Once underestimated and dismissed, Arlan Hamilton started her own venture capital fund with just $25,000 and steely self-belief. Now, she has a book that talks about her journey from being penniless to becoming a force to be reckoned with.
The name Arlan Hamilton may not mean much to people outside the rather insular worlds of venture capitalism and finance. Yet her story has the potential to have mass appeal, not least because of its unlikelihood.
You see, Arlan is an outsider: a gay black woman without money or connections, who tried to break into Silicon Valley, a place that is mostly populated by wealthy white males.
She was widely dismissed and underestimated by hundreds of people only a few years ago. Today, the 39-year-old is the founder and managing partner of Backstage Capital, the venture capital fund she created in 2015. It’s invested about $7m in 130 companies, all founded by at least one woman, a person of colour or someone from the LGBT community. In other words, people who have been historically underrepresented when it comes to investment dollars.
Arlan the author
It’s little surprise that Arlan’s story has spawned It’s About Damn Time, the business book that chronicles how she went from being penniless to raising millions. Speaking from her office in Los Angeles, Arlan tells Invest for Good that she wanted to produce something that was both informational and relatable. The latter was especially important, having read business books that failed to resonate with her. “They started somewhere I don’t have a reference of — I don’t know what it’s like to have a parent who can bail you out of messing up in your twenties,” she says.
The author would like the book to inspire someone to come up to her one day and talk about how reading it led to an accomplishment that once might have seemed out of reach. “That’s the entire reason, not only for writing the book, but for the process of the last eight or nine years.”
Just in time
Arlan’s change in fortunes began when someone finally believed in her. That someone was Susan Kimberlin, an angel investor who wrote her a modest cheque for $25,000. It came just at the right time. “I’ll never know how much more I had in me,” Arlan wonders, “how much longer I could have held on, under the circumstances. It changed everything.”
The circumstances were indeed challenging. Arlan, a former music production coordinator, had given up her job of organising concert tours to realise her ambition of having a start-up. In the process of doing research about start-ups in 2011, she discovered that approximately 90 percent of venture capital funding was going to straight, white men. “In a country where they make up less than a third of the population, that’s odd,” she says. “I looked at the landscape and I said, ‘If these guys can do it, I can give it a crack.’”
But Silicon Valley and places like it aren’t easy to crack, and harder still for women. A naturally curious person, she taught herself about venture capitalism with YouTube videos, podcasts, blogs and whatever else she could find. Arlan set about writing the names of influential venture capitalists on index cards, wondering how they fit into the ecosystem. She sent out hundreds of emails and knocked on the doors of Silicon Valley for three years but with little success. She spent some time homeless, living on the floor of San Francisco airport and using food stamps to eat. She was knocked back so many times she stopped caring about rejection. But she kept going because she had an unwavering belief that she was onto something. As Arlan says, “To me, it became a calling.” This calling was to start a fund for people like her, who had seen the door shut on them many times.
When she finally got Kimberlin’s “confidence cheque”, she had exhausted many avenues. “Four and a half years later I still get a visceral feeling when I think about that day,” Arlan tells Invest for Good. “It was such an important moment in my life. I also felt, ‘I’m ready for this.’” She has since had some impressive tech entrepreneurs become investors in Backstage Capital, from Netscape co-founder Marc Andreessen to Stewart Butterfield, the Canadian behind Flickr and Slack.
Sitting at a microphone with her book propped up on a shelf behind her, it’s hard to reconcile the Arlan you see today with the Arlan that used to worry about having enough to eat. “Sometimes it’s a great thing to be underestimated,” the founder reasons, “because they don’t see you coming.” One of the things she’s learned is to trust her own instincts: “More often than not, they put me in the right place. When I question them, that’s when things usually go wrong.”
These instincts have led Backstage Capital to invest in businesses that others would have undoubtedly passed on. One of these is CurlMix, a beauty company with a range of hair products made by a husband-and-wife team. When Arlan met Tim at an event in 2017, he’d been mixing the products in his kitchen and doing a little less than $10,000 in revenue. Arlan didn’t think another venture capitalist would touch the business because it was such a small operation but she was struck by his sober and realistic pitch. “I became an advisor right away, immediately, and then we invested when we could a few months later,” she recalls.
I look for people who are doing things that I feel I couldn’t do today, or it would take me a decade or more to figure out how to do it.
Since then, CurlMix’s founders have had their first $1m month and have done more than $6m in revenue. “I”m not saying that my cheque made that happen,” Arlan clarifies, “but I’m saying I got to see them when they were budding, when they were making that happen, and they’re now one of the fastest-growing beauty companies in the [United States].”
A winning combination is when entrepreneurs have focus, passion and solutions. “I look for people who are doing things that I feel I couldn’t do today, or it would take me a decade or more to figure out how to do it,” confirms Backstage Capital’s founder. An example is Tambua Health, a medical technology company that uses smartphones as a powerful tool to test for respiratory diseases. It was discovered in London as part of an accelerator programme developed by Backstage Capital in 2019. “It was a team effort that brought them to us,” says Arlan, “and when I heard what they could do, it was really exciting.”
Beating the odds
Of the 130 companies that Backstage Capital has so far invested in, there were about 6,000 that pitched to get those VC dollars. That’s a success rate of only about 2%, with each company receiving between $25,000 to $100,000. This still beats the odds. It’s estimated that only about 0.05% of startups raise venture capital. It’s a sobering statistic that proves how competitive the field is. Yet Arlan sees the possibilities of success, not the incredible obstacles. After all, the value of VC investments in the United States in 2019 amounted to about $107bn, so there’s a lot to play for. “If I thought that there was potential in 2011 for underrepresented founders,” she notes, “I have learned the sky’s the limit. There’s no doubt in my mind now. I have seen so much, and people are still behind on recognising them, which is very interesting.”
Not many entrepreneurs, however, are totally insulated from the economic fallout from Covid-19. Arlan admits it’s a “scary time” and she says many founders she knows are worried, but the most resilient are likely to find a way of coming out the other side. In this respect, those who have always had to get by through bootstrapping might be in a better place to succeed. “A lot of our founders have not ever been on top,” she points out. “You see where the rubber meets the road and people are rising to the occasion.” For Backstage Capital’s portfolio, it’s still early days. How successful it truly is will depend on how these companies do in the future and most are at a very early stage.
Arlan describes herself as a bit of a “lone wolf” and generally lives in her own head a great deal. As a result, she doesn’t have one particular mentor she relies on, but she does see the value in helping others through offering online courses, recording podcasts and of course her book. Some of these resources for entrepreneurs can be found in the Green Room, on Backstage Capital’s website. One current goal is to do more with her nonprofit Cover, created to support entrepreneurs and aspiring investors.
She calls it “wonderful” to be in this position after so many years of hardship. Even more impressive is that she is working with her mother to provide scholarships for underrepresented scholars, starting with a full-ride scholarship for a black student going to the University of Oxford. It’s to be replicated at Dillard University in New Orleans, her mother’s alma mater. “We will continue that as long as we can,” she smiles. And you feel that it’s a promise she will work hard to keep.
Arlan Hamiltion is the founder and managing partner of Backstage Capital. Her book It’s About Damn Time is out now, you can buy it .
Originally published at www.investforgood.blog on May 7, 2020.