May 4, 2018

Arlan Hamilton 2: The Hustle

by StartUp

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Episode Notes

The Story
In this week’s episode we dive into what Silicon Valley considers “hustle” and how it may need to update its definition. We also find out how Arlan first got into venture capital—after months of sleeping on the floor at San Francisco International Airport. Plus, meet one venture capitalist who really gets Arlan’s goat.

This is the second episode in a six-part series on Arlan Hamilton and her company, Backstage Capital.

The Facts
Peter Leonard mixed the episode. 
Mark Phillips wrote and performed our original theme song. 
Build Buildings wrote and performed our special ad music.
Additional music by Bobby Lord, Hot Moms Dot Gov, Golden Gram, and Blue Dot Sessions.

For a list of our sponsors and show related offer codes, go to gimlet.media/OurAdvertisers 

Transcript

AMY: One morning, Arlan Hamilton and I took a flight from LA to San Francisco. Christie Pitts- Arlan’s partner at her venture capital firm, was there to meet us.  


The whole Backstage team worked remotely- so whenever they all got together there was a lot of joking around. In the car, Arlan was talking about a big tech conference that was going on in Las Vegas- and something she had just read about it.  


ARLAN: Did you see the stripping robot, Christy?


CHRISTIE: I saw your tweet and I was like, 'Not today, Satan.' Thank you.


AMY: To them, the stripping robot was symbolic of Silicon Valley bro culture. Its attitudes toward women, how it can cater to such a small, privileged sliver of the population. For Arlan, this wasn’t just some annoying anecdote, it was personal. 


ARLAN: And I feel like every day, my life’s mission is insulted by that. Let’s do an entire episode on, what’s that boy’s name? Rothenberg. He gets my goat. 


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AMY: Who is that boy Rothenberg and why does he get Arlan’s goat? Hello from Gimlet media I’m Amy Standen and this is startup. This season: we’re diving into the cloistered world of venture capital, with a woman who fought her way in. This week we discuss the mythical virtue that is hustle - and how Arlan Hamilton proves that Silicon Valley may need to update its definition. And in the process … there will be some swear words. So, be warned. 


This is episode 2. If you missed episode 1, you might want to listen to that first. It’s where we heard about that Tony Hawk trick Arlan needs to pull off. She has to find and invest in great companies that Silicon Valley’s been missing out on because their founders aren’t white guys. And to do that, she needs to raise more money, fast. 


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AMY: That day in the car was not the first time Arlan suggested we do an episode about Mike Rothenberg. 


ARLAN: Like this dude, Mike Rothenberg … I’d love to have a conversation with him on record. If you ever want to set that up, I’d love it. 


AMY: The more I shooed this idea away, the more she came back to it. She really wanted to pick a fight with this guy. But over time I began to realize this grudge came out of something deep in Arlan. It said a lot about who she is and how she got here. Surprisingly - the two of them had a few things in common.  


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AMY: Mike Rothenberg is a venture capitalist who had started his own firm at a young age, like Arlan did. Picture a clean cut white guy with dimples and a shirt with the top couple of buttons undone.  


MIKE: Hey everybody! 31 years ago today was the greatest achievement of my life … I was born.


AMY: Both Arlan and Mike built their careers as venture capitalists by convincing other, bigger investors to trust them, to place money into their funds. In other words - they had to hustle. Mike got started during the summer before his final year at Harvard Business School.

 

MIKE: Unfortunately I didn't have really almost any money. And so what I did was I sublet my apartment, and I spent pretty much all of the money that I had on plane tickets to go around and reconnect with people in my life and 50 people invested five million dollars and then I got to be a venture investor. That's factually true. 


AMY: This is what Silicon Valley calls hustle. And it drove Arlan bonkers. 


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ARLAN: The biggest hustler in Silicon Valley, this guy is just off the charts hustle. And I read his story and I'm like, so he took a summer off, he put his stuff in storage, he went on vacation for three months and he got 14 of his dad's friends to invest in a fund. That's hustle to Silicon Valley? Holy shit wait till they see me. That's what I thought to myself when I read that like, wait till they get a load of me. If they think that that is hustle? Are you fucking serious? 


