Term Sheet -- Wednesday, January 24

5 Qs WITH A DEALMAKER

Four years ago, Arlan Hamilton was living out of a hotel room that she shared with her mom. At that point, she had given up a career as a live music production coordinator to become a venture capitalist. There were a few problems though: She didn’t have a formal finance background and virtually no connections in Silicon Valley.

Her goal? Raise a fund that invests in companies founded by underrepresented entrepreneurs, including women, people of color, LGBTQ company founders, or any combination of the three. She cold-emailed venture investors, explained her strategy, and asked them to back her fund. She eventually managed to raise enough capital to launch Backstage Capital. “[They] saw that I wasn’t just a VC tourist — I was serious,” she says.

Hamilton convinced a number of remarkable limited partners to back her fund, including Susan Kimberlin, Marc Andreessen, Chris Sacca, Stewart Butterfield, and Ellen Pao. Since 2015, Backstage has deployed approximately $3 million across more than 60 pre-seed and seed stage startups. The portfolio includes companies such as Thesis Couture, Mars Reel, and Tinsel.

Fortune spoke with Hamilton about why she believes a diverse portfolio is good for business.

You’ve said previously that you don’t look at investing as “social impact” or a “charity.” Can you elaborate on that?

I think that “social impact” and “charity” are two different things. While in the past I’ve said we’re not an impact fund, I’ve actually come around to understand that we are an impact fund, and I’m proud of that. We are an impact fund because of the impact we have, but we are also looking for outsize returns. Those things do not have to be mutually exclusive.

Now, I will say that we are not a charity or a non-profit. When you talk to a group of white, affluent male investors and tell them you’re investing in women of color, the first thing that comes out is, “Oh, that’s really nice of you. That’s a great mission.” They immediately correlate us to needing a helping hand. This is not that.

What do you think about VC firms forming independent funds to back diverse founders separately from their own firms?

Here’s the thing: In an ideal world, they wouldn’t think about it as something separate. But at least, it’s a step forward. I’d rather them do that than completely ignore it. I would be happy to go along to the top 10 funds in the country and help them do that. It’s all about getting the capital access — the politics of it we can talk about another time. You have to start somewhere, so I volunteer to go into any fund and help them start a scout fund that is scouting for diversity. That is not a bad idea, and I applaud the people who are already doing that. They may not have it perfect, but they’re attempting it, and that’s a good start.

On average, women founders receive less than 3% of total VC dollars and women of color receive only 0.2%. What needs to happen for these stats to change?

A few things: One, more and more angels of color and women angels need to step up and meet founders early in their journey. There’s power in numbers. Two, some of these companies need to have more support at the post-seed level. There’s a lot that has been done at the pre-seed and seed level, but then there’s nowhere for them to go after that. I think larger investors think we’ve taken care of it because there’s a black woman writing a check. That’s not enough. We just can’t do it alone. The larger investors need to step up.

You support founders in the early stage, but what do you advise them to do as their company grows and they need further capital?

I struggle with that question because I’ve seen so much. I want to tell them that this is a meritocracy and that as long as you keep hitting your KPIs, you’ll be met with a Series A investor and you’ll be part of that percentage that makes it to the next level. But the reality is that the best and brightest and most deserving — even with the numbers, even with the traction — are being shut out. So I don’t know the answer to that until the larger investors really take this seriously and put money behind it.

How can the industry get more funding to female founders & more women partners in VC firms?

Over the next 18 months, there will be two or three major exits that are just too hard to ignore that will come from women or come from people of color. They will be profound exits that shock the system. Once that happens, a lot of investors will take note, and I believe that will happen by the middle of 2019. I also think that there needs to be a group of LPs who demand that their fund managers are looking at diversity and are actively looking at leveling the playing field.

Read the full Q&A here.

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Two additional notes:

TO CLARIFY...In yesterday’s column, Term Sheet wrote that Theresia Gouw and Jennifer Fonstad’s investments had resulted in seven public offerings, 26 acquisitions, and more than 500 financing rounds in follow-on capital. This is the result of their collective investment careers, not just of Aspect Ventures’ investments.

