How Arlan Hamilton Is Changing the Ecosystem One "Yes" at a Time

This transcript has been generated by an AI tool. Please excuse any typos.

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So many founders who we look up to and who we admire and who have been successful, have these stories of somebody came in and gave them a leg up. It's not necessarily something to look down on, say, Oh, look at your privilege and how you used it. I actually think, OK, great. Let's emulate that. Let's make that possible for others. So that's why every single day I think about how do I say yes, where can I make that happen? Of course you can't say it all the time. It's just not how the world works, but we can certainly say it more than we do.

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Welcome back to Changing the Trajectory. I'm James

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James Bernstein's Head of Diverse Market Strategy, and I am Maci Philitas, Emerging Wealth Strategist here at Bernstein. Thanks for joining us again today.

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March is Women's History Month and our guest is an incredible woman who, through her tireless efforts, work and passion is making history every day, one Yes at a time. Arlan Hamilton is the founder and managing partner of Backstage Capital, a fund dedicated to minimizing funding disparities in tech by investing in underrepresented founders, women, people of color and/or LGBTQ individuals.

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individuals. Arlan's creation of backstage capital is a testament to her grit and courage. Since its inception in 2015, Backstage has raised more than $15 million and invested in nearly 200 startups, led by underestimated and high potential founders, like yours truly. She's also the author of It's About Damn Time - How to Turn Being Underestimated into Your Greatest Advantage. She's the host of the popular Your First Million podcast, and she has taken a seat on the other side of the table as the founder of her new startup, Hire Runner. Arlan, thanks for joining us today. You are a force.

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Think you, Maci. Anything that you invite me to. Thank you, thank you.

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Well, Arlan, not only are you a force of nature, you also played a significant role in my success while running On Second Thought. And so I want to thank you publicly here for that. But also, I can personally attest to the fact that you placed underrepresented founders at the forefront of your mission. Not only that, you're investing in these founders before it was in vogue.

02:19 - 02:24

Can you tell us a little bit about how you made the case for investing in these founders in the early days?

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Sure. Have to remember that it was pre a lot of the conversations that even started, and I would say, 2018 is when conversations about race and ethnicity started coming into play in tech in a major way. And then 2017, I think it was when women were starting to talk about that. So this was 2011 through '15, and I was not in Silicon Valley or anywhere that was considered a major tech hub ecosystem. I was in Texas out of an apartment, and I think that actually helped because I could see what wasn't right in front of me. I could see it from a different lens, when I was speaking to investors or potential investors, even though it took years for it to catch on and to be understood,

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what I was saying was a combination of things. You know, what is that? To some people, it would appeal the idea that it simply wasn't fair, that it simply wasn't a level playing field and that they had the ability and the potential to start to right a wrong. And that was very appealing to some people. To others, I said, Hey, we don't have to pull any heart strings here. Let's just talk brass tacks. You know, let's talk about the real deal here, which is that you're missing out and it's your duty as an investor, especially investing other people's money. It's your job to find outcomes and to find returns. And if you're not looking everywhere you could be looking, especially places where other people are not looking, you're not doing your job well and you're going to be left behind.

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And so tapping into a little bit of that competition and that logic was helpful, at least to get things started in 2015. And then little by little, it started to show itself, right. You started to see so much potential. And that's why I was able to make investments in your company and companies like yours.

04:31 - 04:48

Yeah. And can you tell us a little bit about that first Yes you received. And you know, what it was like to receive that Yes from your first LP investor and kind of how you take that energy and have taken that energy through to your practice as an investor. Yeah.

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So Susan Kimberlin, I'll say her name for the rest of my life. She put in $25,000 and then another $25,000 a few days later. And so in this context, she was the first yes to the the fund Backstage Capital that is now invested in 200 companies. With her first investment, I was able to make my first investment and gone on to raise millions and millions of dollars since then, but I'll never forget that. I'll never forget her belief, her conviction, her conviction, I might add, without needing other people to be around and say that it was the right thing. That's oftentimes missed in the story because there's a colleague of mine who says it's a confidence check.

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Yeah. You know, and so many founders who we look up to and who we admire and who have been successful have these stories of somebody came in and gave them a leg up. It's not necessarily something to look down on. Say, Oh, look at your privilege and how you used it. I actually think, OK, great. Let's emulate that. Let's make that possible for others. So that's why every single day I think about how do I say yes, where can I make that happen? Of course you can't say it all the time. It's just not how the world works, but we can certainly say it more than we do.