AMY: Mike disputes some of this - he says it was 50 investors, not 14, and they weren’t his dad’s friends. Arlan’s beef is about hustle - how hard Mike worked compared to how hard she had to work. Arlan’s hustle is what today’s story is about. And it makes Mike’s path to venture capital sound like spring break in Cancun. Of all the things Arlan is-all the boxes she checks: black, female, gay-the quality that makes her most unusual in Silicon Valley is probably the least obvious, when you meet her, which is that she started out poor. Arlan grew up in Dallas with her mom and her brother. And when Arlan was a senior in high school, her mom lost her job. 


ARLAN: No one at school knew this, but we were living out of a hotel room. All three of us had one bed ‘cause we were kicked out of our apartments. We couldn't afford it anymore. And so we had a car, and we had this hotel room and we were really excited to have the hotel room because it had a had a refrigerator in it.

AMY: Arlan doesn’t really like to dwell on any of this stuff in part because, I think, she feels like it portrays her as powerless. And Arlan has never seen herself as a victim. Even as a kid, she was always coming up with new ways to make money, whether it was by reselling fireballs she bought at Sam’s club to other kids for a profit, or going door to door painting peoples’ street numbers on the curb. In other words, Arlan was always hustling. And this continued into adulthood. She was always looking for the thing that would make her and her family rich. And in 2012, she found it. 


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AMY: At this point, Arlan was 31. She’d had been working on and off as a tour manager for bands. This pay wasn’t great, but it was fun. Cee Lo Green’s tour took her to Dubai. And more importantly … this work got Arlan into rooms with people she wouldn’t have met otherwise. Show biz people. Rich people. And Arlan would study them. Which is how she first learned about investing in startups. 


ARLAN: Troy Carter, who used to be Lady Gaga's manager, he you know he was one of the first people that I saw going into tech investing. How did he get into Uber? How did he get into Lyft? I thought, well, if they're doing it, not just them but the people behind the scenes are doing it. And I just thought what is it? 


AMY: All you needed was to spot a good company early. And when that company was sold or went public, its investors made millions. Arlan thought … I can do that. 


ARLAN: I know what airbnb is cause I applied for a job there - for customer service that I did not get ... But wait a second instead of applying for a job at Airbnb - I could own a piece of Airbnb? That’s so interesting.


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AMY: The world of startups and investments looked like a meritocracy. A place where all you needed was hustle. You could start with nothing and end up with a lot. But clearly, if she wanted to become an investor, she needed to teach herself how this world worked. So Arlan dove in. 


MRS. SIMMS: She was in her room a lot. 


AMY: This is Earline Simms, Arlan’s mom, who was living with Arlan in an apartment in Pearland, Texas. 


MRS. SIMMS: And every once in a while, she’d come out and say 'ok, I’ve got 5 minutes. Do you want to go to the store? What do you want to do?' And then she’d go back into her room.


ARLAN: I had a blow up mattress, one sheet, one pillow. I have a white board because I needed to teach myself stuff. And I had a computer. I did have a laptop. It was acer, had an acer laptop.

 

MRS. SIMMS: So I thought she was just going through a phase where she was calling people and finding out stuff. I knew she'd started getting these books like Branson.


AMY: Richard Branson. 

MRS. SIMMS: Yeah, she was just being so crazy about these books and thinking they were just so great and wonderful. 


AMY: In addition to consuming every book, podcast and youtube video she could find about venture capital - Arlan was sending out, literally, hundreds of cold emails. She dug up email addresses for some of the biggest names in venture capital: Marc Andreessen, Chris Sacca - a few actually wrote her back. She also wrote to startup founders, asking them: how did you get here? And right away it became clear that Silicon Valley was less of a meritocracy than she’d thought. Because these stories were so different, depending on who was talking. For example, with women founders, it often went like this: 


ARLAN: I taught myself to code and then after I would leave my full time job I’d come home and create this and this and this.there would be no talk of outside funding because there was no way to get that. Then I would talk to 25 year old white men. just as excited about their site. And they would say, well, couple friends and I thought we could make this work and so we took two whole months off school and my dad let me borrow 20K. 


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ARLAN: It was just a totally different story, no fault of eithers own. But what I learned from both was that nine times out of ten the woman who had done everything herself had a viable company that was worth maybe the same or a little bit less than the other company? But done with a 10th of the resources. 


AMY: A lot of people would find this discouraging. The problem seems structural. Intractable. But Arlan saw something else: a way to make money. And to me, this marks the real beginning of Arlan’s career as a venture capitalist. 


ARLAN: I thought, what an interesting opportunity, because it did take a tenth of the resources. Huh. Is it fair to say if we give her the same resources she can do 10x the return? And that, as soon as I had the question in my head, boom, I go.


