This Entrepreneur Mindset Will Make You Millions

0:00Even though I was dealing with housing insecurity and hunger, I felt like this is my startup. this fund that could invest in all the other that I know are doing something amazing if they had a chance or if they could be seen and discovered. Hello and welcome to Shopify Masters, your partner in launching and scaling your business. I'm your host, Adam Leventer. Having a good idea is one thing, but getting in front of the right people to help fund your company, that's a whole other task. So whether you're searching for the right angel investor, VC fund, or crowdfunding the business yourself, financing your company's growth is not going to be easy.

0:39To break it down for us, I'm chatting with Arlen Hamilton, the founder and investor behind Backstage Capital, a seed investment fund that backs overachieving, underrepresented startup founders. With over$30 million raised and 200 plus companies that they've invested in, Arlen is using her expertise and reach to grow the next 1 ,000 millionaires instead of a billionaire. Arlen, welcome to the show. Thank you so much. I got to say, I had a lot of fun doing the research for this episode. You have a ton of stuff out there. You've accomplished so much. It was interesting. I was watching your interview with Jason Calacanis on This Week in Startups.

1:17And I think that was 2021. And by then, Backstage Capital, your company had invested in over 180 companies. That's right. To date, how many investments have you made now? We've made more than 200 now. It's incredible. And you've raised over$30 million of capital, but going back to the origins of all of this, you started with no connections or traditional background in venture. How did this begin? I was in Texas where I was raised and I was in my early 30s, still struggling, had been struggling my whole life and then my adult life, just financially struggling. And I was pretty heavily into drinking alcohol.

2:00That was a big part of it, too. And I'm very proudly sober for six and a half years. And I just couldn't figure things out. You know, a lot of reasons, but couldn't figure things out. But I was always bright and I was always curious and I had started really understanding what startups were. Just a lot of it had been from kind of media, from culture. So seeing stickers of Airbnb and Twitter on Ashton Kutcher's laptop on television Or hearing that Lady Gaga's manager, Troy Carter, was an investor in something that Justin Bieber and Ellen were investing in. You know, just kind of putting the dots together.

2:44And also I had been working behind the scenes as a live music coordinator. And a lot of the artists that I'd worked with had been making these small investments in a place called Silicon Valley. And so I was like, all of this, there's a lot of signs, a lot of signal here. what is this? So I started doing a lot of research. And as I did my research, I realized, oh, entrepreneurship, startups, the new wave, this is incredible. And this is what I've always been. I just didn't know what to call it. I didn't know I was an entrepreneur. I didn't know I was a founder. I just knew that I always started things and built projects and didn't have health insurance and had a high risk tolerance.

3:29And I knew all the things that a lot of frankly white men in Silicon Valley were being lauded for, I felt a resonance with. And so I got really excited and I said, oh, cool. So that's what I'm going to do. I'm going to start a startup. That's me. And as I was researching how to raise money for a startup, just because I had read the kind of journeys of these other startups and a lot of them that were being touted had raised money. So I thought, oh, that's what you're supposed to do. That's when I learned the statistic that changed my life, which is that white men in the U.S. who do end up raising money receive 90 % of all venture capital.

4:17The 10 % is for everyone else in the U.S., even though white men make up 30 % of the country. And so as a gay black woman, I thought, wow, those statistics suck. we had to do something about that. And at the time I thought, oh, somebody needs to do something about this. And then it dawned on me that that somebody could be me. Even though I was dealing with housing insecurity and hunger and all the things, I felt like this is my startup. This fund that could invest in all the other that I know are doing something amazing if they had a chance or if they could be seen and discovered. So I set out on that path to, instead of raising a million dollars for a company, raising a million dollars to invest in others.

5:08And you plant the seeds for Backstage, I want to say 2012-ish, because you spent about three and a half years raising capital. You get a ton of rejections until September 2015 when you get to your first yes. So do you remember that moment? And do you remember that feeling, what was going through your head? I remember it very vividly. I had met an angel investor who was about my age named Susan Kimberlin at a course about investing that I had done all sorts of things to get myself there, including crowdfunding. And actually, I do want to shout out Chris Saka, one of the biggest investors in Uber and Twitter and has been on Shark Tank.

