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.
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.
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HEALTH AND LIFE SCIENCES DEALS
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PRIVATE EQUITY DEALS
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