AMY: This is the genesis of Arlan’s thesis. The thesis is a thing in venture capital. You have to have one if you’re going to be a VC. It’s your philosophy. It’s how you decide what to invest in. 

Arlan’s thesis is that women and people of color have an edge on hustle. And that if VCs invest in them, the return will be huge. Other VCs, she felt, were overlooking this crucial fact. Arlan believed her future was in Silicon Valley. But she was still in Texas. She needed a way in. So she sent more emails, this time to potential employers, asking for jobs start ups, at VC firms - she even offered to work for free. And all she heard was no.


Arlan had been at this for nearly a year - trying to find her in - when she read about a contest being put on by a man named George Zachary. Zachary is a partner in a big VC fund. His biggest win was Twitter. And he was looking for someone to be his apprentice. To Arlan, this was the ticket that could get her out of Pearland, Texas and to California - where she could learn investing from the pros. So she sat down on her blow up mattress and made a video on her phone.  

 

ARLAN: Hi George. My name is Arlan Hamilton and I was going to email you … but I thought I'd make a video instead.


AMY: The video looks very homemade. All you see is Arlan’s head against a white stucco wall. And she just lays it all out. 


ARLAN: As you can see, I probably don't fit the general VC profile. In addition to being African-American and female and under the age of 35, I'm also really really homosexual. What defines me as a VC, as a future VC is, I feel like I have this natural gut instinct that cannot be taught at any of these top business schools or law schools. I do have those street smarts. 


AMY: I know this sounds like Arlan is asking George to give her a chance. But really, I think it’s more accurate to say that Arlan was offering George something - offering to share her big idea with him: that women and people of color could provide 10x returns. She’d found a network he didn’t know about yet. And she was offering to share it with him. A few weeks later she got a reply from George, but not the one she wanted.


LAUREN: Like what could she have done? What was she missing at that point? 


AMY: Our producer Lauren Silverman called George Zachary at his home in St. Barts.


GEORGE: Huh, at that point. I'm sorry that's my dog. You know the most important thing is access to deals. This is the hardest part. For people to get hired in as apprentices or associates, you have a competitive edge if you have access to those deal sources through just proximity, through social networks, or proximity through university classes et cetera, et cetera et cetera. So a person with her background, you know by being black, by being a woman, by not being in these networks, it automatically makes it difficult for her to be chosen. 


-music-

LAUREN: She wasn’t connected in Silicon Valley? 


GEORGE: Yeah, it’s like a self reinforcing problem. It’s really awesome if you’re in that position but it kind of suppressed the movement of everyone below.


LAUREN: You can’t take risks with people like Arlan? 


GEORGE: Yeah, exactly.


-music-


AMY: All this time, Arlan had been looking for a job or an apprenticeship at a venture capital firm. But it was clear by now that wasn’t going to happen. Which left two options: Give up on the whole thing, or do something that could sound a little … ambitious: Start her own venture capital firm! Which is of course is what she did. She scraped up enough money for a one way ticket and set off for Silicon Valley.


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AMY: Coming up-Arlan takes hustling to a new level! 


ARLAN: I’ve never, there's never been a time of my life where I thought all someone said no oh, no. What do I do now?


AMY: That's coming up after the break.


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AMY: Welcome back. Arlan arrived in San Francisco in the spring of 2015 - with enough money for two weeks at an airbnb. She could make a few dollars from the occasional music tour and a few small online jobs. But it wasn’t enough. So one day, three years after she first sat down with her Acer laptop to study Venture Capital … Arlan found herself in one of the country’s most expensive housing markets with nowhere to live.


She couldn’t go home, because she needed to convince people in Silicon Valley to give her money to start her own firm, money she could invest in companies. She had to make that pitch in person. So she took her backpack and her rolly suitcase and she came to the airport. For much of the summer, this is how Arlan stayed in California. By living here, at the airport. I wanted to see it. So she told me to meet her at the Virgin Airlines check in, which she loved, because it reminded her of her hero, Richard Branson.


ARLAN: I think we’re almost there … I breathe heavy. I’m a fat woman. 



AMY: We passed the Southwest counter. The crowds thinned.


ARLAN: It’s either one more down or we passed it. But it was one of these. 


AMY: This is where Arlan slept: on the grimy carpet, next to a bank of vinyl seats across from the Frontier Airlines check in. 


