Venture Capital Goes Into the Black

And I don’t mean “profitable”. I couldn’t say much about the Gamestop Short, me not being an economist (and being reasonably convinced that anything hard to understand about finance is criminal fraud). Instead, let’s read an interview with one of the, ah, “newly freed from white cis-male patriarchy” VC crowd and see if we can find the reason why vibrant perverts haven’t historically done as well as… anybody else.

Some quick Wikipedia bio:

Arlan Hamilton is an investor and the founder and managing partner of Backstage Capital. In May 2020, Hamilton released her first book from Penguin Random House entitled It’s About Damn Time, which is based on her personal journey into entrepreneurship and venture capital.

Yeees, she will do nicely as an example of what black women can accomplish when there’s no white man around to hold her hand. I mean, watch her back.

That didn’t sound right, either.

In 2015, inspired by Mike Rothenberg of Rothenberg Ventures, Hamilton founded Backstage Capital, a fund that invests in “underestimated founders”. Underestimated founders for the fund are defined as women, people of color, and members of the LGBTQ community. To date, Backstage Capital has raised more than $7 million and has invested in more than 130 startups.

She might want to set her sights a little lower. The Mister Steinbergs of the world can raise $20m by Day 1 because his tribe owns the casino er, Federal Reserve.

Prior to her venture capital role, Hamilton founded and published the indie magazine Interlude and prior to that, served as tour manager to Atlantic Records recording artist Janine.

That didn’t sound like “my third cousin owns the bank”.

In May 2018, Hamilton announced her firm would also launch a $36 million fund specifically for black female founders.

In March 2019, after difficulty raising the planned $36m fund, Hamilton stepped down as CEO of Backstage Studio and laid off a significant percentage of Backstage employees.

Ten months to bankruptcy without meeting the first goal. I’m surprised there’s anything left to interview.

In June 2019 Hamilton received recognition from Business Insider as one of the 23 most powerful LGBTQ+ people in tech.

Man, this is just clown world. It’s a good sign, from the “Venture Capital” perspective, that Arlan can burn $36m with nothing to show for it. It’s a bad sign that she couldn’t raise that $36m in the first place. And it’s ugly that she’s considered one of the best with that record.

In May 2020, Hamilton published the book entitled, “It’s About Damn Time,” written with Rachel L. Nelson. The book is part memoir and part how-to for people who are generally underestimated in society. In the book, Hamilton details her early career as a music tour producer and, on pivoting to venture capital, the tactics she used to start the VC fund Backstage Capital… To date, Backstage Capital has raised more than $7 million and has invested in more than 130 startups.

“I slept my way to the top and all I got was being used for small-time money laundering.”

I take it back. She didn’t sleep her way to the top.

Let’s do it!

Arlan Hamilton Is Building A New Kind Of VC

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By Nilay Patel, 1 February 2021

One of the things I’m excited to do on Decoder is talk to people who are shaking up industries and trying new things. My guest on today’s episode is known for that: Arlan Hamilton is the founder and managing partner of venture capital firm Backstage Capital.

Arlan came to the VC world in a unique way: she started Backstage without formal education or experience in investing, and her firm focuses on funding startups run by people of color, women, and the LGBTQ community.

Investor: “Why should I trust you with my money?”

CEO: “Because it’s my people’s turn! Plus-sized African lesbians of the world, unite!”

Investor: “Do you even know what you’re doing?”

CEO: “Puck yo’ white privilege.”

Backstage has done 160 deals so far, with investments in everything from online beauty retailers to satellite internet companies.

Seven million dollars across 130 organizations is not much startup money. The Etsy beauty retailer I can believe, the satellite telecom company not. Something’s going on and I see no mention of microlending.

I.m especially excited to talk to Arlan on Decoder because, as of today, Backstage is going even broader: it’s opening a new fund that anyone can invest in to allow more regular people access to VC-style investing as part of their portfolios. This is one of the first funds of this kind under a new Securities and Exchange Commission rule called Reg CF, or Regulation Crowdfunding. I talked to Arlan about that and about the explosion of regular people investing using tools like Robinhood.

