Dear White Venture Capitalists: If you’re reading this, it’s (almost!) too late.
Venture Capital: capital invested in a project in which there is a substantial element of risk, typically a new or expanding business.
A brief introduction to my interest in venture capital…
(Update, Nov 2015: I am now the founder and managing partner of Backstage Capital, a seed investment fund that backs high-potential, underrepresented startup founders:) Read more about my journey in my other medium posts…)
In early 2013 I watched from the side of a stage in Abu Dhabi as a sea of 50k people danced along to my boss’ performance in front of an actual sea, beachside. As a production coordinator and road manager, I was being paid to travel the world and be around great music with interesting, gifted people — pretty much a dream job. It was always an insane rush to see a show from that vantage and I had come to the conclusion that nothing on earth was more fun or more interesting.
Around the same time I started hearing about people like Troy Carter (Lady Gaga’s former manager), Ellen, Guy Oseary (Madonna’s manager), Ashton Kutcher, and others visiting Silicon Valley and investing in these apps that I’d never heard of. I was super curious to find out what could possibly be so compelling and exciting that it was pulling these people away from the rush I’d become addicted to.
I started reading every tech and investing book and blog post and news article I could get my hands on. I watched hundreds of hours of youtube videos of tech mogul interviews. People like Chris Sacca, George Zachary, Dave McClure, and Brad Feld were among the first people I learned about, and I was absolutely fascinated. So I cold called them all:) I reached out to founders and CEOs of startups that I liked, and chased down big investors. Interviewed people, got to understand the world more and more, and suddenly I *got* it.
{Note: In May of this year I was accepted into a pilot program hosted by Dave McClure, Bedy Yang, and 500 Startups on the Stanford University campus, to teach current and aspiring investors of all backgrounds the ins and outs of Silicon Valley investing. It was an amazing 2 weeks. I highly recommend their November cohort. }
Straight talk about diversity…
It’s been 2.5 years since I first started getting my feet wet in this world and a lot has happened in that time — mostly wonderful, exciting, super positive and optimistic things. But I have some observations I’d like to share about the flip side of that.
If you are an investor of the Caucasian persuasion, I cordially invite you to pull up a chair, turn off your Yeezy mixtape, and listen to me as if I were not an anomaly sent from another planet.
I’m extremely interested in diversity in tech (moving the needle, kicking the needle’s ass — whatevs) when it comes to people of color, women, and LGBT, since I am all 3. This post will focus on people of color because I decided to write it based on a conversation I had yesterday after 500 Startup’s wonderful PreMoney panel ‘Black is the New Black.’
Over the past 2.5 years, I’ve spoken to approx 200 founders, and by my best estimate 30–40% of them were part of an underrepresented group in technology. I’ve heard a lot of accounts of investor encounters that can be described as having anything from “nuanced bias,” to “clueless indifference,” to “blatant discrimination.”
Diversity talk can get really uncomfortable and awkward for all involved. While I genuinely believe most white people in tech (and in general) have good intentions, are well-meaning, and actually don’t need to be “taught” much about the topic, there are quite a few — who seem to be the loudest — who don’t know how to talk about it at all, or who do strange things in misguided attempts to overcompensate.
The most dangerous thing that’s happening is that we’re talking about black and Hispanic founders and the African-American and Hispanic MARKETs like they’re aliens that need help. Not every black person came from a broken home, grew up poor, can double dutch or dance. For example, I am not qualified to show you how to nae nae. For that, I feel shame, but I am my own person. Don’t box me in!
DEAR WHITE VENTURE CAPITALISTS: DO NOT PITY BLACK FOUNDERS! Do the same thing you do with white and asian founders and invest in them because you want to make money. Do not think of this as a social mission. Take the words “help,” “support,” “charity,” and “social impact” out of your thinking on this. (Social impact certainly is of interest to me, but that is not what this post is about)
It’s about financial returns…
Your goal is to make money as a VC or accelerator who is investing other people’s money because you have a fiduciary duty to do everything in your power to bring your LPs returns. Therefore, if you haven’t hired a team of people who are of color, female, and/or LGBT to actively turn over every stone, to scope out every nook and cranny, to pop out of every bush, to find every qualified underrepresented founder in this country, you’re going to miss out on a LOT OF MONEY when the rest of the investment world gets it.
