Arlan Hamilton on the Changing Face of Entrepreneurship

CHRISTIANE AMANPOUR: We turn now to another story about change in culture. Meet Arlan Hamilton, the formerly homeless tech entrepreneur whose venture capital firm Backstage Capital is dedicated to investing in start-ups founded by women and people of color only, at a time when 90 percent of venture funding goes to white men. Our Alicia Menendez talks to Hamilton about the changing face of entrepreneurship.

ALICIA MENENDEZ: 2015, you set a goal for yourself, invest in 100 companies by 2020. And everyone said that’s not going to happen.

ARLAN HAMILTON, FOUNDER AND MANAGING PARTNER, BACKSTAGE CAPITAL: Anyone who would listen, because there are a lot of people who just wouldn’t listen to me. I was being told left and right that. Like to my face, without any sort of apology, I was being told there are not enough good black founders to invest in. There are not enough good women to invest in, that this is why I will not invest in your fund. So it’s 90, 95 percent white men that I’m talking to because I’m being introduced or I’m finding my way. And they’re saying to me, I had someone say to me, you’re never going to get anyone to invest in this fund because there is not enough deal flow. And that same person who was a white man, wrote to me three years later, last year, to ask me if I could help him with his deal flow.

MENENDEZ: Can you give us a sense for those of us who are not in this world, I mean how much money did you need to raise to invest in a hundred companies and really make the type of difference that you wanted to see?

HAMILTON: Yes. So I mean we are a drop in the bucket. Backstage Capital, the firm that I run, we are a drop in the bucket and really set out to be an example, really be a case study in what other funds and firms could do. Usually funds, venture funds will have at the very least $25 million under management for one fund. And then most of them are between $100 and $500 million each fund and there are sometimes multiple funds that are raised over a few years. And then there’s like Andreessen Horowitz or Sequoia or Kleiner Perkins who have billions of dollars under management. Where I wanted to be was let’s find the founders at the earliest stages. This is like people who are actually out there doing things, have traction, but they’re still being overlooked and not taken seriously. Let’s find people right there and write a $50,000 check, write a $100,000 check because what we wanted to do was replace this or become this part of the funding process called the Friends and Family Round. So if you are an affluent white man or an affluent black man but if you’re — if you have access to this and you go out and you say, OK, I want to start a company, I need about $25,000, $50,000 to make the app and I want to have this for marketing, I want to hire a salesperson, I want to —

MENENDEZ: You ask your friends.

HAMILTON: You just have a Friends and Family Round. You go back to your school that you went to. Hey, do you want to throw in $10,000? You’ll have a piece of this, what I’m doing. But for a lot of us, including me, this is like a fairytale. It is a fantasy. Like you wouldn’t believe. It will be like saying to that same person, ask your friends and family for $10 million for your little app. So we wanted to be let’s be the Friends and Family Round for these founders because what happens then is if you invest in the ones that you really believe in, you pattern match yourself. I’m a black gay woman. I don’t look like every other V.C. out there. I’m going to write the checks. I’m going to pattern match. I’m going to represent and advocate. You get the money, that seed money, into the hands of people who you know can do more with less, because they’ve proven that day after day, it’s just how it is. Then it stands to reason that some of them will go on to do well.

MENENDEZ: Right. You say you pattern match for grit.

HAMILTON: Yes.

MENENDEZ: Talk to me then about some of the investments you think are most emblematic of your theory.

HAMILTON: There is a woman named Jessica Mathews who lives in New York. Her company is called Uncharted Power. She’s an inventor. She’s a CEO. She’s been on the cover of Forbes Africa twice. She has invented multiple renewable energy products, some that are consumer-based and then now more for cities and smart cities and for countries and things like that. She is someone that, at first, had to go knocking on doors and get people to pay attention to her. Now, she doesn’t. All we have to do is visit her six-story lab to see what they’re building over there. And I think she’s going to — I think she wants to be the first unicorn out of Harlem. So that means she wants to be the first billion-dollar company out of Harlem. I think she can do it. There’s one called CEEK VR and Mary Spio is the founder. She’s a black woman. And she grew up in Ghana and she would watch television to kind of take her mind away from all of the things that were going on outside and all of the terrible things that were happening around her. It would just help her escape. A few years ago, she said, you know, what could be that little television box in my room — in my living room that helped me escape? That could be VR for so many underrepresented people, that we need to get VR to a place that is accessible, that is not so expensive, you don’t have to have a thousand dollars set to be able to enjoy it. So she started from the ground up creating the most accessible VR headsets that she could. And so she’s developed CEEK, C-E-E-K, VR. And I just think she should have her own Hidden Figures movie, as should Jessica. There are people working on all sorts of wonderful things, not just media and beauty and what a lot of people think, but in deep tech.

MENENDEZ: So you spent the early part of your career as a production coordinator and music tour manager. Tell me about the moment you said to yourself, I want to be a venture capitalist.