SCAM ALERT! The best way to run an investment company, if you don’t know what you’re doing, is to solicit funds from the investors who don’t know what they’re doing, either. As it is written in Holy Scripture: “the blind shall lead the blind and both shall fall into a pit”. Or something like that.

Boldfaced and indented will be the interviewer.

Arlan Hamilton, you’re the founder and managing partner of Backstage Capital. Welcome to Decoder.

Thank you so much for having me here.

Let.s start at just the start. Backstage is a VC fund. You’re focused on underrepresented founders. It seems like there’s an endless reckoning in tech about representation.

The reckoning in question is that Big Tech is simultaneously the tool that undid the protections God imposed at the Tower of Babel, and an industry still completely dependent upon the smart white Christian nerds who created it in the first place. I predict they will solve this problem the old-fashioned way: institutional slavery. Which would explain why a black lesbian woman is getting “her chance” to manage tech sector purse strings despite a complete absence of education, experience, training, wisdom or realization that’s she’s being used as a cutout. More on that in a moment.

The situation at Google AI with Timnit Gebru just happened, where the most prominent Black researcher in AI tech was let go by Google, because it seems her research was against Google’s business.

Also, that she refused to follow internal guidelines for publicizing research, publicly humiliated her bosses when they called her on it, incited an SJW swarm against her immediate supervisor and quit before she could be fired. I have an unfinished post on her; I’ve been waiting for the show to stop in order to give closure. It’s probably time.

In case you’re wondering, her research is detecting white bias in artificial intelligence. It turns out that AIs programmed to hire for merit consistently favor one ethnic group over all others, even when coded independently of each other by different teams of researchers. How strange!

There’s just a lot of that happening. Let’s pull it back because I think that stuff is interesting to talk about. I want to talk about the business, as a whole, of tech. How did you end up as a VC? Because that backstory informs a lot of what happens next.

I never thought I would become a venture capitalist. I don’t think I knew what one was 10 years ago, but around then is when I started learning more and more about the tech ecosystem and about investors, really through people like Ellen DeGeneres, Justin Bieber, Ashton Kutcher and Troy Carter, who were these celebrities or their management, making these small investments in a place called Silicon Valley about a decade ago. I was in Texas. I had worked my way up on the production side of live concerts and tours, and which had been a lifelong dream. I was paying some attention to some of these players and was always curious about what’s going on. I noticed their investments, I might’ve seen an interview or two where they mentioned it, and saw some stickers on Ashton’s laptop. I was just so curious as to why those people, who I thought had really exciting lives, would be interested in something like a three-person team out of a garage.

Then I started to understand that those three-person garage teams, just like garage bands, could go on to become something much bigger and have a broader impact in the world. I just became semi-obsessed with the world of startups. The original idea was that I was going to start my own company. I wanted to research everything I could so that I could be prepared to talk to investors, other stakeholders, and customers. I like to be prepared. It was in that research in 2011 or so, that I first came across these statistics, that 90 percent plus of venture funding and angel funding goes to white men in six cities in the country. I was just blown away by it because white men make up one-third or so of the country.

Two-thirds, when you include rural areas and not illegal immigration. Arlan was enjoying life as a minimally employed production manager, having sex with the likes of Ellen Degenerate and her inner circle of freaks when she discovered an untapped well of male privilege!

Almost immediately, it became clear to me that I could probably hack my way into the funding to start a successful tech company, but it would be a very lonely road. It wouldn’t be fulfilling because so many others were going to be left out. So I changed my course. Then it started drawing me more towards what I consider my calling.

Her calling of spending other peoples’ money.

I ask everybody for their decision-making frameworks when they come onto the show. You make a very specific and particular kind of decision as an investor. You’re saying, this is worth some money. Your idea, and your company is worth some money, and I’m going to give it to you and maybe I.ll give you some help along the way. Then you’re going to come back and give me some more money. That’s the fundamental of that transaction.

That.s the gist of it.

And the problem of it, too. Venture capital is giving money to prospects who are likely to create wealth. Instead, Arlan puts her money into people who are “worth money”. That’s not how VC works.

