Arlen Hamilton is the Founder and Managing Partner of backstage capital, and has raised more than $12 million to back 150 companies led by underrepresented founders. Let's watch Ireland in conversation with moderator Natasha Mascarenhas. This was recorded a couple of days ago.
Hey everyone, I am Natasha Mascarenhas. And today we are going to talk about the super simple and not at all complicated question and theme, which is combining the next unicorn. Jokes aside, we have one of the best in the business to help us navigate that topic. We have Arlen Hamilton, the Founder and Managing Partner of backstage capital, Arlen, it's super great to talk face to face instead of just in the DM. Hey,
thanks for having me here.
Yeah, thanks for joining us. As you know, the whole event around TCP sessions justice, will a chat is this one will be all about how to help founders better understand how you invest and kind of the state of investing from your eyes. I want to start with a very simple question, which is how you've been able to find focus in this year, it feels like the hottest time and inventor and early stage startups. So you know, in a world of invite only apps and, and Twitter drama every day, I'm really curious how you find yourself focusing on what kind of startups to back?
Yeah, it's a great question. I just don't engage and follow, I just don't have the that same need to be on everything early in first and be everywhere. I really. So I like to watch people kind of run around and ask for invites and things like that. But it's just not as important to me. It's just a strategy of like keeping myself calm, because there's always a VIP to the VIP section, there's always a further further further, and I find some of it quite distracting. I think it helps just to know where I was just a few years ago, and to know, kind of what's important or to kind of hopefully, you know, keep tabs of what's important and not get caught up in any hype anytime. And I think that serves me well when I'm making investment decisions, too. Because people who interview me or are, you know, want insights from me, they are always asking me about trends. And what am I seeing and and what do I you know, what are the trends out there, and I just don't know, the trends. Were kind of counter intuitive and, and dancing to the, to the sound of a different beat anyway. So I think that's all helpful when we're looking at companies and finding things in different places.
Yeah, I mean, you've invested in over 170 companies today, if I'm getting the number, right, I'm sure it's not perfect. Um, one of the favorite one of my favorite things you did in the early days, which was right that Arlen Hamilton invest in 100 companies by 2020. And accomplishing it by 2018 was pretty badass as well. Thank you. You know, one thing that that you guys do differently, obviously, is this explicit focus and underestimated founders. But I would love for you to maybe walk me through some of the signals you look for, from those founders, because I'm guessing some of them are first time founders who don't have three exits to Google in their resume already.
That's right. Because, you know, if you look at venture in general, a lot of funds, who performed really, really well, and their first fund don't necessarily perform as well, in their second, third, fourth funds. So if you look at it from that perspective, going more micro investing only in companies that have had successful founders in the past is not necessarily the best tech, either, because, or tech, either. Because what if that founder was just there, they found lightning in a bottle. And yes, they did an amazing thing before but what if that doesn't translate to the next thing that they're going to do? And by the same token, what if someone who has all the makings of the next tech Titan is just being overlooked? Because it's not what people are used to seeing? It's not It's not that pattern match? matching it, they're so used to and they're just being overlooked. And it kind of keeps me up at night to think about, what do you what do you miss by just assuming that everyone there there's some magic pattern that creates, you know, the perfect founder, so I try to instill this Sit backstage. And I think we're all of us are really, really good at this is just like, let's look at things through a different a different angle, different lens.
Are there any, you know, maybe surprising things you look for when you're talking to founders? I know you kind of just said that there's no perfect pattern. But when you think about your backstage portfolio companies, what are some things that you think unifies them, and makes them make sense as a portfolio company versus a startup you think is, is pretty cool.
Yeah. And we see a lot of pretty cool startups. So it is difficult, we invest in about 2%, only of what we see, which is a difficult task, we're not always going to get it right. And we also, when we say no to a company, it absolutely does not mean that they shouldn't be invested in you know, so the signaling is a little tough for us just because of how outspoken we are. But I think, you know, there are many through lines, when I think about the founders and the teams that they have, I think a lot of the founders are they're from different walks of life they're from they have different education, backgrounds, different regions, different industries, because we're gnostic, but there's always this determination mixed with kind of a logic and a purpose. That is fueled by not just passion, because I think passion is overused, but it's fueled by this. This unyielding grit, that's, that is just too hard to, to create in someone. And when you think about that, and you put it next to juxtaposed against other portfolios, where all of the founders, maybe all the founders went to Stanford, or you know, something in that in that same vein, there are necks. First of all, let's just say that that doesn't mean that every founder who went to Stanford didn't have something that they overcame. But honestly, there's just so much that I see in my, I see in other people that I saw myself, when I started backstage, which is this grit, this determination, I think of a founder is a magical combination of passion and focus, they can do anything because the passion or other words that mean passion that fuels this, this rocket ship, if you have that focus that you can dial in on where you're going, and you have both. It's really, really interesting. And not everybody has that. So there's this, I think we are pattern matching for being honest. But we're just pattern matching from a different pattern. Yeah, I
mean, one of my favorite questions to ask founders, when I interview them is why would you be a founder when the odds are so against you? Yeah, it's a slightly joking question. But it's also consistently something that surprises me, and a reason why I would not be able to do it. It's just failure is the conversation. Yeah, forever.
