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Arlan Hamilton: The Investor Who’s Opening Doors

  |  Command Line Heroes Team   Tech history

Command Line Heroes • • Arlan Hamilton | Command Line Heroes

Arlan Hamilton | Command Line Heroes

About the episode

If you think hard work is enough to guarantee success, you haven’t been listening. All season long, we’ve profiled Black inventors who haven’t quite been given their due. Arlan Hamilton is helping reverse that trend by leveling the playing field—and changing the venture capital game.

Arlan Hamilton’s story mirrors many we’ve covered this season—overcoming adversity to find success. But she’s also helping redefine what success can look like and, in the process, is helping change the broader tech industry. Janice Omadeke lays out how diversifying the VC community in turn leads to greater diversity among founders receiving funding. Ramona Ortega explains how traditional VC priorities often pass over startups that can be successful. And Scott Myers-Lipton discusses inequality in Silicon Valley (and beyond) and how he’s working to bring about lasting change.

Command Line Heroes Team Red Hat original show

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Transcript

Yeah, 2015 was rough. It was the best of times and the worst of times. The first 9, 8, 9 months of it were riddled with housing and food insecurity. I was 34 that year, and I still had that kernel of hope and that little bit of light that was pulling me forward, but it was tough. And then in September of 2015 is when things started to really turn around when I got my first investor. And it gave me that little bit of understanding that yes, I could accomplish what I had set out to do. That's Arlan Hamilton. She's a hero of mine. Because from that rough moment, years ago, she managed to build a future that didn't just lift herself up—it lifted up so many others. Hamilton's a Black and gay woman who's used to confronting other people's expectations. Plenty of people have underestimated her. And they've all been wrong. That year, her roughest year, was also the moment her dream of building a venture capital firm took shape. A venture capital firm that didn't just support the usual Silicon Valley players, but people like her. She wanted to support women and people of color who had brilliant, innovative ideas—but were facing a lot of locked doors. This whole season we've been featuring inventors who had to overcome major obstacles while they worked to create a brighter tech future. And you may have noticed that every one of our heroes this season is Black. It's not a coincidence. Access to the levers of power is severely limited for Black people. And that's why this time, for our season finale, we wanted to feature Arlan Hamilton. She's someone who didn't just invent a smart new app or a useful machine—Arlan Hamilton invents opportunity. Through her revolutionary VC firm, Backstage Capital, she's been changing the rules around who gets a seat at the table—and who gets a check. I'm Saron Yitbarek, and this is Command Line Heroes, an original podcast from Red Hat. Hamilton's VC firm, Backstage Capital, has created opportunities for 130 startups and counting. But I want to begin by understanding what gave her that first opportunity. Who invested in the investor? So, I asked her. So you mentioned that end of 2015, you had that glimmer of hope you spoke about, and that first investment. Who was that first investor? My very first investor was a woman named Susan Kimberlin. She is an angel investor in the Bay area who I had met at a 2-week Stanford bootcamp for investors, that I had found my way into. And we just hit it off right away, really got along. I liked her energy; I liked what she stood for. And we spent several weeks and months getting to know each other. And then in September, she became my first investor in Backstage Capital. Clearly, Susan saw something in you that other investors missed. What do you think she saw? And why did she take a chance? I think it helped that Susan got to know me. She got to see my consistency over time and hear my thoughts about things, rather than just maybe a deck or a snippet of what I stood for. She was very mission oriented. So that was a few years ago when mission wasn't as much part of the VC vernacular as it is now. For Susan and for other people who came along, who were impact investors first and foremost, they consider their return on investment happening the moment they write the check, as long as it keeps you sustained and lets you go out and see what you can do. Susan Kimberlin cut Hamilton a $25,000 check. And that turned out to be an investment in investment itself. Because Hamilton had a plan to pay that money forward. She's seen the statistics. Over 90% of venture capital funding was going to companies led by white men. And only 1% goes to startups fronted by people of color. And Hamilton's simple belief was: white men don't have 90% of the good ideas. Innovation from other people was being squashed. She thought to herself... Well, this is an emergency. We need to "break window for emergency" here. We