the summer of 2014. Then, after about 15 months of working seven days a week, it had its very first investor. When I ask about sacrifices made in order to achieve her goal, Hamilton is forthright: “I sacrificed home. I had no home, so that was a sacrifice.”
This wasn’t couch-surfing or living with parents. This was a suitcase but nowhere to sleep and staying at the airport for days upon days. “There was a point when I didn’t know if I was going to eat,” she admitted.
But, even through the toughest of days, Hamilton never stopped trying. Like a dedicated athlete, she could see the finish line clearly, which set her resolve and stoked her endurance. “I could see Backstage. I could see having the fund. And the only time that had happened in the past was when I started the magazine. I could already see the magazine the day that I said I wanted to start it, and that was really hard to do.
“So, when I see myself in the room – I see the logo, I see people talking, saying ‘Backstage’ as if it were a real company – then I know that I need to be walking in that direction. To not do that would be a little unnatural for me. So that’s what kept me going. It wasn’t a matter of if but when for me. If I stopped at any point, I wouldn’t have gotten here.”
That said, Hamilton does not subscribe to the notion that founders must give absolutely everything to breathe life into a business. “I’m a big proponent of self-care and I really hate the phrase, ‘I’ll sleep when I’m dead’,” she told me, not for the first time rebuking my misplaced assumptions.
“I think it’s a little dangerous, this culture that founders in general have of ‘you gotta work 20-hour days to be seen as working hard’. Because isn’t it better to work smart, than to work hard, any day?”
And that’s the ethos that brings us to where Backstage Capital is now. The fund that has been built brick by brick with no “coasting period” as of yet. “I think that comes, probably, year three,” Hamilton mused, looking ahead to the day when the data on its portfolio shows that it is choosing well, with companies starting with very little and then over-performing.
‘Every VC fund in existence who wants to still be killing it in 10 years should be diversifying their team today’
– ARLAN HAMILTON
“I like to say that black is the new bitcoin,” she declared, predicting a pivotal moment when investors will suddenly realise the value in what she has seen all along. “All of a sudden it’s gonna be bullish, bullish, bullish on under-represented founders and then it’s gonna be like an over-correction – and I think that’s going to be interesting, actually.”
Hamilton’s hot tip is to invest in diversity and do it now. “Every VC fund who is in existence right now who wants to still be killing it in 10 years and in 20 years, they should be diversifying their team today. And by that I don’t mean one black dude who can play basketball,” she joked. “I mean an entire two to three people (depending on the size of the fund) that can have a completely different point of view than the four 50-plus-year-old white men who are leading the fund.”
(Of course, Hamilton is not against all 50-plus-year-old white men. She assured me: “Some of my best friends are 50-year-old white men.”)
Backstage Capital’s point of view is its edge. It can see markets where others don’t, such as the killer fintech app for people living paycheque to paycheque. “That’s what’s going to make us win, is our understanding of that,” said Hamilton.
Throughout the interview, she has surprised me at every turn. For someone with a distinct fear of public speaking, she has quite a story to tell, and easily dispenses with sage advice, not least of all when it comes to looking after yourself first.
“You never know how long it’s going to take to achieve success and so, if you just wait until you have succeeded to treat yourself, well, you could be waiting forever. So just start living now.”
Arlan Hamilton will be speaking at Inspirefest, Silicon Republic’s international event connecting sci-tech professionals passionate about the future of STEM. Book now to join us from 6 to 8 July in Dublin.