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Yeah, absolutely.

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And later on in the conversation, I have questions about how and when you say no. But kind of sticking with where we are right now, something that I know and you know from personal experience is that it's difficult for Black entrepreneurs to secure funding, but it's also tough for investors as well. What are some of the creative strategies you've employed to invest in and expand your portfolio?

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Oh, how much time do we have? Well, first of all, not being afraid of being embarrassed or building publicly, not being afraid of being sort of made fun of for having a smaller fund. So the first funds that I had were three consecutive years 2016 through '18, and the funds ranged between a million and $1.25 million. And at the time, investors and people who had success were saying, Oh, you're not a real investor, you know, these are small funds. Well, it's funny to me today that so many of those 25-50k checks have gone on to return so much on paper, to give us access to the next rounds of funding that other people who have a lot more money could not get into, to get us board seats because of what we are able to achieve.

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The creativity came from also my own conviction of going this path, no matter what was being said to me or about me and saying, I think that it comes down to more than money. I think money is the commodity here, even though it feels like it's the hardest thing to get. And if we can do not just value add, because every investor says that. But if we can be truly convicted, if we can be a partner to these founders, then there's something truly magical that we can tap into. And so it's that. I also have been vocal about turning down money where I think that it's not the right fit.

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Even when we need it. I've also said that, hey, if institutionals don't figure us out or get us, we will do two things. One is we will go to the crowd. And so we've raised millions of dollars from crowd investors, both accredited and unaccredited. And the second thing is that I will build an empire on my own and feed into Backstage.

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So I have spent the last few years in addition to building Backstage, building out a speaking career, it's lucrative, a book publishing career, a media career, so television and film where I own at least 50 percent of the IP of any project that I work on. And now building Runner, which is a fractional operations company for inclusive startups, and I believe Runner will become a billion dollar company and whatever upside I have from that and from anything else I do, I split it with Backstage. So I invite people to participate in institutionals to figure it out. But I don't... We don't need them.

09:10 - 09:11

That's incredible.

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And I think what was really interesting is that you said you've turned down some investors. Oh yeah. So what rubric would you say you use when evaluating whose money you'll accept? Because, you know, so often it's, you know, investors will decide which startups they'll invest in, or they're often in a place where they kind of need whatever capital they can get in. So how have you determined you'll say yes to these people and no to those?

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It's kind of like what institutional LPs do when they divest from something, from a category. I'm doing the same thing, really. I'm saying very simply, what can I live with? What do my ideals tell me are worth getting in bed with? Mm-Hmm. There's no importance to money where I'd have to lose myself that carries over to the companies. And I say that, and I do that with a bravado because I'm willing to back it up with making whatever else needs to happen happen in order to catch that shortfall.

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So I'm not just going around and burning bridges and telling people that, you know, I have this moral high ground. I'm saying if I feel that, for instance, a person is contributing to the downfall of people of color, actively contributing to White supremacy on a daily basis and making money from it, I don't care how many millions of dollars that could bring in to me. I'm not going to use that blood money. It's just not worth it to me. But at the same time, the people who are stakeholders and people who I think about their day-to-day life, like all the employees we have at both companies, all of the founders. I also look for friendly money to take the place of it wherever I can.

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And I think what's the best is that not only do you say no to that money, but you also hustle to fill the gap. And so you don't say, Oh, we'll just do without it or we'll find it elsewhere. You take it upon yourself to decide and provide that, that money, that capital.

11:12 - 11:39

Yeah. Well, that's where you get the moral high ground to do it. And it's also where you get the, you know, the conviction to do it. It's not easy. It's not easy, but you can control it. I can't control what millionaires and billionaires do with their time and how they spend their money. I can control what I take from them. What I accept from them. And I guess I am them, becoming them. That's what I can control.

11:39 - 12:13

Hey, Arlan, one of the things I appreciate about you and your journey is your time in the music industry. I had some time in the industry, probably not as significant as yours. You are tour manager for Toni Braxton. And by the way, in preparation for this, I was seeing Seven Whole Days on my brain all day long. Wow. So, you know, you went from this journey from the music industry transitioning into venture capital. What was that journey like? What do you still employ today? What? What did your experience then teach you now that's kind of informing you and the great things you're doing now?