are running out of time. And so it always felt really right at the precipice for me. And it always felt very much so, like, "If not now, when? If not me, who?" That break-window moment, the change that Hamilton wanted to bring about, was all about choices. The choices that people with money make when they decide who's worthy, who's a good bet. And we know what kind of people usually get chosen. The Ivy league guy, maybe he's a computer science dropout, definitely white. But who was Hamilton looking to invest it? So I focus on underrepresented founders. My definition of underrepresented is women, people of color, and LGBTQ founders. These are people who are all underrepresented in the tech and startup ecosystem when you look at who's getting venture capital funding. And not only are they underrepresented, but also they're often the most innovative, because they are solving problems that they have themselves. They know what it's like to be somebody who's been left out. They know what it's like to not have the same tools that somebody else has had. And so they're often creating things from scratch. They're often approaching problems from a completely different angle than someone who's lived a life of access and privilege. Underrepresented founders have different ideas, they solve different problems, and they also serve different markets. Hamilton says it doesn't make business sense to ignore them. And it's not just her saying this. The data backs her up. Janice Omadeke is CEO of the Mentor Method. The reality is that diverse founding teams outperform homogeneous founding teams by 70%. Yet only about 2.3% of VC funding goes to female founders. And if you break that down even further, Black women receive about 0.0006% of VC funding. So when I see those numbers, what jumps out to me is the fact that we know these diverse teams outperform, yet the funding doesn't match the performance. It's a classic chicken and egg problem. VCs want to see proven track records, but underrepresented founders can't build that track record without funding. They can't get invited to the right networking events, they can't attend the right schools, they can't make the right connections. Hamilton says this is where having diverse VCs makes all the difference. When you have VCs who are women, VCs who are people of color, VCs who are LGBTQ, they're going to understand and connect with different types of founders. They're going to see problems and solutions that maybe somebody else wouldn't see. They're going to be able to relate to the founder's story in a way that maybe somebody else wouldn't be able to. And so it creates a more robust ecosystem. Diversifying the VC world means more than just funding different people. It can also mean funding different kinds of companies. Not every startup has to be the next unicorn, worth a billion dollars. Some people prefer zebras. Ramona Ortega is the CEO of My Money My Future. A zebra company is one that's focused on being profitable, sustainable, and socially beneficial. Whereas a unicorn company is really focused on fast growth and getting to that billion-dollar valuation as quickly as possible. And I think that zebra companies, particularly ones that are led by underrepresented founders, often don't get the same attention from traditional VCs because they're not focused on that hockey stick growth that VCs are looking for. Traditional VCs are looking for companies that can grow fast and return massive profits. But that model doesn't work for every business, and it doesn't solve every problem. Some of the most important innovations are the ones that serve underserved communities, create jobs in neglected areas, or solve social problems. These businesses might grow more slowly, but they can still be highly profitable and create tremendous value. For example, there's a company that I know that is focused on creating childcare options for working families. It's not going to be a billion-dollar company overnight, but it's solving a real problem that affects millions of families. And it's creating jobs in communities that need them. That's the kind of company that might not get funding from a traditional VC, but that's exactly the kind of company that can make a real difference. This is where Hamilton's approach to venture capital becomes revolutionary. She's not just looking for the next Facebook or Google. She's looking for companies that can change lives, create opportunities, and solve real problems. And she's found them. We've invested in companies like Walker & Company, which was founded by Tristan Walker, who's a Black founder. They create health and beauty products for people of color. And they were acquired by Procter & Gamble for hundreds of millions of dollars. We've invested in companies like Partake Foods, which creates allergen-free cookies. The founder, Denise Woodard, is a Black woman who started the company because her daughter has severe food allergies, and she couldn't find safe cookies for her. That company is now in thousands of stores across the country. These are exactly the kinds of companies that traditional VCs might overlook. But