Arlan Hamilton recalls what she thought when she learned that around 90 percent of US venture capital funds go to companies run by white men: This isn’t just unfair – it’s a missed opportunity.
“The people I’ve been around come from so many different backgrounds,” said Hamilton, the founder of Los Angeles-based VC firm Backstage Capital, Thursday at Vision Summit 2021 Inc. “All of these types of people, and they are not represented. “
Hamilton, a black gay woman, started Backstage in 2015 to invest in startups led by underrepresented founders. Since then, she has crossed with Steve Case, the co-founder of AOL who launched the Rise of the Rest seed fund three years ago, to increase the geographic diversity of seed funding. Case’s mission is also based on an unfortunate statistic about financing startups: Around 80 percent of US venture capital funds go to companies based in California, New York or Massachusetts.
“Only from a ROI perspective are we missing out on some of the big entrepreneurs who are building some of the big companies in possibly some of the big industries of the future,” Case said during a virtual panel at Vision Summit with Hamilton on the future of US startup funding .
Put it all together and you start to see why the two investors want to solve the national problem of access to capital. Here are three of their top food stalls.
1. Start-up capital is crucial.
Hamilton and Case both use seed capital to promote successful startup ecosystems across the country. “Every Fortune 500 company starts out as a startup,” said Case. “Before each growth round there is a venture round. And before that there is a starting round. When you stop sowing and get more shots on goal, you see less venture and fewer opportunities for growth.”
On offshore seed rounds, the dollar numbers are usually relatively low compared to those in Silicon Valley. That’s a feature, not a bug, said Hamilton: Startups in cities with lower cost of living can make significantly more money for an investor’s money.
“If I had to choose to only invest in the coastal cities or the rest of the country, just as I invested in underrepresented and underrated founders, I would choose the rest of the country,” said Hamilton. “I think it’s such a no-brainer.”
2. Investors everywhere need a new way of thinking.
Case told a story about a founder near Raleigh, North Carolina who had various pitch decks for local investors and Silicon Valley investors. The local deck full of spreadsheets and data focused on a path to profitability. The Silicon Valley Deck focused on the big idea, a vision of what the startup could become – what the founder said was all of the investors who took care of it.
This attitude is widespread: many venture capital startups are sponsoring huge rounds of fundraising to track hypergrowth and market share and leave profitability for later. But underrepresented founders often have to build differently, Hamilton noted, by prioritizing revenue, gaining investor confidence, reinvesting profits in the company, and growing sustainably.
According to Case, the right attitude for investors is somewhere in the middle. While Silicon Valley investors can lose sight of the present, investors elsewhere can worry too much about why a startup might fail. “Believe a little more,” said Case. “Imagine, what if this really was a huge company?”
3. Real progress requires long-term commitment.
Three years ago, only 34 black female founders had ever raised $ 1 million or more in venture capital. This is based on data from Digitalundivided, a Newark, New Jersey-based startup that aims to drive economic growth in black and Latin American communities. In 2020 that number rose to 93.
Progress right? Hamilton is careful. Much of the recent attention to black women entrepreneurs, she said, has come from corporate responses to last year’s Black Lives Matter protests – and it’s too early to judge whether the momentum is sustainable. “One hundred [Black women] can fill one side of a room. I’m not upset about that, “said Hamilton.” There is a lot to be done and there is a lot of respect that needs to come to us sooner. “
The $ 1 million benchmark can also be misleading. Startup founders need investors to support and even mentor them, and investors need to do that work over time, Case said. Writing the check should be the beginning of the trip, not the end.
“I hope that one day Backstage will be taken out of business because we no longer have to exist in the world,” said Hamilton. “Because there is this difference between not represented and no more. There is only represented.”
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