ARLAN: I had a pillow. It was either a backpack, a pair of jeans rolled up or a jacket rolled up … so I’m just like bone to the floor. For the first couple of hours I could just kind of look at the ceiling or watch people go by and kind of pretend for a moment that I was just, I was just some sort of you know college student who was, you know stranded at the airport before going off to France or something. But then what it's like when people kind of disappear there'd be no flights coming in of very few, they would start cleaning up. It was just a really lonely quiet, eerie place and I wondered how I got there and I wondered if I'd ever leave it.


AMY: Each morning, Arlan would get on the train down to Mountain View, or Palo Alto. All those emails she’d sent from Pearland - now she was making the pitch in person, trying to convince  big shot investors to give her money to start her firm. In between meetings, she’d go set up camp in a food court. She’d roll her suitcase up to a table and sit there, typing emails until the battery ran out on her laptop. When things got really rough, she’d send a text to her mom.


ARLAN: Sometimes when I was like, I’m gonna go hungry. I know my mom would want to know and be able to help if she can. I’d say, is like $10 possible. Can you transfer that on like a PayPal card? And she would I mean honestly she would go ‘Okay? I'm gonna put three from this card and four from this one and three from this one.' Not have the 10 or whatever was left, and I would take that and go and buy some fruit or buy you know from the little store and I would ration it and think about when I would have more.


MRS. SIMMS: It was sad for me because I felt hopeless. But it was also ... She was at the airport for a reason because she thought that was a springboard she could go from.


AMY: Did she tell you it was hard for her? 


MRS. SIMMS: I mean, anybody staying at the airport because they don’t have a bed (laughs) I knew it was hard, took a little rocket science course, but that one came natural.


AMY: Did she say, 'Mom, this is hard for me'? 


MRS. SIMMS: No, Arlan doesn’t say it’s hard for her it’s easy for her or whatever, she just does it. I know she's told you we've slept in the car and it was more like, 'Mama, do you want the front seat or the back seat?' 


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MRS. SIMMS: And it’s sort of the same voice as 'Do you want this suite at the Four Seasons or did you want to go to the Hyatt?' It's the same voice. 'Front seat or back seat, your choice.' If you read just about anything that has been written about Arlan Hamilton, there will be a sentence like this: 'Three years ago she was homeless, and now she’s running her own venture capital fund.' Which is true, and impressive, but to my mind? Totally inadequate. 


AMY: That short trajectory - homeless to VC - gives the impression that Arlan got lucky or had some kind of big break. When what’s striking is how few breaks she DID get, and how she just kept on going. Arlan seemed impervious to rejection. When I asked Arlan about this - how she got this way- she answered right away. This was obvious to her. She’d been a Jehovah’s Witness when she was a kid. And who hears the word no more often than a Jehovah’s Witness. 


-music-


AMY: Arlan’s mom joined the Witnesses when Arlan was four. Every weekend, they’d go out into the neighborhood, spreading the word. Arlan hated doing this. It was mortifying. People would pretend they weren’t home, or they’d open the door and yell at them. 


ARLAN: Some people would say get the hell out of here you know or I don't want you coming here anymore. And then every once in a while, I would say if we went out 50 times a year, I probably witnessed five or six times where someone said, 'Yeah I do want to hear what you have to say.' 


AMY: Hundreds of houses a year. Five, maybe six successes. These are terrible odds. You kind of have to have faith to put up with odds like that. But it turned Arlan into a certain kind of person - the kind of person who can handle the word no.


ARLAN: Having the door slammed in your face as a child is a horrible, a disruptive disgusting thing to have to go through as a child, but it also like thickens your skin like - I didn’t really think that hearing no - there's never been a time of my life where I thought all someone said no oh, no. What do I do now? For me it’s a numbers game, it’s an averages game. If you want something, why not go to bat more times to get that thing? I just don’t know any other way.  

AMY: Well I think for some people it feels bad to get the door slammed in their face. 

ARLAN: A lot of times it feels bad to hear someone not understanding why something is good that you think is good but all I think is well they're just not they're just not there yet. They don't understand it yet or they're just not as visionary as I am. So they’re just not seeing it yet. Arlan left the Jehovah's Witnesses when she was a teenager. Which… 

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AMY: brings us back to Mike Rothenberg.  


ARLAN: This part you might find interesting, though, Amy. We both grew up as Jehovah’s Witnesses. I learned that later. 

AMY: Really? Knocking on doors. 

ARLAN: Mhmh.