they're solving real problems for real people, and they're proving that underrepresented founders can build successful businesses. Hamilton's success at Backstage Capital has helped prove that diverse investing isn't just the right thing to do—it's also good business. When I first started Backstage Capital, I was told by several people that what I was doing was charity, not investing. And I said, "No, this is absolutely investing. This is smart investing." And I think we've proven that over and over again with our returns and with the success of our portfolio companies. But changing the venture capital world isn't easy. Hamilton has faced plenty of skepticism and resistance along the way. Some people have questioned whether she's qualified, whether her approach will work, whether her focus on diversity is just political correctness run amok. I've been told that I don't look like a VC. I've been told that I don't have the right background. I've been told that my approach is too risky. But I've also seen the results. I've seen companies that were passed over by traditional VCs go on to become highly successful. I've seen founders who were told they weren't fundable prove everyone wrong. Hamilton's success hasn't gone unnoticed. She's been featured on magazine covers, invited to speak at major conferences, and recognized as one of the most influential people in venture capital. But she says the real recognition comes from seeing her portfolio companies succeed. The best validation for me is when one of our portfolio companies hits a major milestone, when they get acquired, when they IPO, when they hire their 100th employee. That's when I know that what we're doing is working. That's when I know that we're creating real change. But Hamilton isn't satisfied with just building one successful VC firm. She wants to change the entire industry. And she's working to create more diverse VCs, not just more diverse portfolio companies. I'm working with other VCs to help them understand why diversity matters, not just from a social justice perspective, but from a business perspective. I'm also working to create programs that help train and develop more diverse VCs. Because we need more people like us in positions where they can write checks. This is where systemic change becomes possible. When you have more diverse VCs, you get more diverse funding decisions. When you have more diverse funding decisions, you get more diverse startups. When you have more diverse startups, you get more innovation, more job creation, more economic growth. What Arlan has done with Backstage Capital is create a model that other VCs can follow. She's shown that you can be profitable while also being purposeful. She's shown that diverse investing isn't just about doing good—it's about doing well. But there's still a long way to go. Despite the progress that Hamilton and others have made, the venture capital world is still overwhelmingly white and male. And that means that most startup funding is still going to white male founders. The reality is that we still have a system that's designed to benefit certain people over others. And until we change that system, we're going to continue to see the same patterns. We need more people like Arlan Hamilton who are willing to challenge the status quo and create new opportunities for underrepresented founders. Scott Myers-Lipton is a professor of sociology at San Jose State University. He studies inequality in Silicon Valley and works to bring about systemic change. He says that Hamilton's work is important, but it's just the beginning. What we need is not just individual success stories, but institutional change. We need universities to do a better job of preparing diverse students for careers in tech. We need companies to do a better job of hiring and promoting diverse employees. We need investors to do a better job of funding diverse founders. And we need policymakers to do a better job of creating policies that promote equity and inclusion. Myers-Lipton points out that progress has been slow and uneven. In some ways, things have gotten worse, not better. When you look at the data, the wealth gap between white families and Black families has actually grown over the past 50 years. The segregation in our schools has gotten worse, not better. And in Silicon Valley, despite all the talk about diversity and inclusion, the numbers haven't improved much. But Myers-Lipton says that doesn't mean we should give up. If anything, it means we need to work harder and be more strategic about creating change. I think about what Jacques Cousteau said when he was asked if he was hopeful about the future of the planet. He said, 'I'm not hopeful at all, but we have to try.' I feel the same way about racial equity in this country. The challenges are enormous, the progress has been slow, but we have to keep trying. Because the alternative is unacceptable. And Hamilton agrees. She knows that changing the venture capital world is just one piece of a much larger puzzle. But she also knows that it's an important piece. I don't think that what I'm doing is going to solve all the problems of