Here’s why the successful venture capitalist says now is the great time to start a company
(CNN) -- Venture capitalist Arlan Hamilton knows a thing or two about defying the odds.
Once broke, homeless and sleeping on the floor of San Francisco's airport, Hamilton became the first, black queer woman to start her own venture capital firm, Backstage Capital, a fund that invests in underrepresented founders who are women, people of color and LGBTQ. It's a journey, she details in her new book, "It's About Damn Time: How To Turn Being Underestimated into Your Greatest Advantage."
"I was out there in many ways, raising capital, or trying to raise capital for this fund that didn't exist, and this thesis that I had that the resilient people who were underrepresented and underestimated had resiliency off the charts, that would translate well to ROI [return on investment] in many other ways," Hamilton said in a Boss Files interview with CNN's Poppy Harlow.
Since launching in 2015, Backstage Capital has successfully invested over $7 million in more than 120 companies led by underrepresented founders — providing seed funding from as little as $25,000 to as much as $100,000.
But now Hamilton, like so many other venture capitalists, is grappling with the new challenges presented by the coronavirus pandemic.
"The toughest part of it was that we were completely blindsided by it. I was already thinking about so many obstacles and mountains to climb for myself and for the founders that I was representing," Hamilton said. "It did feel like the footing was just knocked from under us."
Venture capital is more 'resilient than many may think'
While many businesses and startups have been hit hard by the pandemic, the venture capital industry has had more mixed results, she said.
"It's more resilient than many may think," Hamilton said. "There are a lot of funds who, for one reason or another, were able to raise [money] right before this happened."
According to data by PitchBook and the National Venture Capital Association, 62 venture capital funds raised a total of $21 billion in the United States during the first quarter of 2020. This compares to a total of $51 billion raised for the full year of 2019, signaling that VC firms are in a stronger position to weather the impending economic downturn. And those figures don't include unspent capital. VCs in the United States started the year with roughly $120 million in available but unspent money to invest in startups, according to NVCA.
"There are more than 200 funds that I know of who are actively investing, and then there are those microfunds like ours, who if they already had trouble raising, this is going to compound that," Hamilton said.
Backstage Capital typically invests in 24 to 32 companies per year, but they've had to put investments on hold due to the pandemic, she said. The firm was even set to hit the road in May on a multi-city tour to connect with underrepresented founders, and make potential investments on the spot, but shelter-in-place mandates led to the tour's cancellation.
"The pause button has been hit for us," Hamilton said. "We hope that in the second half of the year, we can pick back up."
For now, Hamilton's firm is concentrating on ways it can add value and support to its portfolio companies during these unprecedented times.
"After we realized what had just happened to our world, we said, 'What can we do? What do we do now?,'" Hamilton said.
The firm has been connecting founders with resources ranging from legal expertise to one-on-one support. "Thankfully, we're remote by design, so that was easier to deal with. What we're doing is just doubling down on our services and our resources, and trying to add value in many other ways that are not capital intensive," she said.
'A great time to start a company'
Still, Hamilton believes there are opportunities out there for aspiring entrepreneurs.
"I think this is a great time to start a company, or to start something to be a solution to people," Hamilton said.
She also believes it's a smart time for entrepreneurs to practice bootstrapping and get creative in finding other ways to save capital. The result, she predicts, will be tomorrow's next big businesses.
"In a few years, you're going to see this emergence of many empires that are individuals who said, 'This is a time where I was stuck at home, or I was stuck in a situation that I don't want to ever have to be in again, and I am shoring myself up with multiple revenue streams. I'm getting creative. I'm going back to the basics,'" Hamilton said.
As the coronavirus crisis continues, the economy has faced several fatal blows. So far, 33.5 million Americans, roughly 21% of the US labor force, has filed first-time unemployment claims since mid-March. Not to mention, US GDP growth contracted at an annualized rate of 4.8% in the first three months of 2020, its first contraction since 2008.
And while the economic collapse has taken a toll on many Americans' lives, minorities have fared the worst, with African-Americans impacted disproportionately higher in terms of health and finances.
According to a survey by Goldman Sachs published in late April, 40% of black small business owners reported that they have been approved for forgivable loans during the first round of the government's Paycheck Protection Program, or PPP, compared with 52% of small businesses overall. Additionally, 26% of black business owners said they have less than one month of cash reserves on hand, compared with 17% of small business owners overall.
Despite these disparities, Hamilton remains optimistic that there will be more black millionaires and successful entrepreneurs in the years to come.
"People in this country have enslaved us, have burned our thriving cities to the ground, and still we rise. I have not tempered my optimism whatsoever, in fact I am doubling down on my optimism," Hamilton told Harlow. "I think there will be multitudes of millionaires and billionaires, and successful investors and founders who are black and brown over the next 10 years and beyond."
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