HAMILTON: I’m not sure if there is this “come to Jesus moment” where I thought, oh, I’m going to be a VC. But I knew — I had been learning about venture capital and different equity asset classes. And I understood VC to be this two percent sliver of private equity that was meant to power innovation. And I thought, well, if what I’m trying to do is set out to get more capital to underrepresented, underestimated founders, and at this time it was 2012-ish where no one was talking about it, if I’m going to take this big moon shot “leap” then I should go to where people are betting on moon shots every day.

MENENDEZ: How did the idea even come on your radar?

HAMILTON: I set out to raise money to start a company myself. I was in Texas. And very naively and innocently started looking — asking people for money who were on the coast and different angel investors who invest their own capital and people investing other capital. And that’s when I started seeing this pattern, that a lot of the white men no matter — it wasn’t necessarily their fault. It was just what was true and happening. They were getting meetings with investors, no matter what their product was, their service was, or what stage they were in or what their background was, all of it. They were getting meetings because this person has potential in the investor’s eyes.

MENENDEZ: They were pattern matching.

HAMILTON: They were pattern matching, you’re right. And so everyone else that I talked to was not. Like they had not gotten the meetings. They had not — so a lot of them had maybe spoken to one or two people and got no’s, but most of them had not even had the chance to pitch.

MENENDEZ: Be able to get in the room.

HAMILTON: And I started to recognize that there was something in that. There was a great disappointment in that, being a gay black woman, that was really sad to see that everyone — everything that I identify with was being — had the doors closed on them.

MENENDEZ: At the time that you were teaching yourself about venture capital, that you are shooting off these e-mails trying to get in front of people, you are unemployed, you have less than steady housing.

HAMILTON: Yes. That’s a very nice way of saying it, thank you.

MENENDEZ: Paint the picture for me because I know that the retelling of your story sometimes gets told in different ways.

HAMILTON: Oh, yes.

MENENDEZ: Where are you living? What are those circumstances? How are you making support?

HAMILTON: So 2012, ’13, ’14, I would have been in Texas. I was living with my mom. My mom and I became roommates. We called ourselves Thelma and Louise. And I had a blow-up bed, like an inflatable mattress and a whiteboard. And my mom had a bed and a T.V. and that was — so that was how we rolled. I think I put myself through like a four-year home school if you think about from the time I started thinking about it and learning about it to the time I got my first L.P., limited partner to invest. And so part of it was I was in — had shelter but had very limited means and had to figure out, OK, I have $15 in the bank account today, I’ll have $50 tomorrow. Then it actually got worse where we had to leave that apartment because we couldn’t afford it. And so my mom and I shared a room in a hotel, a best western type place. And then, couldn’t sustain that any longer and couldn’t get another apartment because we both had poor credit and all sorts of things where it’s kind of stacked against us. But we were both able-bodied and we were both able-minded. We got to a point where we just couldn’t do it anymore. So she moved back in Mississippi with her family and I went out and made ends meet on the West Coast over time.

MENENDEZ: Tell me about that. 2015, there’s a boot camp at Stanford, cost about $10,000, women get 50 percent off —

HAMILTON: No, it cost $20,000.

MENENDEZ: Cost $20,000. So $10,000 was the discounted rate.

HAMILTON: It was $18,000 at the time. I don’t know what it is now. It was a pilot program with 500 start-ups, which is an accelerator in Silicon Valley. I was able to get two people to nominate me, but not everybody knew me. That was the point. And so they nominated me for the scholarship if you want to call it that. It was a two-week program. And went there and it was really awesome. And so I crowdfunded like $3,000 of the $10,000 but actually, there was the expense of living and eating there. So I basically had a one-way ticket. I had enough for an Airbnb for two weeks. And I had a down payment on the scholarship that I had to then pay over time.

MENENDEZ: And what was your plan after that?

HAMILTON: I didn’t have one. My plan was ultimately the same that it had been for the past — the previous three years, which was I know that this needs to exist and these temporary circumstances in my personal life are almost inconsequential. And you have to understand, too, that I was reading things like Outliers at the time. I was being inspired by people at the time, like Elon Musk and Richard Branson and all of these white men who have unlimited ability to try and fail and try again. And I said, well, that resonates with me. That’s me. They’re trying for big bold ideas and it’s not always going to be a linear easy path. Here I am.

MENENDEZ: Tell me then about the first person who says yes.

HAMILTON: Yes. So her name is Susan Kimberlin. She used to work at Salesforce, I believe PayPal before that, and in product. And she is an angel investor. And I met her at the Stanford boot camp. And we became friends. And over time, I would help her diligence different deals she was doing and like try to like give value. And I asked her, will you invest in this fund that I’m starting in? September 14 is when she said yes and September 15 is when I got the first wire from her.

MENENDEZ: There is news that I want you to respond to this week.

HAMILTON: OK.

