Why I’m Joining Backstage Capital
A Macroeconomic Argument for Investing in Diverse Founders
I’m not the only one out there who is appalled, annoyed and frustrated by the diversity statistics in venture capital. It’s a problem on all sides of the table. VC firms are consistent in their uniformity — over 90% of partners are white men. Diverse founders aren’t in their networks and consequently don’t get meetings and don’t get funding.
There are new players in the game who understand that change is not only needed because it’s the right thing to do. It’s needed if investors are motivated by high returns. As the one and only Arlan Hamilton observed in 2015:
“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.”
For the people in the back: As a VC, “You have a fiduciary duty to do everything in your power to bring your LPs returns.”
So then, the question at stake is — are VCs missing out on returns because of their homogenous networks?
Let’s take a look at some of the macroeconomic trends going on to understand why VCs need to be making diversity a priority:
In the United States:
- As of 2015, women controlled 51% ($14 TRILLION DOLLARS) of wealth
- Hispanic buying power hit $1.3T in 2015, up 167% since 2000 and outpacing other segments by nearly double
- These trends are only increasing: 43% of millennials are non-white/ 50% of newborns are non-white, and in 2055, there will be no majority population
These trends are especially important when you consider the type of investing that VCs do. Unlike investing in the stock market, which is a liquid investment, VCs invest private capital into startups — expecting a return over a matter of years. Digging a little deeper, many VC firms invest once into a company in the early days, then continue to follow on in that company, supporting it as it grows. In other words, a bet made at a VC firm today, will be re-made multiple times, at higher $ amounts each time.
Another element of importance here is long-term return. Once a venture backed startup reaches IPO, its growth potential is one of the single most important factors for long term success in the public market. This is not only important in when it comes to VC economics — this is important for our economy as a whole. Decisions made by VCs today will impact — for better or worse — the greater economy 10–15 years out, and then on into the future.
In other words, if you are a VC investing in a company TODAY (2017), you should be thinking about what the market will look like, and who will be making the buying decisions in that market, 10–15 years from now.
Other industries have realized this and are starting to reap the returns. Let’s look at the film industry to understand that bets on diversity pay off in a huge way:
- 5th Highest grossing animated film of all time? Frozen, written and co-directed by Jennifer Lee
- Highest domestic gross box office film? Star Wars: The Force Awakens, featuring the most diverse cast of any Star Wars movie, with Daisy Ridley and John Boyega in leading roles.
- As more diverse films are released, records continue to be broken. A few recent and great examples of this are Get Out, Hidden Figures, Wonder Woman, and Girls Trip.
This should come as no surprise. A recent report from CAA (Creative Artist Agency) backs up the blockbusters:
From there, the study notes that at every budget level, a film with a cast that is at least 30% non-white — CAA’s definition of a “truly diverse” film — outperforms a release that is not truly diverse in opening weekend box office.
It’s not a question of “if” — I have no doubt that the next wave of unicorns will be a diverse pack of companies led by a diverse group of founders. The question is, which VC firms will recognize, and capitalize on this trend?
For this reason, and more, I am so excited to share that I’m joining Arlan + the Backstage Capital Crew on August 1 as Partner and Chief of Staff. This is an important transition as I’ve spent nearly 13 years with Verizon, and lucky doesn’t begin to describe how I feel about my time there. I will be forever grateful to Verizon and the incredible team and portfolio at Verizon Ventures. I’m looking forward to bringing my experience to this new chapter in my career.
To date, Backstage Capital has invested in 50 companies led by underrepresented founders. Venture capital enables the future of technology and business, which will be realized in a society more diverse than has ever existed. Backstage Capital is paving the way for diverse founders to succeed, and I am thrilled to be a part of this evolution.