5:48He's a billionaire. He calls himself an accidental billionaire. He actually put the first$500 into my crowdfund to get into that class because I just reached out to him on email and said, hey, you know, you have to transport yourself back 12 years where we weren't really talking about DEI. We weren't talking about diversity in this space. And I was just saying, I want to represent. I want to be in this course that they're doing at Stanford for two weeks. And so he put the first$500 in and then I raised the rest of it. Got myself in the room, met Susan Kimberlin, who was also there, but the difference was she was a millionaire and she was looking for her next step after being at a Fortune 500.

6:31And over about three or four months, we talked. And in September of 2015, she agreed to give me the first$50 ,000 to start Backstage Capital,$25 ,000 to invest in someone else and$25 ,000 to invest in setting up shop. That's incredible. Fast forward to today, 30 million plus raised. You have a ton of experience with 200 plus companies invested in. As an early stage investor, you've got to be very founder focused, right? Lots of talk about the importance of having the right mindset if you want to have success as an entrepreneur. And there's lots of listeners that are wanting to start something and want to know exactly what it takes to be successful.

7:18In your opinion, what are the cornerstones of a strong founder mindset? You first have to believe that you can do this. You can accomplish it. You are the one to do it. That sounds pretty simple, but I get to talk to founders every single day in droves. And now I've been on a book tour for several weeks and get to see them in person. And many people don't have that self-belief. And I think part of that is because they don't realize how important they are to the whole ecosystem and that they play their part. Their part is so instrumental. It's not just about them individually. It's about what they contribute to the world.

8:03And so I think just having that understanding is number one. Having a certain drive and grit and resilience is incredibly important. And obviously, if I'm going to pattern match for anything, it's that because of my history. And because I don't think of it as history, actually, I think of it as current and present day, because I still have all of these barriers to break and still have all the rejection that comes with being an entrepreneur and maybe even more. So those qualities are really important. That drive is incredibly important because no matter what you're working on, it most likely is going to change at least by a little bit and maybe completely pivot within the first three years.

8:52I think Michael Seibel at Y Combinator says that something like more than 50 % of the companies that go to Y Combinator pivot within the first three years. So at this early stage, and we've seen it obviously at backstage with so many companies, a lot of pivoting, a lot of evolving. It's not just changing your mind. It's evolving and having new data and new opinion and being a different person because hopefully we are all evolving and we're changing our minds as data presents itself. And so to have that drive that will sustain you is incredibly important. I also think that, and people might call this a soft skill, I don't think it's so soft, but kindness is really important too because there's so many people involved in your story.

9:48I would love to do, or maybe there's already been a report on how many people you must interact with over a 10-year period in your company. it's in the thousands and there's a footprint that you leave there's an impression that you leave on this world I don't need anyone to be nice but kindness goes so far and so I think it's all of that and then of course if you can have you have all of those things going for you and then you have this incredible unique view of the world and strong opinion and willingness to execute, even if others are telling you that you're crazy, then that's the makings of an incredible founder, no matter what their company is.

10:43I want to double click on some of these. So the idea of kindness and interacting with so many individuals over the course of one's journey, who had the biggest impact on you over the course of your journey as an entrepreneur? It's hard to say who had the biggest because so many people did have an impact. I would say for backstage capital, two people come to mind quickest. One is Mark Cuban. And Mark Cuban invested, at this point, $6 million of the 30. and did so at very important times. First, it was$1 million in 2019 when we had kind of a stumble. And then it was$5 million in 2020 when the world was just going crazy.

11:40And not just the money, but the money was very important for us, but the belief and the way that he has treated the relationship, being on par with other relationships that he has. I think that's been very, very impactful. And then there's a woman named Holly Anderson Laveau, and she's an impact investor in Portland, very under the radar, but has poured millions and millions of dollars into film and media and tech and retail where it affects women and girls because she believes that if she can affect women and girls, she can have effect on the world in a positive way. The reason she comes to mind so quickly is she has put millions into backstage and other entities of mine to push us forward.