And many of the founders in our portfolio, they're really locked lock and step with their, with their companies, their product, their service, you talk about founder product fit, we have that in spades. It's because so many founders, I think I'm going to compare to hope I don't mess up the comparison, or confused people more, but I am gay, and soups, soups, gay. And if I wanted to my wife and I wanted to have a child, there would be a lot that goes into that. There's no accidental pregnancy with us. And so many people, you know, in the same boat, it's almost like that with underrepresented underestimated founders, like they're not doing they have so much to lose, I think they don't have a second and a third and a fourth chances are that afforded to them. And so a lot of times you'll see companies that are built from such authenticity, and such genuine concern about a problem that they're trying to solve, rather than so many companies I see elsewhere, that are how do we get rich the fastest way we possibly can. And that doesn't always set you up with the right with the right recipe for success.
No, I think that was a great comparison. I think, you know, you've been doing it for four years. But you know, let's definitely address the fact that 2020 was the outlier no one could even prepare for and I would love to know how you vetted for those things, whether it whether it be authenticity, or founder, you know, founder fit with a company how you did that all over zoom, or if that was if you guys found a different way to do it. I would love to know what that process has looked like. months later.
Yeah, we celebrated our fifth year anniversary on September 15 of 2020. So still still getting started. We just we're just getting started. We think we as a team have always been a remote team. And we would before COVID hit, we would meet up probably four times a year, and find a way to meet up with each other usually was a small team, and then it got bigger, you know. And so we were able to, with everything else that rocked us and rocked the world. Last year, in the last year, that's happened, we were we at least had that going for us that we were not so caught so flat footed when it came to like having to change everything. And so we we spend time together, we have co working spots, and so we've done it that way. But we really were you know, it was different team members, usually meeting one on one sometimes together, meeting with people all over the country. And, and then coming back and sharing that information with the group. And so we just, we just brought it online, we had, we kept the multiple the multiple tier conversation process that we have, where any investor at the backstage can bring in a company that they're interested in, or that we do that comes to us can have a one on one and then say, Okay, this is someone I want you to meet more of, and there's like three tiers to it, they'll bring it into, you know, and one more person to the conversation, and then, and then eventually add us all to the conversation. And so that was actually remarkably easy to do. And in a year, that was so difficult. And we think we've made, I want to say almost 30 investments in the past 12 months. So we didn't slow down one bit, that's pretty much been our year, every year has been about 30 companies, and we hit that this time as well. So if anything, it made the process more streamlined. And when you have when you're talking about like, how do you pick up on things? And how do you how do you know for sure, um, I don't think you ever, you don't know until you know, I don't think you know, even if you have dinner with someone, even if you go visit them at their company, they're putting your best foot forward anyway. And you can do a lot of diligence behind the scenes, you can talk to people they've worked with, you can do all sorts of diligence that helps with that. But you really have to kind of have conviction and faith and and a belief in yourself that that you're making the right decision. Yeah, I
mean, I think you mentioned 30 companies, and the fact that you only accept 2% of them, of the companies. You see, I think it's it's the juxtaposition with that. And the fact that funding for female founders has slowed this year. And that funding towards underestimated and underrepresented groups has slowed in some ways this year, that feels so jarring. And so I don't want to ask you, you know, how do we fix this? But I do want to ask you, you know, your your reaction to that kind of lost momentum if you thought that it was ever momentum to begin with when you see the numbers now?
Yeah, I I just I may I may be reading the numbers wrong, or but anecdotally, I'm seeing, at least when it comes to people of color, I'm seeing more deals getting done. There are people there certainly funds, who got real quick on the excuses. You know, I can't make a new investment. I can't invest in anybody I haven't met already. You know, they get really quick on that. But you saw so many successful funds, so many well known funds, figure it out, and really start making it keep that momentum going. Because if you really want something to happen, you make it happen. Especially these venture capitalists. I mean, it's most competitive people I know. And so I think it was a lot of excuses. The the numbers have always been abysmal. They've always been embarrassing, they've always been insulting. And I did see the numbers where the number of women led companies has shrunk, you know, that have been funded has shrunk. And I think it's, it's unacceptable. And we should all feel ashamed about it. You know, I mean, the people who are doing something about it, we keep doing something about it, we keep yelling about it, we keep talking about it. The people who are missing out and who are just being so, so blind to this. It's really on your shoulders to figure it out, too. And there's so many people working on this who have the blueprint. If you can't figure it out on your own, there are certain there's I mean, you have All Raise, you have all the backstage of all these companies and organizations who are trying to do the work for you. And eventually what's going to happen is what I've seen so much of the same way people are leaving San Francisco in droves, they're going to leave the arena of venture capital in droves because so many people have just said I'm done trying to play that game. I'm going to bypass this altogether. I'm going to bootstrap I'm going to crowdfund I'm going to go with family offices. And venture capitalists don't have that same sway and that same importance that they once did. And you may not feel that today, but you feel it soon. And you're going to be the person who did not invest in Bumble, you're going to be the person who did not invest in XYZ. So it's at your own peril that you keep being blind to this in my opinion.
