As one of the first venture capital funds to prioritize entrepreneurs of color and LGBTQ+ founders, Los Angeles-based Backstage Capital has been dedicated to minimizing funding disparities in tech since 2015. Building the fund from the ground up--initially while homeless--Arlan Hamilton has now raised more than $20 million and invested in 200 startup companies led by underestimated founders.
Hamilton sat down with All the Hats editor Teneshia Carr to talk about her business journey at the Inc. Founders House during Black Tech Week.
What are some decisions you made recently to grow your business?
About two months ago, I felt that to grow and be sustainable, I would need to let go of the majority of the team who weren't partners. We had 12 people and let go of nine.
And for those who don't know how venture works, when you raise a fund, you get a small percentage, 1 to 2 percent, of your total assets under management on a yearly basis. You can spend that on your overhead. We've raised from the dirt over $20 million, but it wasn't all at once. So it wasn't enough, and it was never enough to pay for operations. Every year, as we grew up, I would put about a third of the operations needs in from my bank account.
So I said, not only is it tough now, but it's only going to get tougher--I can either lie to myself and to everyone else and say we're going to be OK if we keep going the way we're going, or I can give people three-months' notice. And we can find everybody a new job, which is what we did.
What are some of the things you wish founders would stop saying or doing when it comes to pitching?
I think definitely a lot of founders don't know what they're asking for and they don't know the right time to talk to which investor. Also, they don't do enough research before they "shoot their shot." Please stop coming up to me and telling me you have the next YouTube, Facebook, Uber, McDonald's all-in-one company, because it makes you seem like you're not rooted in the reality of what your company really is, or what it's going to take to be a big company. You can tell me that you have one of those, but not all of it. I want you to be a dreamer. I want to dream with you. I wouldn't have gotten here if I were too practical. But you've got to root it with facts, metrics, and research.
What are some misconceptions that investors have about Black women-led funds?Because Black women are such caretakers in life, I have noticed that some institutional investors think that we're out here strictly for a nonprofit, only for the goodness of our hearts. But we should be taken seriously. I consider myself a venture capitalist, and this is still a for-profit business. We are trying to make some money back.