That.s a very particular kind of decision. Given what you’ve just said about the structure of the industry, how do you make decisions?

A lot has happened in between those two points. I think people still believe that I’m just looking at someone’s profile. If you’re a Black founder, you walk through the door, I write a check for you. But I’m looking at a few different things. It’s essentially, going back to the root of everything, which is, what is this? What are these founders working on? What’s the potential of this company? My main job is to make money for myself, my team, and our investors. That’s my job. I believe that I will fulfill that and be able to do that by looking at companies the way that I look at them, which starts with, who are these founders?

She makes it sound good but what she glossed over is you first need to be a Black founder. Marginalizing white men is, per this very interview, why she got into VC in the first place.

Let’s skip ahead: who the HELL gives investment money to lesbian blacktivists whose careers maxed out at producing such shit-music that the industry hasn’t even named it yet? You’ve got the Eighties, the Nineties and ever since, it’s just been called “crap”.

One coworker tells me that mumble rap is hot. It’s like rap except the words aren’t actually words. I confess I haven’t tried it and don’t intend to. If modern style is DEFINED by the absence of substance then society is having a real-deal existential crisis.

Where does your money come from?

Well, our money comes from investors. They’re called limited partners or LPs. Historically, in most funds, they come from high net worth individuals, family offices, endowments, pension funds, depending on, the larger and larger the funds get. Historically our money has come from accredited angel investors, the independently wealthy, including Mark Cuban, who has put in half of our assets under management in the past. He doesn’t like to invest in other people’s funds because he has so much fun investing directly, but he did for us.

Okay, Mark Cuban and a few cronies. Not actually from Cuba; his Jewish ancestors were “Chabenisky” when they came from Russia around the time of the Bolsheviks. Wikipedia documents his investment prowess: “By 1999, [Cuban’s] Broadcast.com had grown to 330 employees and $13.5 million in revenue for the second quarter. …That year, during the dot com boom, Broadcast.com was acquired by Yahoo! for $5.7 billion in Yahoo! stock.”

A company grossing $50m in annual revenue was bought out for 11,400% of that? Sounds like a ((family)) deal rather than an investment deal.

Mark was our first guest on this show. He was very clear that he has fun.

He has a lot of fun and he won’t do it if he’s not having fun. I don’t think he likes to mess around. He takes fun very seriously, I think.

His ego and libido are massive even by Hollywood standards. Of the 11 movies he appeared in, six of them were “as himself”. That’s not counting his appearance as “Macho Mark” in 1994’s Talking About Sex.

You were going to break some news on Decoder today. What’s the news?

As of today, anyone can invest in Backstage Capital and have a stake in the umbrella company of Backstage, which means you have the same access as an investor. For the first time, we’re able to offer this to anyone, even those who are not considered accredited under the SEC regulations and those who are not in the United States.

Again, intentionally attracting “investors” who don’t know what they’re doing… and might not even speak English… is not the hallmark of a successful VC firm.

It’s time for the money question!

So I give you 100 bucks, when do I see $101 back?

This is all speculative…

Yeah, that’s what I thought.

…but we might raise a $60 million fund in 2022, and then a $200 million fund in 2025 or something like that. And we also have SPVs, which are special purpose vehicles, where we invest one company at a time.

$60m in 2022 growing to $200m in 2025 is 330% growth over three years of the Biden Administration that thinks killing the North American natural gas industry is a GOOD START.

Also, $7m now to $60m in 2022 is 900% growth in one year, during the lockdown-driven collapse of the entire private sector of the economy.

But that’s all “speculative”.

So over the next decade, let’s say we have half a billion dollars under management. And this is, again, speculative because so much of how I talk about this is regulated.

By perjury laws.

But let’s say over a decade, we double that amount for our limited partners. The way our structure is, we would see profit off of that. After we put back the $500 million, we would see profit off of that second $500 million because we doubled it. So we would see $100-150 million in profit off of that.