12:33But she's just like a light. There's never a time where she's like, I don't think you can do that. I don't think that'll work. Her thing is always very much like Sam Altman, which is what if it can? What if it does work? You know? And so having that kind of vibrancy and you know every time you have a conversation with her, she's going to lift you up rather than try to tear you down for the sake of being the smartest person in the room. And by the way, she is. She has multiple, multiple degrees and is so low-key about it. she has really impacted me just in her friendship and the way that she handles herself in business.

13:18Yeah, this is related to something you said earlier about one's importance to the overall ecosystem and not just serving oneself or serving the individual, but actually making an impact. As you meet with founders, do you have certain questions to understand or suss out whether or not these founders have this je ne sais quoi about them? Yeah, it is in their story where Mark Cuban and I, I think the only place we diverge on opinion is that he says the longer the backstory, the worse the investment. And I'm kind of the opposite of that. Like, I want to know why you're there. I want to know what brought you there.

14:01So I'll definitely have the conversations. I mean, we talk to thousands of companies a year at Backstage in some way or another. But if I can hear the backstory of what got you in the room, why are you here? Why are you choosing with these precious few years of your life, of all of our lives, why are you choosing this? And it's usually pretty easy to just in their story, not necessarily specific questions, but just in their why me background to understand, oh, this is a personal pain point. or this is something. And that can be very, very specific and very impactful in the conversation. It's amazing to hear how you've connected with so many people.

14:49We're going to dive into more about Mark in just a sec. But I wanted to first take a moment to thank our listeners for tuning into the show. Wherever you're listening to this, go follow or subscribe to Shopify Masters. And be sure to share this episode with a friend or fellow founder. You can also leave us your feedback by writing a review or commenting. directly on this episode. All right, Arlen, back to Mark Cuban, who is an interesting individual on so many levels. Certainly, most listeners are familiar with his work. Originally, you shared a stage with Mark at a conference. And then backstage, he says to you, he doesn't like investing in funds.

15:31He goes away for about a month or something and sends you an email and then writes you a check for a million dollars. How did this work? That's it. You do your research. I love this. So we spoke at South by Southwest in Austin. I want to say it was 2019. So Twitter wanted Mark and I to share the stage because we were both so prolific on Twitter at the time, at least. It was funny because when we went out, people were literally chanting Mark's name as we walked to the stage. It was this big audience and they were chanting, chanting, chanting, Mark, Mark, Mark. And by the time we finished 45 minutes later or so, they were chanting my name because I had held my own so much with him on that stage because it goes back to believing we're all equal and not being intimidated by anyone really.

16:23And I was very impressed with Mark at the time. I grew up in Dallas. I grew up with Mark Cuban even before he was in the national eye. And I just found him to be extremely genuine in that interaction. And I was like, oh, he had researched and knew my mom's name and knew my brother and took pictures and did video drops for my brother's media company and gave him some street cred and all the things, you know. And after that, I did take that opportunity to say online, I was like, hey, do you want to invest in my fund? And he said, no, I just have so much fun investing directly in companies. I don't see a reason to invest in many funds.

17:03Just didn't like the model that much. And then a few weeks later, there was an article that came out that used a very unflattering photo of me, as one does, and said that Backstage Capital had failed because we weren't able to raise our fund completely. And it was just really out of context and it made no sense to me because I had been surrounded by mostly men who were in the fundraising mode. It takes, it can take anywhere from six months to three years to raise a fund, unless you're Andreessen Horowitz or someone, right? And so I thought it was so weird. It seemed like they were trying to take me down a peg and put me in my place.

17:48That's how it felt. And actually in San Francisco, it was trending. I forgot exactly what the tag was. I think it was let Arlen know or something like that, to let me know how I affected positively different founders' lives, because it was very traumatic, this sort of taking down or dressing down. And some of our investors left because they said that they, you know, they didn't know what was going on and this piece happened. So it was a really traumatic kind of few days. And Mark Cuban reached out to me on DM on Twitter. And I won't repeat what he said because he was cursing, but he was basically saying, forget those guys.