inequality in this country. But I do think that by creating more opportunities for underrepresented founders, we can start to shift the balance of power. We can start to change who gets to build the companies that shape our future. That's the real power of what Hamilton is doing. She's not just funding startups—she's funding the future. And she's making sure that future includes voices and perspectives that have been left out for too long. Every company we fund is not just a business—it's a statement. It's saying that this founder, this idea, this solution is worthy of investment. It's saying that underrepresented founders belong in the startup ecosystem. And it's proving that diverse teams can build incredibly successful companies. Hamilton's work has inspired a new generation of VCs who are focused on diversity and inclusion. And it's also inspired a new generation of founders who see that it's possible to get funding, even if they don't fit the traditional mold. I get messages all the time from founders who say that seeing what we've done with Backstage Capital gave them the confidence to start their own companies, or to apply for funding, or to keep going when things got tough. And that's really what this is all about—creating more opportunities and inspiring more people to take those opportunities. But Hamilton is clear that there's still a lot of work to be done. The venture capital world is changing, but slowly. And there are still plenty of barriers that underrepresented founders face. We've made progress, but we're still a long way from where we need to be. There are still too few diverse VCs, too few diverse founders getting funded, too few diverse companies succeeding at scale. But I'm optimistic because I see the change happening. I see more diverse VCs starting funds, I see more diverse founders getting funded, I see more diverse companies succeeding. And Hamilton is continuing to push for more change. She's not content to just run one successful fund—she wants to help create an entire ecosystem of diverse investors and founders. My goal is not just to build a successful fund, but to help create a world where what we're doing at Backstage Capital becomes normal. Where it's normal for VCs to invest in diverse founders, where it's normal for underrepresented founders to get funding, where diversity and inclusion are just part of how the venture capital world operates. That's a big goal, but Hamilton has already proven that big goals are achievable. After all, she went from being homeless to running a successful venture capital firm in just a few years. If she can do that, what else is possible? I think about all the brilliant founders out there who haven't gotten funding yet, all the amazing companies that haven't been built yet, all the problems that haven't been solved yet. And I think about how much better the world would be if we could unlock all that potential. That's what keeps me going. This conversation with Hamilton reminded me of something that's been true for every hero we've featured this season. They all had to overcome enormous obstacles to achieve success. But they also had to create their own opportunities. They couldn't wait for someone else to open the door—they had to find a way to get inside. I think that's what entrepreneurship is really about—not just building a business, but creating opportunities where none existed before. Whether it's a new product, a new service, or in my case, a new way of investing in founders. It's about seeing a gap and figuring out how to fill it. And that's exactly what Hamilton has done. She saw a gap in the venture capital world—a lack of funding for underrepresented founders—and she figured out how to fill it. But she didn't just create one fund. She created a model that others could follow. I've always believed that if you're the only one doing something, you're probably doing it wrong. So from the beginning, I've tried to share what we've learned, to help other people start their own funds, to create a movement rather than just a company. That movement is growing. There are now dozens of VC funds focused on diversity and inclusion. There are programs to help train diverse investors. There are organizations working to connect underrepresented founders with funding opportunities. What Arlan started with Backstage Capital has created a ripple effect throughout the venture capital world. More and more VCs are recognizing that diversity isn't just the right thing to do—it's the smart thing to do. And that's creating more opportunities for underrepresented founders. But as Myers-Lipton pointed out earlier, there's still pushback against efforts to increase diversity. Some people argue that focusing on diversity is itself discriminatory. Others argue that merit should be the only factor in funding decisions. What people don't understand is that the current system isn't a meritocracy. It's a system that gives advantages to certain people based on their race, their gender, their connections, their background. When we talk about increasing diversity, we're actually trying to create a more merit-based system, not