Arlan Hamilton chased her dream of starting a venture fund to support female, minority, and LGBT entrepreneurs. She landed investments from top names in tech, including Marc Andreessen and Slack CEO Stewart Butterfield. Backstage Capital

After another long day of chasing down potential investors, venture capitalist Arlan Hamilton was ready for bed. The only problem was, she had no idea where she would sleep.

As day turned to night, Hamilton sat at a table outside of a grocery store in Palo Alto, California, with a backpack, her suitcase, and nowhere to go on this Sunday in September 2015. For more than a year, she had been pursuing her dream of starting a venture capital fund focused on female, minority, and LGBT entrepreneurs. But it's tough to get a fund going when you don't have any money to invest.

Hamilton had met with every investor she could track down and cold-called everyone in tech she could think of. No one had written her a check. Why would they? Hamilton, an African American lesbian, was a Silicon Valley outsider. She had no track record as a venture capitalist. And she wanted to invest in a segment of founders with little proven success.

She'd spent everything to bootstrap her mission. For months, she'd been homeless, sleeping on couches, in motels, out of cars, at airports. As a weary Hamilton sat, contemplating her next move, her phone buzzed.

"I'm in," read the text from Susan Kimberlin, a tech veteran who made a name for herself at Salesforce and PayPal. Kimberlin was ready to bet on Hamilton to bring more diversity to tech--and her check was the lifeline Hamilton needed to get Backstage Capital up and running.

Hamilton sat there in silence, lost in thought, letting the moment sink in. "I made it," she thought to herself before standing up to do a moonwalk and a little twirl. Then immediately, she went back to work, calling the startups she'd been wanting to invest in for months. She picked up her bags and started walking.

"I never had to be homeless again after that," she says.

Not a charity

There is a wave of new venture funds focused on bringing more diversity to Silicon Valley, by investing in women, people of color, or those of the LGBT community. Backstage Capital, along with Kapor Capital and Intel Capital's diversity fund, is an exemplar of such firms.

Since Kimberlin's first check, Backstage Capital has collected investments from a who's who of tech investors and executives, including Marc Andreessen, Lowercase Capital founder Chris Sacca and his wife, Crystal English, Rose Tech Ventures managing partner David Rose, Box co-founder and CEO Aaron Levie, and Swati Mylavarapu of Kleiner Perkins Caufield Byers.

To date, Hamilton, 35, has invested in nine sets of founders whose companies tap into ideas and markets that have been largely ignored by the predominantly white, Asian, and male Silicon Valley. With her $5 million fund, Hamilton looks to capture 1 percent ownership in early-stage companies that are seeking their first round of funding.

"Arlan's focus on diversity will unlock access to valuable talent and huge markets that haven't been on the radar of traditional investors," Sacca says.

"She's out there finding companies that I would never ever have seen," marvels Rose.

Hamilton's portfolio includes Text Engine, a startup that allows users with "dumb phones" to pull information from the internet; Radial, a music-streaming app focused on the soca, a Caribbean-based drum-heavy dance offshoot of calypso; and Tinsel, a hardware company that makes fashionable necklaces that double as headphones.

"Last year when I was raising money, being black, being a woman, being pregnant--it was just strike after strike of what investors are not interested in," says Aniyia Williams, Tinsel's CEO. "But when I talked to Arlan, she got it right away."

Like many of her tech idols, Hamilton wears the same uniform every day: a black shirt or black hoodie that proudly sports the name "Backstage Capital" in bold purple letters. Tall, African American, and female, wearing her hair in a short black bob, Hamilton looks nothing like the majority of venture capitalists in the Bay Area--but nonetheless has the goals of any investor.

"This is not a nonprofit or a charity. I want killer companies that are making money and will make money," says Hamilton, who rarely raises her calm and confident voice. "My job is to make money for my investors, and I can't do that with companies based on my heart. It has to be based on companies that are badass."

As with the rest of the tech industry, diversity among venture capitalists is scarce. Among 71 of the top venture capital firms, women represent only 8 percent of senior investment teams, according to data compiled in 2015 by Social Capital and The Information. Hispanics and African Americans make up just 2 percent of those ranks.

All this trickles down to startups. Only 2.7 percent of venture-funded companies are led by women, according to a 2014 report by Babson College. Just 1 percent of founders among venture-backed startups are black, according to 2010 data from CB Insights. More specifically, a mere 24 black women received any venture funding from 2012 to 2014, according to the #ProjectDiane report released in February.

Hamilton, obviously, understands that some of her founders will fail, but she believes they deserve to be given the same opportunities that are often plentiful for white, Asian, and male entrepreneurs. "For all of the Mark Zuckerbergs or the successful companies that we see that are founded by white men, how many have failed?" says Alicia Thomas, CEO of Dibs, a Backstage Capital-backed startup whose technology lets gyms charge dynamic--or surge--pricing for their classes. "Women and people of color aren't given the chance to fail because it's like, 'Oh, see, that's what happened.'"