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Yes, I would be remiss if I didn't correct that. I was Toni Braxton's production coordinator. Ray Amico was her tour manager. Really awesome guy. And I learned so much that I still use today. Some of the characters are the same. You said you worked in music. You see this, like, there's agenda, there's ego, there's talent beyond measure. There's a lot of money involved. There's a lot at stake, a lot of reputation. Sometimes the people who you wouldn't expect are the most high maintenance, and sometimes the stars of the show are the ones who are the chillest. You know, sometimes that can be the other way around. But like, for instance, Toni, probably the least, there's no maintenance for her.

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Wow. She showed up. She appreciated who was around her. The first thing she said to me when I went to her first rehearsal and I was, believe me, I was seven whole days of freaking out, and she came up to me after she sang and put both of her hands on my shoulders and said, finally, a woman in production on her team. And she was just so happy. And when we went to different locations, she would ask the staff how they're doing that kind of thing. And then, you know, it was someone else who was, you know, needing the most attention. And it just helped me like, understand.

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Working, you can't help, but when you work with 40 different people and different tours and different things and you're moving and you have to understand multiple agendas and what makes people tick, what affects people, what impacts people. What drives people, you know, and you put all of that and you just superimpose it on the tech world. And here we are. It's really similar.

14:01 - 14:31

I can definitely say my hustle gene is much stronger. Yeah. Given the time in the industry. And you learn early on how to influence people who seem like they could never be influenced. But there is some great camaraderie building, but getting to know people where they are today and being able to just kind of mesh and meld and just be part of something special was really unique.

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And, you know, Arlan, I think it's something that's super inspiring about you is that you've gone from being homeless to the cover of Fast Company. How do you stay present in the moment while keeping an eye towards the future?

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There are one and the same. I love that question, but I'm in the future and the future is my current. So I I feel like along the way, I've been able to sort of see or predict or, you know, understand what is around the corner. Not everything. Obviously, I'm not psychic, but just kind of have tapped into it. It's hard to explain, but I don't think of them as two different things. I guess so another way of saying it is, some people say, you go where the puck is going to be, right, I live where I think we're headed. And therefore, you know, they say if you stay ready, you don't have to get ready.

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Yeah, exactly. All right. It's almost like, you know, living in San Francisco, you're in the present, but you're also kind of living five years into the future.

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Yeah, that's probably what it is.

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Yeah. Hire Runner, your new startup is one that connects extending operations out with inclusive startups. How's that going? What excites you about this new energy and effort? It's going well.

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It's a lot of fun to be in the operator seat. I bootstrapped the first two months or so, first 50 days. We got to 64,000 revenue, 500,000 run rate in those early days and had to put up a waitlist. And I've raised a couple of million for it now, and I had to make that decision of do I want to do that and Maci, you know how this goes, like you got to weigh the having people's opinion, you know, and in the mix or all of this dilution, all of those things, you have to weigh. And I did the exact same thing. And what has been the most exciting has been that this was something that I thought of one day and it was a while ago that I thought of it originally, but I thought of it one day. And now there are actual people who are paying their rent. Because Runner exists.

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That's amazing.

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That, to me, is will never and I hope that never gets old to me. Mm-Hmm. And so we're at about 200 runners today and we want to be at 1000 by the end of 2022.

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That's amazing.

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That's amazing. And quickly shifting gears back to your role as an investor, you earlier in our conversation spoke about how gratifying it is to be that confidence check because of Susan, Susan being your initial confidence check. So with saying Yes been so gratifying, how do you prepare yourself to say no to founders? What kind of informed your investment thesis to give you the framework for when you do say no?

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Well, I mean, it's just the math. You know, we've invested in 200 companies just about and we've seen more than 10,000. So it's just so many more Nos than they're Yeses. So one of the things that I started doing on my own and then when I had a team we make sure to do is in addition to being the shop that either says yes or no to you. We tried to have so much other content and so many other resources that were available to non-portfolio companies. And so that helps a lot of ways. There's still people who are very upset if they get a No, and I've made it one of my life missions to get people not to let one No stop them because they can't do it. You know, it's not going to really work out for you as a founder or as an operator within another company or as a budding investor if you can't handle rejection. So there's that sort of

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And then now that there are four check writers at Backstage as opposed to one where I started, I love that it doesn't all hinge on my opinion. And that there can be dissenting opinion in there. I mean, it's been for years, but that the check writing ability and the opinions going back and forth. But I like the fact that Backstage as an investment entity lives on beyond and without me. Like, you know, I still work day to day on Backstage. I still make investment decisions, but it can't just be about what I think is the right thing and the wrong thing to invest it.

