he read a report on the state of Latinx entrepreneurship authored by Stanford University and saw an opportunity.
“I thought I’d try to get into VC because there needs to be people that look like me to make decisions and move the needle,” he says.
Backstage Capital has found success doing just that kind of intentional investing. The firm has so far put more than $4 million into 100 companies with what it calls underestimated founders. Valadez, an apprentice to Hamilton, is a Wisconsin native and the son of Mexican immigrants who now calls metro Detroit home.
“Arlan knew it wasn’t a lack of [diverse] founders, but some sort of bias,” Valadez says. “The goal was to invest in 100 companies by 2020, but we beat it by a year and a half.” He says the recently launched $36 million fund that exclusively backs companies founded by women of color includes contributions from well-known investors like Brad Feld and Ellen Pao.
Valadez says the common argument made by investors—that they can’t find enough quality companies headed by diverse founders to fund—is “just not the case. Arlan has generated so much deal flow. I’ve talked to many people of color in Detroit, and I don’t think the idea that there aren’t enough companies is valid.”
In the venture capital industry, it’s all about who you know, Valadez notes. “What Backstage does is different,” he continues. “We have an open application process online. You don’t need an introduction or any previous merit the typical VC would ask for. Then, we review every single application in the pipeline. We’ve invested in companies that came in cold. There are things VC funds can do to open up. It might take more work, but it’s definitely needed.”
His advice to venture investors who are interested in taking a more inclusive approach? Establish an open application process “so you’re not just getting deals from people you know,” and then hire an analyst who belongs to an underrepresented group to review applications.
“It takes work and money, but if we have more people from underestimated groups on the VC side of the table, that will help move the needle,” Valadez says. “It’s about expanding your team and network beyond what you have now.”
Riser is thrilled that Backstage has chosen the Motor City as the location of one of its accelerators, but he has a few words of warning to anyone who comes to Detroit with less-than-sincere plans to exploit the city’s ongoing renaissance.
“Detroit is as inviting and welcoming of a city that you would ever want to be in,” he says. “But, know that the commitment and the partnership has to be genuine. Otherwise, the door may close faster than it opened. I’m beyond excited, like so many others that I have talked to, about the choice that Backstage has made to be here. We’ve all read about the disproportionate statistics as they relate to inclusion and equity in the startup space, but this is about making the long-term commitment to writing a different chapter—one that’s focused on the promise of women and underserved entrepreneurs.”