Yeah, I mean, exactly what you said the cut, like non traditional financing, or just non traditional the wrong word, just non venture capital financing feels more attractive to people these days, like, how do you view your role as a VC changing five years from now, even as someone that backs underestimated founders? Like, does it mean going into different kinds of financing structures? Or do you you know, do you see yourself always sticking in venture capital as the asset class?
You? Oh, I love that question. It's always I've always said this, I've said, I don't know if people pay too much attention to it. But I've always said that venture capital was the tool. It was the mechanism for which I could get in. I couldn't be an angel investor couldn't do all these things. But I could, I could, I could earn and learn my way in to venture capital. I've never been beholden to it. I've always said to that, I don't know what the future holds. But I think maybe there's another asset class that gets born. And we would certainly be part of that. And if that's the case, I just think it's a broken system. I think it's a, an old system. That is, yeah, that has a lot, a lot that needs to be fixed. And, again, it's the people are kind of living in a fantasy world. They're in their heyday with this, those years have gone. So there's so much ahead of us. It's funny how, how ironic it is that we are supposed to be investing in such innovation and the future and being on the cutting edge of things. And venture capital is so years back, you know, so stunted and what it's doing. So I think, just the way that I came in, I'll probably pivot or or backstage, we'll find ways we've already started. I mean, if you look at the rays that we did on Republic recently, that were that were, you know, still you could still be part of it, it's just it's an interesting thing. It didn't exist, the way that we wanted it to exist this ability to to go to the crowd as a fund. And we trailblazing made a way we made a path. And I think that's what founders are doing. We were just inspired by founders who are making a way for themselves left and right.
Yeah, and you know, for people who don't know, backstage did raise a community led fund on Republic and a crowd sourced crowd. Yeah, crowdsource sort of fashion. And to me, like the question I want to ask you about that that raised was, how do you think raising from a community changes the way you find that next unicorn or back that next first time founder, versus how it looks when you rely on institutional LPs? Is it fundamentally different? Yeah,
yeah, I think we're gonna have to work hand in hand, at least for now, until until we're less, or I guess, until I become independently wealthy, and I'm not being facetious. I think there's a time where I do become the LP. But until then, I do think we put we we have to play in a field where institutions are involved. I just think this proved out. I mean, this is I had to make it clear, this was not for your fund. This was for the operations entity of backstage, so I want to make that clear. But it for so many years, we had been beholden to, you need to raise a large fund, and then you need the management fee to pay for your operations to keep you in business. And every single year, we found a different way to do that, by necessity, you know, it has been so difficult to raise. And this time, the crowd comes into play. That's a grand and a great responsibility to have 1000s of people who are looking to you and looking for updates and wanting you to win, but also watching right and so I wouldn't, I wouldn't have it any other way. I'd much rather have 5000 people get a few extra bucks every year and be part of this, then to watch one or two institutional just get fatter. It's just not as exciting. So the institutions are going to have to compete with the crowd now. And that is where things get really, really interesting.
You kind of hinted at this, but kind of the last question I wanted to ask was what is giving you hope right now there's so much doom and gloom and annoying and abysmal statistics. So what what are you kind of latching on to hope
the individual in the crowd. So these founders who are not going to give up because of what the trends say or the fact that on the back, the macro is kind of terrible. So the individual willpower of People and then the crowd when they get together, what change can happen. And we see that day in and day out in different ways. And with this raise, like, like I said, is a great example of that. Thank
you so much, Arlen for joining that flew by, but everyone can find you on Twitter at Arlen was here. And join us for the rest of justice sessions. Thanks again, Harlan.
Thank you.
Now we're going to take a look at the state of gig workers, independent contractors and warehouse workers. For this panel, you can get your questions answered via slideshow. Now please welcome your panelists, Vanessa Bain with gig workers collective, Jessica Martinez with the National Council for Occupational Safety and Health and Christian smalls of the Congress of essential workers and I'll be moderating this one
