Black venture capitalist tells Twin Cities venture investors: It's time to fund more minority businesses

Arlan Hamilton is a trailblazing black woman who built a venture-capital firm from scratch.

She also is part of the response to a 2017 article in Fast Company called: "Why Venture Capitalists Aren't Funding the Businesses We Need."

In 2015, only 5 percent of capital went to female founders and just 1 percent went to blacks and Latinos, and 75 percent-plus of funding went to Massachusetts, New York and California. Most venture capitalists are white upper-class males who went to elite universities who invest in companies started by people like them. Not all of them have sterling track records.

Hamilton, 38, a former band manager from Texas, spent three years living hand-to-mouth studying the VC trade in California. She finally convinced some folks with money in the Bay Area to back her.

Her inaugural Backstage Capital seed funds of about $5 million have gone to 100 startups around the country in which at least one founder is a woman, minority or LGBTQ person.

"These entrepreneurs were overlooked because of the color of their skin or gender," said Hamilton, who was in the Twin Cities recently. "It is an absolute [investment] opportunity. I'm just giving them a chance."

The early returns have been favorable. Backstage is reloading with a $30 million-plus fund focused entirely on black female-led companies.

Hamilton spoke at a forum this month sponsored by the Center for Economic Inclusion, the organization focused on strategies to help close the troubling gaps in minority education, opportunity and wealth.

The good news: Minority employment in areas such as business services and technology is growing at up to twice the rate of the overall job market in the Twin Cities, also a reflection of emerging demographics. The bad news: The Twin Cities boasts some of he highest wealth-disparity levels in the nation.

Center for Economic Inclusion CEO Tawanna Black, a veteran of the corporate and foundation worlds, said the year-old center is the first such organization in the country exclusively dedicated to advancing "economic inclusion" in a major metropolitan area.

The center's board is chaired by retired Health Partners CEO Mary Brainerd and includes key people from business and foundations. It's a data-driven outfit focused on turning disparities into integrated economic opportunities that will grow the economic pie for all. The McKnight and Saint Paul foundations also are on board. A big challenge is getting more equity capital to fledgling and veteran minority owners, moving to the next stage.

"Capital is the biggest challenge," Black acknowledged. "We now have [business-accelerator programs] that have benefited some.

To be sure, the Twin Cities can boast some minority-owned successes.

Thor Cos. started out nearly 40 years ago with Richard Copeland and his tools and a truck. Today, the north Minneapolis-based developer-contractor is Minnesota's biggest minority-owned firm with revenue of nearly $370 million and 250-plus employees. On the smaller end, Clarence Bethea, founder of low-cost, consumer-product warrantor Upsie has raised enough capital to chart a growth course after several lean years.

Traditionally, minority-owned businesses have been bootstrapped and raised debt capital, often through a nonprofit lender-adviser, such as MEDA, WomenVenture or Community Reinvestment Fund, sometimes in concert with a supporting bank. Jashan Eison, who bought then-shrinking H&B Elevators of north Minneapolis several years ago, used MEDA to get going. H&B, a growing manufacturer on the Northside, today is bank-financed.

The sources of equity capital are growing slowly for minority entrepreneurs. Hamilton has emerged a beacon to other efforts around the country.

Twin Cities Startup Week, including Minnesota Cup and the MEDA $1 million business challenge, has broadened its diversity focus. Scott Burns, business owner and investor in Upsie through Matchstick Ventures, said investors are starting to tap diverse opportunities.

A growing small business, whomever owns it, generates wealth and jobs.

"I am patient capital," Hamilton said. "You have opportunities in the Twin Cities. And the time is now."