How to Perfect Your Pitch and Attract Investors with Venture Capitalist Visionary Arlan Hamilton
The best storyteller wins.
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In 2020, venture capital funding boomed—but women’s share shrank. Startups, overall, raised 13% more from venture capitalists in 2020 than in 2019, but female-founded companies raised a staggering $190M less in 2020 than in 2019.
As the founder and managing partner of Backstage Capital, Arlan Hamilton aims to turn these discouraging stats around. Her mission is to minimize venture capital funding disparities by investing in minority founders.
Since she founded the firm in 2015, Backstage Capital has raised more than $15 million (!) and invested in more than 180 startup companies.
At our recent Money Moves Digital Summit, Salah Goss, SVP of Center for Inclusive Growth at Mastercard, sat down with Arlan to chat with her about her incredible career and gain her insights into how entrepreneurs can perfect their pitch, attract investors, and raise money for their businesses.
ICYMI, we’re sharing a few of the highlights from the conversation below.
Let’s start at the beginning – you have a very untraditional background compared to the traditional VC world–how did you break into the industry and set yourself up for success?
I think what actually helped me break into the industry was the fact that I was different. I'm a woman, a person of color, LGBTQ, I lived in Texas at the time, outside of the major markets, I did not go to college, I didn't have any sort of formal financial education, I did not have any contacts in Silicon Valley––and the list goes on and on. Often, I think the qualities that make us special or different that help us find success, but it takes curiosity and strength to actually lean into them.
I was interested in starting my own company at the time and excited about the prospect of fundraising until I came across some staggering statistics, including the fact that 90% of venture funding goes to white men. Demographically speaking, that means 90% of venture funding goes to a third of the country. It didn’t make sense to me. I began to ask, what if there were funds that did the opposite?
Over the next three and a half years, I had the patience to talk to people–founders, investors, etc. I received as many ‘no’s’ as one human can get in a lifetime but I kept digging into that question, ‘what if’? I began investing in women, people of color and LGBTQ because that's what I knew. Over time, we've expanded our reach, but there are millions and millions of potential people in this demographic alone.
How do you choose which businesses to fund? What do you look for in a business and/or an entrepreneur?
It's a bit of a moving target because I feel that I continue to evolve as a persona and as an investor, but the one thing that has remained the same–from the time I was homeless and on food stamps and had no money to invest, to investing in almost 200 companies later–is this spark when I look across the table and see someone who reminds me of myself. I look for an entrepreneur who is what I call hungry not thirsty: there’s a passion without desperation.
As far as the companies and ideas themselves go, if it's something that would take me a decade or more to even hope to accomplish then you have my attention.
It’s safe to say you have been privy to a lot of pitches and pitch decks—What are three crucial elements everyone should include in a pitch deck when raising money and why?
This may be different for different people, and it will be different for different investors. For me personally, it really comes down to authenticity. You do not have to be an extrovert or try to entertain me. It's not necessarily about having a talent for being an entertainer, but rather a combination of pragmatic and passionate, and being able to articulate their story in a way that allows me to dream with them. As Katy Perry says, the best storyteller wins.
I speak with thousands of companies and receive thousands of pitch decks a year. I better not know more about your company than you do–or about your competition. Before you go out and ask other people to invest in you, you better invest in yourself and look for the answers in all the different ways that you can. Learn and talk to your peers and talk to people who have been there before you. Talk to the CEOs of fortune 500 companies and find mentorship through other people who are maybe slightly ahead of you in the game or through people who are doing this all with you. There's something that they figured out, or that they learned, or that they heard about that can help you––and you’ll probably help them too!
I understand that for some, it’s not only pitching a business, it’s their livelihood. But when I continue to ask someone more questions, it means I’m interested, even if the questions are tough. Sometimes people will shut down, get defensive, or quick to end the conversation when they feel it’s too much work to find the answers. Remember that you're also asking people for tens of thousands, hundreds of thousands, maybe millions of dollars, so that's going to be part of the process and you have to be prepared to put in the work.
Black women are among the fastest-growing entrepreneurs in the U.S.—yet they only receive a fraction of venture capital funding. How can we turn this statistic around and ensure the small business community is actually representative of society as a whole?
That’s a lot of what we're doing at Backstage and hopefully we’re one of many. It has to start with a global conversation and understanding that when companies are backing black women, they're also backing a progressive infrastructure, they're backing healthcare, they're backing all sorts of innovation. It’s not just what the country can do for black women to repair damages, it's also what black women are going to do for the country–and what they have been doing.
5 Things To Do Before You Start Investing
Yield your best benefit.
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Investing can be intimidating. But if you’re looking to build your wealth, buy a house or set up a retirement fund, investing is not only one of the best money moves that you can make –– it’s a must. For most people, understanding the basics and choosing the right investment strategy is enough to get started. But the most important question to ask when it comes to planning your financial future is whether investing is right for you, given your current financial situation.
So, to have a candid conversation about making strides toward the financial future you want for yourself, we tapped Lauren Anastasio, CFP® (Certified Financial Planner) at SoFi, during our recent Money Moves Digital Summit to share some tips on building wealth through investing, including what you need to know before you start, and how to really know if investing is right for you.
She identified five financial goals to accomplish in chronological order, before you begin investing in order to build the best possible financial foundation. ICYMI, we’re sharing them below, along with Lauren’s tips to yield your best benefit.
Establish a Safety Net
The first thing you want to do before you consider investing, is establish a safety net. Think about this as a cash savings equivalent to approximately one month's worth of your essential expenses. If you don't have at least enough cash to cover all of your living expenses for one month, then saving is your very first priority––that's the thing you should be doing, before anything else.
Seek Employer Match
Step number two is to obtain any employer match you might be eligible for. If you're not strictly self employed or you do have access to an employer sponsored plan, you will want to make sure that you're maximizing any match that you might be eligible for––you never want to leave free money on the table!
Protect Your Income
Third, protect your income. This means pursuing an appropriate amount of disability or life insurance, depending on your circumstances.
Attack Bad Debt
Next, you want to eliminate any bad debt, It’s important to make the distinction between between good debt and bad debt. Bad debt includes things like credit cards or personal loans, essentially anything charging 7% interest or higher. You will want to eliminate these in their entirety before moving on to investing. The reason is, there's an opportunity cost if you're investing and you can expect realistic average annualized returns of seven or 8% –but if your credit card is charging you 20% that's compounding daily, your money is going to be far more valuable going towards paying off that high interest rate debt than it will be going into the market. This is one step you absolutely do not want to skip.
Build an Emergency Fund
Step five includes establishing a fully funded emergency fund. This is when you take that safety net and build it up to a balance that's closer to between three to six months worth of your essential expenses. This is vitally important, because if you do have an emergency that comes up, including some type of loss of income, you don't want to have to take money out of the market and possibly trigger a taxable event or have to dip into that money when the market is down. You will want to make sure you always have cash on hand.
Once you’ve accomplished steps one through five, you’re likely ready to start investing! To learn more about investing and how to align your approach to your goals, visit SoFi.com/Invest.
ABOUT SOFI:
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DISCLAIMERS:
Advisory services are offered through SoFi Wealth, LLC an SEC-Registered Investment Adviser.
Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.