Chasing billion-dollar ideas

Hamilton first started studying tech in 2012. At the time, she was working in the music industry as a production coordinator, helping orchestrate shows for acts like CeeLo Green, Kirk Franklin, and Amanda Palmer. This was Hamilton's dream job, but she noticed that many of the artists and music executives she admired were investing their music money in tech.

That piqued her interest. Hamilton began reading and watching anything she could get ahold of to teach her about the world of tech and venture capital. She'd watch keynote speeches on YouTube and read blog posts and books by investors, "even though I didn't understand most of it," Hamilton says with a chuckle. But she'd grown up knocking on strangers' doors as a Jehovah's Witness (she no longer practices), and had no qualms about randomly reaching out to founders and investors and offering to help in any way she could.

Making connections and helping young companies land investments gave her a high. It became a hobby, something she did at home in Houston in between her artists' tours.

And all her life, Hamilton had been insatiably curious. In elementary school, Hamilton would ask countless questions, often to the annoyance of her teachers. This landed her on both the honor roll and in the principal's office--for being disruptive.

Hamilton, who'd grown up without much money, was often one of few black kids in her honors classes. In them, she would make a point and see it receive little attention--but then, a white boy would be praised for saying something similar. "I grew up very quickly understanding that I was going to have to do more if I wanted to be seen as equal," she says. "I was going to have to work at least twice as hard if I was even going to be given a chance or taken seriously."

And, as she connected founders and investors, she saw that more often than not, it was the white male founders she helped that received the most opportunities: "It became clear really fast that there were certain people who were not getting meetings, even if they had a really great company."

To the queer black woman within her, this was wrong. To the hustler within her, it was a huge opportunity. While others saw markets like virtual reality and artificial intelligence as the next jackpot technologies, Hamilton saw the next billion-dollar ideas in that pool of untapped, underrepresented entrepreneurs.

As a side project to her music gigs, Hamilton chased the idea of a fund focused on LGBT entrepreneurs, for about six months in 2013. "I went hard on that, but it just didn't take off at all," she says. Hamilton had no credibility in the tech industry: "There was a lot of stuff I had to prove."

Her music career was on an upswing, but as months passed, Hamilton became obsessed with her idea. She decided she was going to give it another try. In August 2014, Hamilton wrote an email to all her music colleagues and told them she was putting her career on pause. "Anyone who works in music will tell you that it's hard to get a gig, and to turn down gigs is silly," says Hamilton, who was then ready to fully focus on her fund. "To turn down the only money that was coming in ... yeah, it was crazy."

She began living off her savings while lining up entrepreneurs she hoped to invest in and scrambling to meet more investors. She just needed to find one person who believed in her.

That proved tougher than she had imagined. As months went by, Hamilton was forced to leave her apartment and bounce around from one friend's couch to another.

By the end of 2014, she had yet to collect a single investment check, but she had begun building her profile with powerful Silicon Valley allies, including Sam Altman, the president of Y Combinator, the top startup accelerator.

Altman couldn't invest in Backstage Capital, given his commitments to Y Combinator, but one night as Hamilton sat in a motel room in Houston, unsure when her next meal would come, Altman sent her an email. "The world needs what you're doing, and I want to help you," he said.

"I just remember thinking, 'Wow. If he's saying that, that means this could be bigger than I thought,'" Hamilton says.

Dear White Venture Capitalists

On January 1, 2015, Hamilton relocated to Austin. A month later, she flew to San Francisco for Y Combinator's Female Founders Conference. "It wasn't, 'Oh, my god, this is Disneyland.' It was like, 'This feels right. I feel confident here. I feel like I belong,'" Hamilton says. Later, when she got accepted for 500 Startups' two-week seminar for new investors in Palo Alto, Hamilton bought a one-way ticket.

She got there in May and rubbed shoulders with dozens of other rookie investors. Many were already-wealthy industry veterans. One of them was Kimberlin. The two gravitated to each other thanks to their similar investment theses: They believed diversity was technology's next great opportunity. After working in tech for 18 years, Kimberlin knew firsthand how rarely women appear atop the corporate ladder. She wanted to change that through angel investing, and Hamilton intrigued her.

As part of the seminar, the investors were encouraged to establish their brands by writing essays for Medium. Write about what you know, 500 Startups' Dave McClure said. Hamilton penned a piece titled "Dear White Venture Capitalists: If You're Reading This, It's (Almost!) Too Late."

It went viral.

"Your goal is to make money as a VC or accelerator who is investing other people's money because you have a fiduciary duty to do everything in your power to bring your LPs returns," Hamilton wrote in her Medium post. She implored investors to dedicate fractions of their funds to underrepresented entrepreneurs and offered to help.

"Therefore, if you haven't hired a team of people who are of color, female, and/or LGBT to actively turn over every stone, to scope out every nook and cranny, to pop out of every bush, to find every qualified underrepresented founder in this country, you're going to miss out on a lot of money when the rest of the investment world gets it."