MENENDEZ: “Axios’s” Dan Primack broke news that the $36 million, it’s about downtime fund, has fallen through. That was a fund intended to invest solely in black female founders falling through, his words, not mine.

HAMILTON: Understood.

MENENDEZ: The bottom line, Hamilton, you, has a compelling biography and she has sought to do something laudable outside of Silicon Valley’s pattern matching mold. But it is also true that tech media has been so thirsty for such stories that it may have put the cart before the horse, attributing success to a work very much still in progress. How do you respond?

HAMILTON: Yes. Well, first of all, the fallen through part of the headline was very shocking to me. I talked to so many men and women who raise funds or who are raising funds who are going through the exact same thing I’m going through. I can understand if you’re outside of Silicon Valley, you’re outside of venture, if you’re not as educated as Dan is, thinking on the subject, thinking oh, well, they said they had a fund, they don’t have a fund right now so they must have failed. But he is too smart for that. And I don’t really understand it. So I don’t accept the failed part of it. [14:50:00] It’s like — it’s almost like saying your flight — I just took a flight from L.A. to New York. You say your flight from L.A. to New York has not landed yet, therefore, it’s a failure. It hasn’t landed yet. That’s all it is.

MENENDEZ: Let’s then use your framework. Why is it on hold?

HAMILTON: It’s not on hold. It’s frustrating because that is what fundraising is. We have — it’s just like saying — having a capital call. You don’t have a $36 million fund and have $36 million in the bank. You do capital calls over five, six years from your limited partners and you say, OK, can you give me 10 percent of that for this year, I’ll take 15 percent the next year, et cetera. This is the same. When you launch a fund, you raise it. And a lot of people choose to raise the fund and then announce. And some people like us choose to do a general solicitation fund where you’re allowed to talk about it in press because we knew we were up against a lot of odds and we wanted more people to know about it who could write those larger checks, institutions, not individuals. So it was announced. Our target was announced. We already had commitments to kick us off when we made — before we made the announcement. We had an inker shortly after that — inker meaning someone who would put in 20 percent or more and would help lead the round. They, unfortunately, had to back out, and that was their whole — you know, it was on them and they understood that and we understood that. It was a disappointing time but we handled it with grace and dignity behind the scenes and we didn’t go out and announce it because that wasn’t part of our strategy. We just simply got back on the fundraising trail that we had been on and continued raising. To me, it’s not news and not newsworthy. I don’t think that Dan himself is a bad person, I don’t. I’ve known him for years. I’ve sponsored one of his charity baseball games. We’ve been cool. I do think there is bias to his reporting because it’s almost like someone described it as sort of like gleeful — gleefully watching something not do as well as we had hoped. I don’t think that he reports the same way about other fund managers in the exact same position. And also we are very — we’re different.

MENENDEZ: It’s s not the only news this week.

HAMILTON: Yes.

MENENDEZ: We also learned you’re stepping down —

HAMILTON: This is a big week.

MENENDEZ: It’s a big week. We’ve also learned you’re stepping down as CEO of Backstage Studio.

HAMILTON: Studio, yes.

MENENDEZ: Which is the firm’s venture studio that incubates new companies and products.

HAMILTON: Yes.

MENENDEZ: Is that right?

HAMILTON: Yes. And it runs our operations.

MENENDEZ: And that Christie Pitts, your partner and chief of staff, will now be in charge of Backstage Studio.

HAMILTON: Absolutely.

MENENDEZ: So what does that shake up?

HAMILTON: OK. So I’m glad you asked. So Backstage Studio is something that we launched. Christie and I co-founded it a little over a year ago to keep the lights on and keep going so that we could continue to support our portfolio of a hundred plus companies. I’ll say that again. Most funds do not have that many companies. So the stepping down as CEO part, I went into it as CEO. Christie was my co-founder. We worked together every day on many things and she’s just a remarkable person. I have taken on the role of too many people at Backstage. I take on too much. I talk about self-care almost every day online. I tell people, take care of yourself. If you don’t take care of yourself, how can you take care of others?

MENENDEZ: And you’re not taking care of yourself?

HAMILTON: And I had been trying, but then I reached a point where I’m like, I am too stressed day to day about the tiniest things. It only makes sense.

MENENDEZ: And also — I think for those of us watching, it also raises the question, can you be the brand and do the work?

HAMILTON: Right. So, this is — to me, honestly, this is just an evolution. I love launching things. I love catalyzing. I love inspiring. I love working with our founders to help them get more resources that they deserve. I love all of that. I love sitting one on one with founders and just working through a problem with them. I have a difficult time being able to do that as much as I want when I’m over here worrying about the price of office supplies. It’s just really basic. And it’s not a big story. To me, it’s practicing what I preach. I feel like I haven’t even begun and there is so much more for me to do.

MENENDEZ: Arlan, thank you so much.

HAMILTON: Thank you. Appreciate it.