Inspirefest 2018 witnesses a $1bn vision to disrupt venture capital forever

27 Jul 2018

From left: Astia’s Yuka Nagashima, Backstage Capital’s Christie Pitts and Arlan Hamilton, Silicon Valley Bank’s Claire Lee and Silicon Republic’s John Kennedy. Image: Conor McCabe Photography

At an investor evening in Dublin during Inspirefest, leading figures from Backstage Capital, Astia and Silicon Valley Bank revealed a compelling vision for the future of venture capital, particularly in funding women and ethnic minorities.

The venture capital (VC) industry in Silicon Valley, and indeed worldwide, is being disrupted. The present status quo whereby women founders, women investors and ethnic minorities who attract funding are in the single digits is being challenged.

In recent months, we reported how Arlan Hamilton, founder and managing partner of Backstage Capital, is raising $36m to invest in black women founders.

‘If you could imagine what I was thinking three-and-a-half years ago when I was homeless and hadn’t a penny to my name, to today where we have invested in 100 companies and we have built an amazing team. If you could imagine what I must be thinking now’

At Inspirefest 2018, Hamilton and a cohort of colleagues confirmed that her company had completed its 100th investment in a tech start-up.

At an intimate evening for investors and investor-ready start-ups with our partners Enterprise Ireland and NDRC, and hosted by Bank of Ireland, Hamilton wowed the room with her vision to go a lot further.

On stage were Hamilton, Backstage Capital general partner Christie Pitts, Astia advisory board member Yuka Nagashima and Silicon Valley Bank’s head of early-stage banking, Claire Lee.

“I think we should be $36m, I think we should be $100m, we should be $200m, $300m and then go towards the $1bn,” Hamilton said, making it clear that the revolution has started.

“They’re calling it a ‘diversity fund’. I’m calling it an IT’S ABOUT DAMN TIME fund,” Hamilton tweeted when news of her $36m fund broke.

During the investor evening, I pointed out how less than 0.2pc of funding goes to black women and I asked Hamilton about the reaction she’s getting in Silicon Valley.

She said some investors act surprised. “I’m saying: ‘Hey, we’ve been here the whole time, we have amazing companies.’ People feel it is the right time.”

Start small but think big

Hamilton acknowledged that $36m is a drop in the ocean when it comes to the billions invested in Silicon Valley start-ups but the revolution has to start somewhere.

“No matter what we do or announce, there are going to be some people who think it is not the right number, it’s too big or too small. I absolutely think that we are going to have a $100m fund by 2020, so we probably will.” Why not?

The ironic juxtaposition, however, is the average white, male start-up founder from Stanford will probably raise $25m or $50m in a seed or Series A round after rolling out of bed and deciding to do a tech start-up.

Numbers are arbitrary because the hardest thing to change is stuck-in-the-mud mindsets.

Hamilton said that for ethnic minorities, most of the time in front of Silicon Valley investors is spent explaining themselves, not their product. She said that for a black woman or a Native American, “there’s a lot of explanation and a lot of it is getting over the silliest of biases, landmines, different standards. It’s just a really not-so-pleasant conversation no matter what your background is.”

She cited one entrepreneur in her portfolio “who has her name written on a satellite in space and even she has trouble talking to investors. She’s hot at Stanford, gives talks to these 25-year-old white guys who will raise funding, and yet she’s being asked all the questions they would never have been asked.”

What is the colour of money?

Lee said that even at the highest echelons of investing in the US, there is a change afoot and a key aspect of that is helping emerging female managers to raise funds.

“How do we help more female fund managers? I believe, very strongly, it is about money. If we want to change things, we really have to push hard. There’s a huge momentum, an unstoppable avalanche of things. It doesn’t matter what was built before now. It might be systemic, endemic, but things are shifting and it is a huge earthquake I’m witnessing and hopefully helping in the creation of that.”

Citing female fund managers in New York raising funds from traditional investors to help emerging start-ups, Lee said: “All money is green and if they want to put that money into good sustainable stuff that makes a big difference and platforms for financial inclusion, it is all about the money.

“I want these rich white men to start realising that this has to change, and I’m witnessing a revolution and uprising because it is changing.”

As an Irish woman who doesn’t have an Ivy League background, Lee believes her mission is to join the dots on connecting fund managers who want to support emerging founders of start-ups with the investment they need.

Her mission, she said, is to help foster a multiplier effect and influence change.

“I connect people with money to people who need it,” Lee said, adding that she is witnessing a desire among traditional investors to support the potent need for change.

Nagashima reiterated her point that it is not women who need to change but the system.

A key aspect of this is systemic change, which Nagashima agreed really needs to happen, is government funding bodies making rules about what happens to their investments.

“If they [equity firms] are taking government money, then there needs to be stipulations like there has to be at least one female founder or partner in that firm.

“You have to start somewhere. If they can’t even respond to the need, then the system has to do something about that because, as Melinda Gates said, otherwise we are just leaving money on the table.

“If we can have systemic changes, that can get things moving. All it takes is one female managing director for other directors to notice and start investing differently.”

The pace of disruption

Hamilton is hopeful that things will change in time.

“It is still difficult, but I predict that it won’t be. The last few years have been insane for Backstage. If you could imagine what I was thinking three-and-a-half years ago when I was homeless and hadn’t a penny to my name, to today where we have invested in 100 companies and we have built an amazing team. If you could imagine what I must be thinking now.

“I have a couple of predictions. We will not just see unicorns led by women founders, but $100m exits. By the end of 2020, Backstage will raise a $100m investment fund. By that stage, a lot of the founders in our current 100 will have become angel investors.

“Personally, I am on a mission to invest in or create a new asset class.”

Lee added: “Venture capital is being disrupted at a pace I’ve never seen before and I think this wave and seismic shift is not to be dismissed.”

She predicted that within two years, the number of women funded and the number of women VCs will have grown out of the single-digit club.

Nagashima concluded: “In several years, if we all just embrace that we need to treat entrepreneurs and investors on an equal footing, everything else will take care of itself.”

A crucial part of this mentality will be giving entrepreneurs the dignity they deserve, ensuring they are not begging for money.

“Investors need to understand and become humble and realise that entrepreneurs will be utilising your money to make it bigger for you. They are going to be disrupting, making the world better.

“It is about giving respect and treating each other with respect. At Astia, we treat investors and entrepreneurs on an equal footing. We don’t like the word ‘pitch’ when talking to entrepreneurs, they are ‘presenting’ to us.”

Pitts summed it up well when she said that it all starts with the founders.

“In order to fix the representation problem in tech … you start with founders.

“When you start with founders, it helps in so many different ways because diversity begets diversity; diverse founders go on to invest in diverse teams. It helps solve the wealth gap because when an investment occurs, the people who have the benefit of that have the highest stakes in the cap table, which are the founders, who go on to become angel investors who then invest in other founders.

“It’s a big mission and that’s our vision for the next three to four years.”

Inspirefest is Silicon Republic’s international event celebrating the point where science, technology and the arts collide. Ultra Early Bird tickets for Inspirefest 2019 are available now.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years