Hamilton's inbox exploded with emails from founders and others in tech thanking her for the post. Many invited Hamilton for meetings. Some were enticed by her arguments but not quite ready to make the jump. Others offered to bring Hamilton in--but have her work in the background, without any ability to invest.

"I pitched to well-known VCs, and I was met with a pat on the head. 'Good idea, but let's talk another time,'" Hamilton says. "I thought, 'Cool. We'll talk when I'm writing a check across the table from you.'"

Building brick by brick

Hamilton didn't need their support. She had Kimberlin.

"I got to the point where I understood what a difference it would make, what kind of possibilities it would unlock for somebody to write her that first check and let her form the fund," Kimberlin says. "It was an opportunity for me to put my money where my mouth was."

Hamilton won't disclose the size of that check--but it nonetheless came just in time. "I could only go so far on my own steam," Hamilton says. "There was a breaking point where I would not be able to go any further without any capital."

With the check in hand, Hamilton began calling entrepreneurs she'd met months before and finally made the investments she'd been waiting to make. She invested in entrepreneurs like Sarah Heering, co-founder of NailSnaps, which lets people print nail art designs as stickers--an idea that several male VCs failed to understand.

"You as a man don't get it; you don't walk into a salon and have to sit there for an hour smelling those chemicals," Heering says. "Having females on our investor sheet is important because it helps us solve the problem."

But one limited partner does not a venture fund make, and while Hamilton's Medium post spread her name, she still needed endorsements.

That's when Stewart Butterfield came in.

Butterfield, the co-founder and CEO of Slack--Inc.'s Company of the Year in 2015--is uniquely positioned to affect diversity in tech. While Slack's work force--around 600 employees--is tiny next to the likes of Google and Facebook, the company is growing so rapidly that its hiring over the next year or two could make it one of the first major tech companies to reach, or approach, gender and ethnic parity.

Butterfield has hired multiple leaders in the tech diversity movement, including Erica Baker, an engineer who left Google after she was reprimanded for raising awareness over salary inequality, and Leslie Miley, a former engineering manager at Twitter who left the company over its lack of diversity. Butterfield is among the few elite CEOs who has spoken about the topic at length, and he has given the limelight to his underrepresented employees during key moments, like the night Slack won the Crunchies award for Fastest Rising Startup.

When Butterfield caught wind of Backstage Capital, he followed Hamilton on Twitter and sent her a direct message. He wanted to invest.

"Stewart Butterfield changed things," Hamilton says. "It added more legitimacy to what I was doing."

With Butterfield's support, Hamilton's momentum picked up. "Each time we got a Stewart, each time we got a Marc Andreessen, it was one more step in us knowing we were on the right track," she says. "Every time we could tell our LPs that someone else had joined, it was a celebration."

She was still building the fund brick by brick--but now, when she had conversations with prospective investors, she could point to Kimberlin's and Butterfield's names on her list of limited partners.

"She's hustling," says Slack's Miley, who also decided to invest in Hamilton. "Whether it's chasing down billionaire investors or showing up at fundraising events, you know she put the work in to get where she is."

Many of Backstage Capital's LPs are venture capitalists themselves, but Hamilton supplied an opportunity to discover entrepreneurs they might have otherwise missed.

"She gets access to entrepreneurs that your typical Valley investor might not," says Lars Rasmussen, an angel investor and veteran of Google and Facebook. "It's almost like using an unfair advantage by knowing Arlan and using her connections into an area that is overlooked, and wrongly overlooked."

Others who have invested in Hamilton see it as doing their part to add diversity to the industry they love. "Part of our reason for backing Arlan is acknowledging and understanding that everyone in tech has these blind spots," says Zachary Bogue, co-managing partner of the firm Data Collective.

Creating the next generation

Now that her fund's up and running, Hamilton has the tough task of proving her thesis. Despite all her big-name investors, the fund is small, and, she says, must be run lean. Her investments are typically seed-round bets that range from $25,000 to $100,000.

"The next stage will be going out and finding truly world-class companies that can be game-changing in their respective markets. That's the hard part for any investor: still being incredibly selective on where you're going to put the capital to work," says Aaron Levie of Box. Levie joined Backstage Capital as an LP this spring. "It'll be exciting to see how the portfolio evolves over time."

For Backstage Capital, it's not enough to spot promising entrepreneurs. Hamilton and her staff--she now has a full team that includes Kimberlin as a venture partner--don't expect to see any returns on their investments within the next five years, so in the meantime, it's important that they, like many other top VC firms, help these founders get to the next stage.

"We try to punch higher than our weight, so if we're putting $50,000 in, we try to do enough work so it feels like we gave you half a million dollars," Hamilton says. The Backstage Capital business model is to connect founders with bigger investors--like those she's brought into her fund. Because, she says, "our $50,000 check means nothing if that company can't raise again."