18:26I'm going to give you$1 million to invest in whatever you want to invest in. At this point, I think we had raised maybe five or 6 million over several years, about four or five years. And he said, I'm going to give you a million dollars to invest in whatever you want to invest in so that we can get your net worth up. So you don't have to deal with this stuff anymore. And again, it was just explicative laden. I was like, cool, great. And he gave me incredible terms that were very, very friendly to me, but still sharky for himself. And I deployed the Capitol with my company, Backstage Capital. And then about a year later, when George Floyd was murdered so blatantly and brazenly, Mark just reached out to me in an email, like he does, And he said, do you want to do more?

19:24And I replied, yes. And he said, I'm going to transfer$5 million into the same entity and had a couple guardrails around it. You know, couldn't invest it all in one company, for instance, or, you know, it was over tranches, but extremely, again, friendly terms and the leeway that he gave me to invest. And very soon after he did that I asked him on my podcast Why he invested in me When he hates investing in funds And when he didn't have to I mean, he just didn't have to He could have put out a statement And that would have been good enough And in fact, he said You don't have to publicize this And so for a year, we really didn't publicize it Until I wanted to And he said without hesitation He said, you are in rooms that I'll never be in And it was just that sharkiness of his understanding that I think deep down there's a kindness there.

20:25But no one should be confused. Mark Cuban does not make donations to Backstage Capital. He wants his money back and he wants a return on investment. And he's very clear about that. He just thinks that we can do that for him. Sure. I mean, you are the mechanism to get him that ROI, but he has to have that belief in you as someone that can deliver on his behalf. In the book, Your First Million, you bring up the point that being self-made isn't really possible because you need a team to be successful. Can you share why networking has been so pivotal in your life and talk a little bit more about the importance of being in the right room at the right time?

21:06I believe we are all created equal. I don't think there's much that sets me apart from Mark Cuban and that sets you apart from Mark Cuban and the founders listening apart from Mark Cuban. And it's easier said than done to have that sort of confidence. But the reason I'm able to have that sort of confidence in myself is because I have that confidence in others. I believe it equally among us. I'm no better than you. I'm no worse than you. And that has helped me so much to get into these rooms that usually or traditionally don't feel like they're made for me or made for people who are women or people who are poor or people who are black or people who are short or bald.

21:58You know, I always, if you think about it, I talk about white men a lot as kind of the opposite of me. But if you think about it, every white man alive has felt underestimated at some point in some way. So the relatability there is just, it's undeniable. The ways that we are the same outweigh the ways that we are different. When you see founders come into the room and pitch backstage capital on their company, Do you see a lot of founders that are afraid, that have this fear? Because pitching investors has historically been something that feels, at least ostensibly, very scary. Oh, yeah. And I think there's a little bit of difference because they are walking into the room to me.

22:44If they're walking into me, they kind of know my story and they know I'm going to be a little bit kinder to them. but yeah I've seen people more than not are afraid of pitching to investors and again like we use the same through line here if you remember that investors are just like you they had to most likely go and raise money to get the investment capital they have or they had to build a company to get if they're if it's their self-owned etc and they're human and they get it wrong sometimes and they don't know everything, right? And investors, it's all opinion. It's all opinion. No matter how many spreadsheets and how much AI is being used in the background, it comes down to, did I get this right or did I get this wrong about this founder and about this company?

23:33And you don't know for years. So the reason that founders get so nervous while pitching to investors is because the stakes are so high. So if you can find a way to internally lower the stakes, same thing with negotiation with a vendor or with a customer, if you can find a way to internally lower the stakes for yourself, then you can have more leverage in those conversations. Something else I want to get your take on is this idea of having, quote, a healthy relationship with money. What is your relationship with money today? And how does it compare with the relationship you had with money over a decade ago?

24:16And what should founders understand here? My relationship with money used to be complicated. Today, I would say we're somewhere between divorced and indifference. You know, they say the opposite of love is not hate, it's indifference. That's how I feel about money. And I used to feel so emotionally connected to money, for better or for worse. It used to bring me so much joy. It was like a hit if I could get money together. Mostly it gave me so much anxiety, fear, sadness, because the lack of money created so many bad things in my life, so many bad circumstances in my life. It made my mom cry. It made us not have certain things, the lack thereof.

