This article was originally published in the May 28, 2016 edition of Germany’s largest newspaper, Süddeutsche Zeitung, which is read by more than 1 million people daily. We have had it translated into English for those who requested it. Thanks for reading!
=========== By Claus Hulverscheidt
On the evening of the 2nd November 2012, Arlan Hamilton stood on an enormous music stage on an Abu Dhabi beach and was moved by the scene of 50,000 young people dancing uninhibitedly under the colourful floodlights. The balmy night, the sea, the band, the soul beats, and she, the young tour manager being paid to travel around the world, right in the middle of it all. Arlan Hamilton had made it to where she had always wanted to be.
Or so she thought.
Three and a half years later, Hamilton is sitting in her own new office in Los Angeles with a smile on her face. ‘You can get these things wrong’, she says as she glances at the freshly painted lavender-coloured wall. The name she gave her company — Backstage Capital — shows that music is still close to her heart, but apart from that there is little connection between her old world and this new one.
Hamilton is now a venture capitalist (VC). She collects money from wealthy private investors and uses it to support company founders — predominantly women, African-Americans, Latinos and other ‘under-represented high-achievers’ who have thus far had minimal access to investors. The 35-year-old has never been as fascinated by any artist or music sensation as she is by the world of founders and innovators into which she plunged for the first time shortly after that concert in November 2012.
She was inspired by popstars like Madonna and Justin Bieber, whose careers she followed closely during her time as a tour manager. Hamilton says; ‘At some point I realised that many musicians are investing part of their wealth in Silicon Valley — to support young people, but in reality mostly because they want to be able to say in the future that they discovered the next Airbnb or Uber.’ The more she looked into the subject, the more enthusiastic she became about it. She spent months locked up at home reading books, essays and blogs, watching interviews, documentaries, shows, and talking to founders and investors before launching Backstage Capital in November of last year.
Less than 2% of US venture capital goes to Afro-Americans.
— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —
One must first picture the typical Californian or New York venture capitalist to appreciate how significant Hamilton’s move is not only for her, but also for her new field. In very simple terms, this typical investor is male, white and heterosexual, and thereby the complete opposite of Arlan Hamilton, who is female, black and a lesbian. The Texas native sees this combination not only as formative for her personality but also as a mission in itself: ‘There are so many women, black people and people of other sexual orientations out there who have great ideas but are being left to one side by traditional venture capitalists.’ ‘This is the gap in the market I uncovered, not out of pity or because I am naturally altruistic, but because these people are damn good and I want to earn money with them.’
Indeed, according to a study carried out by the founder platform Digitalundivided (DID), less than 2% of the funds supplied by venture capitalists in the USA go to Afro-Americans, and the share apportioned to black women is negligible at 0.2%. Should a female founder actually manage to find an investor, she will receive on average $36,000. A start-up managed by a white man can expect $1.3 million.
‘Young, white tech investors are looking for young, white company founders — they are simply sticking to what they know.’
— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —
Racism and sexism still play a part in the unequal distribution of funds, according to DID research, even if just on the grounds that many venture capitalists subconsciously believe founders who deviate from the norm to be incapable of leading a company to success. ‘It is often more a question of thoughtlessness than bad intent’, Hamilton surmises, ‘young, white tech investors are looking for young, white company founders — they are simply sticking to what they know. That is why they also do not know what they are missing out on when they overlook black people and women.’
Backstage Capital is not the only VC fund in the USA to take up the cause of supporting neglected social groups. Kesha Cash and its Impact America Fund supports company founders trying to improve the lives of low-income families. There are also people like Charles Hudson, Jocelyn Goldfein and Hunter Walk, but none are as outspoken and energetic as Hamilton, with her good-humoured frustration. A kind of personal manifesto published online in June 2015 to announce the grounding of her company bore the caption: ‘Dear white venture capitalists: if you are reading this now, it is (almost!) too late.’
Not only are her three employees swept up by the honorary Californian’s enthusiasm, but also more and more investors, who are placing funds with her. Although some of these are unknown, big-name investors include Netscape founder Marc Andreessen, Google-Maps inventor Lars Rasmussen and Leslie Miley, who was the only black Engineering Manager at Twitter until six months ago, when he ended up leaving the company due to their treatment of minorities. Hamilton is not allowed to reveal who and how much is invested in Backstage Capital because of stock exchange restrictions, but she hints that she has already amassed several million dollars.
The eight diverse companies who she has thus far supported with $25,000 to $100,000 each include Nailsnaps, a Californian business whose app allows women to design their own nail stickers, and the Miami-based start-up Kairos, which is using facial expression and emotion recognition software to forge new pathways in remote advertising and mobile payment. Many of the companies have a tech background, but not all of them: the New York designer Katharine Polk produces modern wedding clothes to replace the traditional veil and dress train. Those who are successful can obtain a further $100,000 to $250,000 in a second round of funding.
The Backstage team attribute at least part of the apparent success of all the firms thus far to the founders’ social backgrounds. ‘If a black woman who has studied at an elite university comes to me, then I know she must have worked much harder than others to even be accepted by that university, so she must be good!’, says Hamilton, and her Caucasian colleague Susan Kimberlin adds: ‘These founders are quite simply tougher.’
The criteria used by Backstage Capital to identify worthwhile companies are no less stringent than those used by other venture capitalists: how good are the team, the idea and the product? Who are the potential customers and how will they benefit? How much market research have the founders done and how can the venture capitalist’s input contribute to their success? Therefore, out of around 1000 companies who will apply for financial support from Hamilton this year, only around 30 will actually receive funding in the end.
‘Of course it is enjoyable to help people who you believe in’, she says, ‘but just to clarify, I want to become a Backstage millionaire and that is only possible if the rate of return is good.’ The feisty, hoodie-clad woman therefore does not see herself as a political activist, even though she goes on to admit that she is absolutely ‘hooked on the idea of bettering the world.’
Yet she may have had some degree of success in terms of the latter. The national venture capitalist association (NVCA) recently acknowledged the limited diversity amongst founders as well as in its own internal ranks. A task force has been assigned to find solutions, although it is still wrestling with the same issues as the field at large: out of 16 members, only one is black.
Translated by Lindsay Morlock via K B Translation
Arlan is the founder and managing partner of Backstage Capital, a seed investment fund that backs high-potential, underrepresented startup founders. She is also a music tour manager, currently working with New Zealand Music Award winner Janine & the Mixtape.
For interviews or other questions, please email ARLAN@BackstageCapital.com.