Well, we’re now sharing that. Like I said before, it’s a very risky asset class, and it’s also very illiquid. So for several years, you may not see anything except your own money coming back. But over time, as these companies exit, and we get that waterfall from them, you.ll start to see the $101 and the $105, and it could go up quite substantially. I don’t know if I can say much more beyond that, but that’s the point.

One thing that I think is interesting about younger culture right now is the rise of apps like Robinhood… It seems like there’s a rising class of people who are way more interested in investing and making money work for them in alternative ways other than just spending it on fancy cars. How do you think this plays into the sort of culture that is being shaped by Robinhood and people wanting to be more investors?

There’s two behaviors going on here. One, all the smart outsider Normies realize that fraud and insider trading are where all the money is these days. Two, all the white Americans being targeted for extinction by their ((bankster))-controlled government are willing to lose $10 in order to make the likes of Arlan lose $1,000.

I think it’s going to go in a couple of directions. I get so excited because I instantly thought of two people. I thought of my mother, who is 71, and I thought of my brother who is a few years younger than I am and has children who are teenagers.

Nobody cares about your family, Arlan. They are not accomplished investors.

When you’re a public market investor, obviously, there’s SEC, there’s regulations, there’s standardized reporting from companies… If somebody invests with you, gives you $100, do your portfolio companies have a transparency requirement?

So the portfolio companies do not.

Another red flag. But if you don’t know what you’re doing then the lack of documentation on your high-risk investments is no big deal. You wouldn’t understand the numbers anyway.

This is an investment in an umbrella LLC that takes our carry, and we provide dividends. This is a Reg CF [Regulation Crowdfunding offering], and that is highly regulated. There’s been some changes to that recently with the SEC, so the amount that we can raise is higher, but otherwise it’s just as regulated.

We’re doing this through Republic, and not just using them as a platform. We have partnered with them behind the scenes. Their CEO and I, and our teams have worked together. And Republic and [CEO Kendrick Nguyen] from Republic are listed at least 20 times in the latest SEC updates to Reg C and more. They have been to DC multiple times and

helped form what the regulations are.

There’s no way this ain’t fraud. The backers of Backstage/Republic rewrote the rules for investing and now are operating companies designed to take advantage of those rewrites?!!!

RUN AWAY!!!

Okay. Just one more meaty question, I talked to mostly executives, and they all tell me that there’s a competition problem with the tech giants. We’re seeing a lot of antitrust action on Facebook and Google right now. But the way that executives talk to me about the competition problem is what they call a kill zone for investment. And you’re going to start a company, you’re going to build a feature or a product that people like. Amazon’s going to see it. They’re going to make a cheaper version. They’re going to promote it on the store and your company’s dead.

That feels like a real danger when you’re not in the network, in the old boys club of investors, where your guaranteed exit to Facebook or Google or Amazon, is in the mix.

Or Yahoo.

Where you are doing crowdfunded investment, and maybe dealing with a more democratic class of investors. Do you see that kill zone? Does that worry you the way that it worries some of the executives I talked to? She’s shaking her head no.

No, it doesn’t worry me at all. I talk a lot about “repurposing” in my book, It.s About Damn Time. Repurposing emotion, repurposing preconceived ideas, all of that. Obviously, this is going to affect some people and some companies.

One wonders if “crowdfunded” VC is simply a way for the ((old boys club)) to launder their money ahead of antitrust legislation. But if said old boys are the ones writing the new rules anyway then “laundering” won’t even be a crime.

But I just see too much. I just have a front row seat, the best seat in the house, to just so much innovation from Black, brown, women, and LGBTQ founders, to think anything else. We got this. There’s a lot of innovation coming out that’s been quiet because they didn’t have the resources, and now they’re pulling together the resources. There’s also the crowd itself willing it to be so, and there’s also the idea of repurposing what success is.

As I said at the beginning, I’m no economist and am very distrustful of anything even remotely sketchy. That being said, I like the idea of Mark Cuban looting the BIPOC LGBT crowd just because he can.

If black lesbians were smarter then maybe they’d notice when their handlers play them for chumps.

Me, I’m debating whether to invest in a room-sized tent with wood-burning stove, in preparation for being cast out of civilization entirely. Because I’m a white male Christian.