25:11And on the flip side, if I got any money, I would be so thrilled and it would just give me a high. And I would almost do anything. There was a desperation for the money. Never illegal, but it was always like, oh, yeah, sure, I'll give you a piece of my future income for an exchange for a few thousand dollars today. Because, you know, that was OK to me. Today, money is just a tool. It's just an inanimate object and usually not even a physical. It's paper being pushed back and forth. There are numbers on a screen. And it's important. And obviously, you know, the work that I do, I'm deploying capital.

25:56So I make sure that I'm present with it because it's other people's money and my money. but it's not something that can make or break me anymore. It's not something that will cause me to cry or to jubilate. It's only a mechanism, a means to an end. And I think that that has helped me generate so much money. Because in addition to raising 30 million, I've generated millions of dollars in income for my companies and others. A lot of early stage founders that I come across are weighing the pros and cons of bootstrapping a business versus raising outside capital. The latter being something that seems so seemingly attractive to everybody because it's what we read about on the front page of TechCrunch or what have you.

26:45But a lot of these founders aren't totally clear as to whether it makes sense to pursue outside capital or investment. In your view, when is the right time to actually raise outside funding? I think it just depends on the company and what you want out of life. What do you want it to be? I think a lot of people default to I'm supposed to raise money, just like I did a few years ago when I learned about Silicon Valley and startups. I thought, oh, because in my research, other people raised money to get to where they are. I'm supposed to. That's just the game. But you have to shake yourself out of that.

27:21cloud and fog and understand that you have decisions you get to make. What type of company do you want? What type of growth to you is considered success? What type of risk do you want to take on? And debt do you want to take on? Because even if you don't borrow money, you're on someone else's dime. You're on someone else's borrowed time if you raise money. What sort of governance do you want for the company? There are a lot of decisions you can make. And so some people will go out and say and truly raise capital and need to raise capital because they want to compete with an incumbent who is backed by millions or billions of dollars.

28:10And in order to have any sort of market share there and accelerate that, They have a fighting chance. They do need to go on this hamster wheel of raising capital. And they're willing to take that risk and they're willing to have 5%, 10%, 20 % of a company because it's going to be huge or even less percent because of dilution. And then some other people will say, actually, I'd rather own 90 to 100 % of something that makes a few million every year and that is sustainable and that I have more control of. And then there's even a third option, which is you bootstrap in early days and you use it to find your product market fit.

28:54You use it to make sure it's the company you want to be in for forever. And while doing so, you're spending all of your time rather than chasing dollars as investment. You're spending your time talking to your customer, building and refining your product or service. Therefore building the value of the company itself And then when you do decide hey this is working I want to light a little fire to this so I will take outside funding Then you're doing so at a higher valuation for the company Therefore selling it as more expensive Rather than taking money in right out the gate Diluting yourself by so much in your equity stake by so much which means your ownership and having people tell you what the company is before you have a fighting chance.

29:45So I don't think it's black or white. You can either raise or you bootstrap. But I do think you can strategically understand the game and research and spend the time to understand it. You have much more control and power and influence than you may think. I think this is an important topic. This idea of bootstrapping on your way to early product market fit as best you can. I think is very compelling. You've outlined a seven bootstrapping tip framework, actually. One of those steps, which you've mentioned, is doing as much of that hard work that you can on your own. And step four is using social channels to get to know your customers.

30:25I think that step is actually super critical in terms of understanding where product market fit might happen. Can you just explain a little bit more about how one would leverage social media to better understand their target market. Right. So social media is not just for kids or teenagers or trends. It is the most powerful, I think, tool in your toolbox right now. And it's the cheapest for now, right? There's so many places that it really doesn't have like many freemium models. I mean, you go on the Instagrams, you go on even the LinkedIn is a social media platform today. You go on these different platforms and you're immediately in front of an audience.