The case for investing in diverse founders and diverse markets is more about doing everything you possibly can to not miss unicorns and decacorns and polyamorous butterflies (I just coined that, thank you) in underserved, untapped places. Plain and simple. It’s not about “helping” founders, it’s about fueling an untapped ecosystem so that you may be lucky enough to reap the rewards in years to come. You should be calling underrepresented founders and BEGGING them to allow you to invest in their company at the slightest sign of traction. Because of the blind spot investors have for this group of people right now, there’s an enormous opportunity to invest at undervalued prices. It won’t always be this way. Adjust your thinking NOW. Adapt NOW.
If I were an established or emerging VC firm, I would take at least 5% of the capital called to seed as many founders of color as I possibly could in order to find the ones who are going to KILL IT. I’d also set aside another percentage for follow-on capital and I’d call all my co-investor friends and tell them to allocate some funds for future syndicate rounds in this space. And I would do that over and over again until I had it cornered. Til every black and Hispanic founder in this country knew my name and came to me first with any deal. If only 10–20 investments in this space are being done in TOTAL, the entire VC asset class is going to miss out in a big way. Investors simply aren’t casting a wide enough net.
I’ll speak to you in a universal language most seem to understand: Drake.
Dr. Drake says: “If you’re reading this, its too late.”
In 2014 venture capitalists invested nearly $1.33BILLION in 976 SEED deals. I would argue that in 2015 there needs to be something around 50 DEALS in minority-led startups. There’s an entire ecosystem of newly educated minority coders and marketers and writers and financial wizards who are brilliant and nuanced and have different backgrounds and opinions and feelings…and all of that will inevitably lead to staggering innovation and profit. If you’re still doing sound bytes for TechCrunch and VentureBeat talking about how many black friends you have, or Periscoping yourself bumpin’ that new Lil’ Wayne joint in your million $ office, but aren’t writing checks to black founders — and checks the same size as your other deals at that — you’ve dropped the ball, my friend.
So in conclusion, it’s about 4 things: 1. Traditional investors deploying more capital into this fresh, exciting ecosystem and seeding their own returns for years to come, 2. Established firms and accelerators immediately hiring more diverse partners, associates, analysts, EIRs, and office managers, 3. Savvy LPs starting to INSIST that a specific percentage of a fund’s capital is allocated towards diverse investing, and 4. Affluent black and Hispanic people investing in other black and Hispanic people, right now…
Intel gets it. Don’t get left behind. ←
If you’re an associate or partner at an established venture firm and you want an advantage in a crowded space, get in touch with me. Every one of you should have in-house scouts searching for the black Zuck or the Hispanic Elizabeth Holmes. And those scouts need to be of color. And very smart and intuitive. And not white dudes who happen to have a lot of black friends and play basketball. Seriously. Right now. Email me. ARLANHamilton@gmail.com …invite me to your office or bowling or to a concert or out for sushi and let’s talk about it.
If you’re an LP, angel investor, well-paid tech person, all of the above, who likes to make money, get in touch for a chat. ARLANhamilton@gmail.com
If you’re a founder in an underrepresented group, whether you’re in Silicon Valley, SF, Oakland, Mississippi, Texas, the East coast, on the other side of the world…if you have a startup that’s going to make money or that is already making money, get in touch with me. Be part of my network. Share with me and I’ll share with you, and we’ll crush this thing together. Let’s go! ARLANhamilton@gmail.com
You can follow me at twitter.com/ArlanWasHere!
Update: Business Insider just published a great recap of the panel at 500 Startup’s PreMoney that inspired this post. I obviously agree with every word: ‘Invest in black entrepreneurs because it’s good business, not out of ‘social obligation’
…AND…this is one of my favorite articles on the topic, written by Richard @Kerby at Venrock ‘Why Are There So Few Black Investors?’
Thanks to Jason Towns, Director of the EIR Program at CODE2040, for always being so supportive and encouraging when I want to speak up and speak out. You have him to partially thank (or blame) for what I may say next;)
(Update, Nov 2015: I am now the founder and managing partner of Backstage Capital, a seed investment fund that backs high-potential, underrepresented startup founders:) Read more about my journey in my other medium posts…)