AMY: Mike Rothenberg didn’t want to comment on how he was raised. He says he never chose to join an organized religion. And his story took a very different turn. Four years after he started Rothenberg Ventures, the firm was in trouble. There were magazine accounts of lavish parties. Top executives were quitting. And then, his ex CFO sued him and Rothenberg was ordered to pay damages. He was accused of mismanaging funds and his firm was being investigated by the SEC. Rothenberg claims he didn’t do anything wrong. 


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AMY: I think what really bugged Arlan about Mike wasn’t just how he managed his money, or that people said he had hustle … when his road to becoming a VC seemed so much easier than hers. It’s that she believed he had squandered his privilege. And this offended her. It took Mike a summer to start raising a five million dollar fund. After months of living at the airport, Arlan still hadn’t raised a dime. And then, one afternoon in September 2015, she finally got her first check. It came from an investor she’d been courting for months. A woman named Susan Kimberlin. 


-music-

SUSAN: With Arlan, the thing I’ve always admired is how she’s created resources where there was nothing. It’s remarkable how much she has done with with like unconventional or no resources.

AMY: Susan liked her hustle.   

ARLAN: She said, ‘I’m in. Ok I’m doing it.’ And I immediately - I danced around I did a little shuffle and I was like woo hoo. And then I called the lawyer who’d been helping me for free for a year. And I said, ‘OK can we get the documents, like yesterday? Can we have everything? Cause I have someone - it’s just one person, but omigod, we have something.’ 


AMY: Arlan would never have to sleep on the floor again. Over the next 16 months, Arlan would go on to raise two million dollars for Backstage Capital … from about 35 different investors. Some of the checks came from famous names in tech. Brad Feld, Marc Andreessen, Stewart Butterfield - people who often make investments in the millions. To Arlan, they gave tiny fractions of that - like 25 or 50 thousand dollars. 


Two million dollars is tiny in the world of Venture capital. The big firms control 100 million dollar funds, or more. But two million was enough to get Arlan in the business. Finally, she could do the thing she’d wanted to do for years, look for startups led by founders who other VCs were overlooking ... who could take her investment and run with it.


-music-


ARLAN: coo coo - can you hear us? Conference locked. 


DANIELLE: Ok, this is Danielle Persick, with my cofounder Brendan Lewis.


ARLAN: Hey danielle and Brendan! This is Arlan how are you all?


DANIELLE: We are wonderful and super excited to talk to you today.


ARLAN: Excellent so you’ll have just a few minutes. 

 

AMY: This is a dealflow call. It’s Arlan and some of her staff hearing pitch after pitch from startup founders who are asking Backstage Capital for investment. 


AIR TAILOR: So, I set out to create Air Tailor um and you know I like to call it a tailoring solution for the 21st century.


SMART ALTO: We make a text messaging robot that helps real estate agents respond to leads.


AMY: She wasn’t just looking for a certain kind of company. She was looking for a certain kind of founder.  


HASSAN: I used to go door to door, literally door-to-door selling cut-cold knives and I’m a 6 foot 3 black guy going around selling knives…

ARLAN: Wow! Okay. In Alabama! 


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AMY: At long last - Arlan was assembling her dream team. A new network of founders, who had started out farther away from the Silicon Valley elite. And could be doing more - much more -if only someone would write them a check. 


-music-


AMY: Next week on StartUp: What some traditional venture capitalists look for in a founder. 


DOERR: They all seem to be white male nerds who’ve dropped out of Harvard or Stanford and they have absolutely no social life. So when I see that pattern coming in, it was very easy to decide when to invest.


AMY: That’s coming up next week.


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AMY: This episode was produced by Bruce Wallace, Simone Polanen, Luke Malone and Angelina Mosher. Our senior producer is Lauren Silverman. Editing by Lulu Miller, Caitlin Kenney, Lisa Chow, Molly Messick and Sara Sarasohn.


I’m Amy Standen. Our theme song is by Mark Phillips, remixed by Bobby Lord. Build Buildings wrote and performed our special ad music. For full music credits, visit our website, gimletmedia.com/startup. Peter Leonard mixed the episode. Special thanks to Joanne Chen at Foundation Capital and Renata George at Zenmen Venture Fund. To subscribe to StartUp, go to Apple Podcasts, or whichever app you like to use. And while you’re there, I don’t know, leave a review! Find out more about the show at gimletmedia.com. You can follow us on Twitter @podcaststartup. Thanks for listening.