NEW EVENT ALERT...Female Founder Office Hours is coming to Los Angeles with a who’s who of women VCs, including Sequoia’s Jess Lee, USV’s Rebecca Kaden, and Forerunner’s Kirsten Green. (Female Founder Office Hours is a series of events at which investors will talk with and advise women entrepreneurs in one-on-one sessions.) The event will take place in Santa Monica, Calif., on March 13 from 9 a.m. to 12 p.m. Sign up here.

THE LATEST FROM FORTUNE...

• Melinda Gates on stopping harassment in tech: 'We need LPs to step up' (by Michal Lev-Ram)

• Salesforce CEO Marc Benioff wants to regulate Facebook like cigarettes (by Natasha Bach)

• South Korea fines Bitcoin exchanges over privacy violations (by David Meyer)

• Inside Shell's race to remake itself (by Jeffrey Ball)

...AND ELSEWHERE

Large deals set record pace in January. Qualcomm is fined $1.2 billion by E.U. antitrust officials. Uber has hired a chief diversity officer. The Chernin Group invests $15 million in Barstool Sports.

VENTURE DEALS

• Katerra, a Menlo Park, Calif.-based provider of product design procurement, and logistics to the construction industry, raised $865 million in Series D funding. SoftBank’s Vision Fund led the round.

• PrecisionHawk Inc, a Raleigh, N.C.-based provider of drone technology for the enterprise, raised $75 million in funding. Third Point Ventures led the round, and was joined by investors including Comcast Ventures, Senator Investor Group, Constellation Technology Ventures and Syngenta Ventures. Existing investors Intel Capital, Millennium Technology Value Partners, DuPont, Verizon Ventures, and Indiana University’s Innovate Indiana Fund participated.

• Dianrong, a China-based online platform where members can borrow and lend money among themselves at better interest rates, raised $70 million in Series D funding. ORIX Asia Capital Limited led the round.

• NeoGrowth Credit Pvt Ltd, an India-based business loan provider, raised $47 million in funding. LeapFrog Investments led the round, and was joined by investors including Aspada Investment Co and Quona Capital.

• Nexar, a San Francisco-based technology company building a mobile application that offers insights and alerts about surrounding cars, raised $30 million in funding. Ibex Investors led the round, and was joined by investors including Alibaba Innovation Ventures, Nationwide, Aleph, Mosaic Ventures, Slow Ventures, True Ventures, and Tusk Ventures.

• Knightscope, a Mountain View, Calif.-based maker of security robots, raised more than $25 million in funding. Investors include Konica Minolta and Bright Success Capital.

• Havenly, a Denver, Colo.-based interior decorating and e-commerce company, raised $12.5 million in Series B funding. Foundry Group led the round, and was joined by investors including Industry Ventures, Chicago Ventures, and Kickstart Fund.

• Timescale, a New York-based operator of a data analysis platform, raised $12.4 million in Series A funding. Benchmark led the round, and was joined by investors including NEA and Two Sigma Ventures.

• Lenda, a San Francisco-based online mortgage lender, raised $5.25 million in Series A funding. SF Capital Group led the round, and was joined by investors including CreditEase Fintech Investment Fund and Rubicon Venture Capital.

• Groupdolists, a cross-platform SaaS solution, raised $1.5 million. Investors include Responder Ventures.

HEALTH AND LIFE SCIENCES DEALS

• Eureka Therapeutics Inc, an Emeryville, Calif.-based clinical stage biotechnology focused on treating solid tumors, raised $60 million in Series D funding. Acorn Pacific Ventures led the round, and was joined by investors including GP Capital.

PRIVATE EQUITY DEALS

• Ardian SAS is considering selling ESIM Chemicals, an Austria-based provider of agricultural and crop protection chemicals. The company could be valued at as much as 400 million euros ($490 million), according to Bloomberg. Read more.

• White Oak Equity Partners acquired a minority interest in Blueshift Asset Management, a Red Bank, N.J.-based quantitative investment firm focused on statistical arbitrage and high-frequency trading strategies. Financial terms weren't disclosed.

• General Atlantic invested in Benevity, Inc., a Canada-based provider of corporate social responsibility and employee engagement software. Financial terms weren't disclosed.