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Yeah. What was the best Yes? Right. So who was that founder? What was the business?

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Maci Peterson, now known as Maci Petersen Philitas.

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That's right.

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That's right. Cleaning up.

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I say that the party that I'm at, or if I'm at home and there's a party happening down the road that I've been invited to that I don't go to, or didn't get invited to, I'm at the best party. If I made the investment, then it's the best investment made. So every single one of our investments is the best investment. That's all you're getting from me.

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Oh, that's good.

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And then, Arlan, earlier in the conversation, you spoke about some of the skeptics and you've had tremendous success over the course of your journey and you continue to do so. As we all know, haters are going to hate. But what do you have to say or what would you say to your skeptics?

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I continue to be underestimated and I have a whole book, by the way, mid-six-figure deal for that book, about underestimation. So, it fuels me... if you have that much time to tell me what I can't do. And at this point, if you still think I can't do something - that's your bad. And also, you know, I told you a minute ago, I like being a generator of jobs and I'm giving haters their job. That's great. Yeah, building employment in any way that I can. And honestly, you know, without the snark, I will say that I just believe and this is for everybody listening for yourselves. There's always going to be people. There will always be people who think that that you can't do something or tell you to your face or think it or you hear about it through the grapevine. Those people are simply projecting their own limitations. For better or for worse, not to say that they're a bad person, but that's what they're doing. There's something there that they feel that they can't accomplish, and that's none of my business.

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I don't have time for because I'm over here building two empires and thinking about how I can make it possible for 10,000 or more people to benefit from the upside of a Runner exit at some point. When you're thinking in those terms and you're thinking about changing the entire ecosystem, you just don't have time to really get too bogged down, now, every once in a while, I do catch myself and I keep going.

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Hmm, that's good.

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You know, I'd like to end on one thing with you, Arlan. So it's it's Women's History Month. You know, I want to pay homage to the importance of women's influence and strides women are making like yourself to create a more equitable tomorrow. Are there any specific women that had a profound impact on who you are, what you built and what you're creating for other women going forward?

21:55 - 22:15

The list would go on and on. Starting with my mother, still does, starts and ends with her. I'll say that. Just watching her go through so much in her life that, you know, some of the world will never know but what she went through to make sure that I'm standing here and she will always be taken care of.

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Some people know that Janet Jackson has had a big influence in my life. I had met her very fleetingly, but thankfully more recently have had more time with her after purchasing her antique truck at auction and getting a phone conversation with her and to her team and stuff. We've been talking and she had, at 13, and I am 41 now, so it's since

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she's influenced a lot of what I've done and I was able to tell her that finally, in the last few months, it's just, you know, there's so much there to unpack. And, you know, her recent documentary says a lot about it. I just...I was always noticing her business acumen. The fact that she was a Black woman who did so much, went through so much. I could go on about her. Same with Oprah. Except I have never talked to Oprah, but that's my next hope that I get to because I feel like I have questions for her that she hasn't been asked, and I feel like she can help me with the next two thirds of my life. You know, hopeful thinking, wishful thinking there.

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And then honestly, it really is like all of the women who have invested in Backstage and who have allowed Backstage to invest in them. And I mean that with every fiber, because wasn't always an understood thing that we were going to start being successful. So everyone had to take a risk, a calculated risk on us. Maci is part of that group, and so many others are part of that group.

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Yeah, well, look again in recognition of Women's History Month. Kudos to you for your journey and everything you will continue to accomplish, and I personally want to thank you for being a guest on our show today.

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Thank you both so much. Really appreciate it.

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And Arlan, I just want to take this opportunity again to thank you for always being willing to invest in me, whether it is your time or resources and everything from On Second Thought to ILLI, to now your time on this podcast. I just thank you and I'm so grateful from the bottom of my heart.

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It's my pleasure. Thanks you all. I really enjoyed it.

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I really hope you enjoyed today's episode. We love to hear from you. So please email your thoughts, questions any feedback to diversemarkets@Bernstein.com. Be sure to share, subscribe, comment on and rate us on Apple Podcasts or anywhere you listen to podcasts and check us out on Twitter at BernsteinPWM.