less. Jacques Cousteau, he was an early environmentalist, was on television, like on PBS, back in 1970. And he was asked, "Are you hopeful about the planet and the survival of humans?" And he said, "Absolutely not. Not hopeful at all, but we have to try." We've had a 250-year history of enslavement, another 100-year history of Jim Crow's segregation. And we've had 50-, 60-plus years, we are by practice, still segregated. Our schools are more segregated today than they were in 1954 before Brown vs. Board of Education. We have less African Americans owning homes than they did in the turn of the 20th century. We're not going forward. So am I going to stop trying? Never, but it's going to take an incredible amount of folks that are listening, that hear this, and realize that we have to do more. And my hope is that they really hear this, and decide to make, and to actually institutionalize it, and tie their job performance to it. And make that capital available to African Americans and other folks of color and to develop pipelines. Because our future of our nation, and ultimately our world, depends on us figuring this out, because there'll be continual social unrest unless we figure it out. Another thing Martin Luther King Jr. said was that, "The arc of the moral universe is long, but it bends towards justice." Despite setbacks and delays, change is always possible. I wanted to ask Arlan about the movement she's seen. Here's a bit more of our conversation. And so, what I want to know is do you think the start of a venture capital firm founded by a Black woman, like yourself, is a sign that more doors are opening for Black inventors in Silicon Valley in recent times? Oh, I absolutely do. I still think there are just a handful of Black women owned and started and founded funds—that's rarefied air, unfortunately, still. Just look at what we do when we have it. Look at what we do with that. Everyone I'm thinking of, including myself, we don't sit back and just say, "Okay, well, how do I make the most money? How do I get the best carry deal for myself? How do I do the bare minimum to get the most output?" It's usually this ripple effect of impact and catalyzation. And you're seeing that now with Black women, Latinx women, Indigenous women starting their own. And yes, they start out, we start out with much less capital and resources than we deserve, but we have to start somewhere. And I do think that there's a willpower that we have that is unheard of and unmatched. The better we do, the more good we put out there to the world. The arrival of new, diverse VC firms does have the power to change the tech landscape. Zebras might get some love, and not just unicorns. Founder-friendly venture capital might prioritize sustainability, and diverse investment can lead to diverse leadership. But I want to close by reminding you that no VC at all is also an option. There are successful companies like MailChimp that are completely bootstrapped and privately owned—they never felt the need to raise a zillion dollars in funding. Some people get off the ground with just their savings or a loan from a bank. Others build their companies without outside capital, by only relying on the revenue they generate. Me, for example? I just launched an audio course startup called Disco. And it's a media tech company, so I need to hire producers, I need to build content. All that means I might need some investment, but I'm still figuring it out. How much equity am I willing to give? Maybe the trick is remembering that your creation has value, even before someone else buys in. And then you decide who gets to invest. This whole season, we've tracked inventors who changed the tech landscape, despite enormous roadblocks. Some of the heroes we featured saw their opportunities narrowed by segregation. Others were denied jobs because of the color of their skin. In tech, we often talk about a meritocracy, but we know that as long as there is systemic racism, such a system cannot exist. We have to actively uplift the people who are historically held back, give them a chance to do well, and shine the light on them when they do. Ending with Arlan Hamilton's story, I hope we've shown that opportunities in tech aren't actually something that just get handed out in a neutral way. Opportunities are things that people invent. And that means who gets an opportunity, and what gets a chance to be invented, can change. We can change it. After all: if not us, who? That's it for season 6. For more information on Arlan, or any of the 8 heroes we featured this season, head over to redhat.com/commandlineheroes. We've collected a ton of extra information and resources for you. In the meantime: keep on coding. I'm Saron Yitbarek, and this is Command Line Heroes.

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Command Line Heroes

During its run from 2018 to 2022, Command Line Heroes shared the epic true stories of developers, programmers, hackers, geeks, and open source rebels, and how they revolutionized the technology landscape. Relive our journey through tech history, and use #CommandLinePod to share your favorite episodes.