• Pharos Capital Group, LLC acquired Behavior Care Specialists, a Sioux Falls-based outpatient treatment provider of autism spectrum disorder services. Financial terms weren't disclosed.

OTHER DEALS

• ComScore Inc (OTCPK:SCOR) is exploring options, including a sale, according to Bloomberg. Read more.

• Aurora Cannabis agreed to buy CanniMed Therapeutics Inc (TSX:CMED) for about C$1.1 billion ($892.21 million), according to Reuters. Read more.

IPOs

• PagSeguro Digital, a San Paulo, Brazil-based payments solutions firm, reported plans to raise $2.7 billion, Reuters reports citing sources. PagSeguro previously said in a filing that it plans to raise $1.8 billion (53% insider) in an IPO of 48.8 million shares priced between $17.50 to $20.50 a unit. Universo Online backs the company. Goldman Sachs and Morgan Stanley are global coordinators in the deal. The company plans to list on the NYSE as “PAGS.

• Bioceres, a Rosario, Argentina GMO firm, said it plans to raise $130 million in an initial public offering of 11.8 million shares priced between $10 to $12 a piece. Jefferies, Piper Jaffray, SunTrust Robinson Humphrey, and Banco Santander are joint bookrunners in the deal. It plans to list on the NYSE as “BIOX.”

• Solid Biosciences, a Cambridge, Mass.-based Duchenne muscular dystrophy treatment maker, now says it plans an IPO of 7 million shares priced between $18 to $19 raising $129.5 million. Previously, the firm said it planned to sell 5.9 million shares between $16 to $18 a piece. JPMC Strategic Investments, Perceptive Advisors, Bain Capital Life Sciences, RA Capital, and Biogen Capital back the company. J.P. Morgan, Goldman Sachs and Leerink Partners are joint bookrunners in the deal. The company plans to list on the Nasdaq as “SLDB.”

• Menlo Therapeutics, a Redwood City, Calif.-based biotech developing therapies for pruritus associated with dermatologic conditions, now says it plans to raise $107 million in an offering 6.5 million shares at between $16 to $17 a piece, up from a previous stated 5.7 million shares priced between $14 to $16. Vivo Capital (18% post-offering), and Redmeditex Ventures (12.9% post-offering) back the firm. Jefferies, Piper Jaffray and Guggenheim Securities are joint bookrunning managers in the deal. The firm plans to list on the Nasdaq as “MNLO.”

• Sol-Gel Technologies, an Israel-based topical acne cream maker, said it plans to raise $60 million in an IPO of 5 million shares between $11 to $13 a piece. Moshe Arkin backs the company. Jefferies and BMO Capital Markets are joint bookrunners in the deal. It says it plans to list on the Nasdaq as “SLGL.”

• HNA Group, the Chinese insurance giant, is reportedly considering an IPO of its cargo handler Swissport. Read more.

EXITS

• GoDaddy will acquire Main Street Hub, an Austin, Texas-based social media marketing platform, for $125 million in cash plus up to $50 million in potential future earn outs, according to TechCrunch. Main Street Hub had raised approximately $93 million in venture funding from investors including Bessemer Venture Partners, Vista Equity Partners, and Silicon Valley Bank. Read more.

• Facebook acquired Confirm.io, a Boston, Mass.-based startup that allows companies to verify government-issued identification cards. Financial terms weren't disclosed. Confirm.io had raised approximately $4 million in venture funding from investors including Cava Capital, Rho Ventures, and Zelkova Ventures.

• Bunker Hill Capital sold Rizing, a Stamford, Conn.-based provider of SAP functional and technical services, to One Equity Partners.

• GTCR agreed to acquire EaglePicher Technologies, LLC, a Joplin, Mo.-based provider of power solutions for customers in defense and aerospace, from Apollo Global Management.

FIRMS + FUNDS

• HarbourVest Partners, a Boston, Mass.-based private equity investment firm, is seeking $2.5 billion for its fifth co-investment fund, according to Private Equity International.

• Energy Innovation Capital, a Kirkland, Ill.-based venture capital firm, raised more than $130 million for its debut fund, according to an SEC filing.