Your Next Move - Investing in the New Faces of Entrepreneurship

Episode Date: December 23, 2024

Today’s episode comes from the Your Next Move vault and is a conversation between host Bea Dixon and Henri Pierre-Jacques, the managing partner of Harlem Capital. In their conversation, they discuss what Henri looks for in companies he wants to invest in, his commitment to bolstering diverse founders, and his wish to inspire founders to create companies.

With the Venture X Business card from Capital One, you earn unlimited double miles on every purchase. And with no preset spending limit, your purchasing power adapts to meet your business needs. Capital One, what's in your wallet? Find out more at CapitalOne.com slash Venture X Business. Terms and conditions apply. I'm Sarah Lynch and you are listening to Your Next Move Edition, produced by Inc. and Capital One Business. Today's episode comes from the Your Next Move vault and is a conversation between host B. Dixon

and Henri Pierre-Jacques, the managing partner of Harlem Capital. In their conversation, they discuss what Henri looks for in companies he wants to invest in, his commitment to bolstering diverse founders, and his wish to inspirestering diverse founders, and his wish to inspire founders to create companies. Here is Bee's conversation with Henri Pierre-Jacques.

Enjoy. Henri, it's so good to be here with you. I've been so excited to have this conversation all week. No, I'm sure, Rosette. Thanks for having me. So, Henri, you have a mission at Harlem Capital to invest in a thousand humans, not just any human, but diverse humans,

over the next 20 years. How are you running up against that? Yes, I think we're currently at 58 founders, but we always tell people it's not linear, it's going to be exponential. So we fully intend that to spike in the last five to ten years. But when we made that mission, we really wanted to create a mission that would stretch us and force us to be uncomfortable. We knew we could hit 100 founders, right? First, should we do 100? No, that's too easy. Should we do 1,000? Oh, 1,000 is really hard. We're like, no, that's too easy. Like, should we do 1,000? Like, oh, 1,000's really hard. We're like, perfect.

That's exactly what we needed to be, right? And so I think we didn't fully appreciate. You learn, I forget the method, I think it's like the star method. Like, you want to have a timeline, a metric, and a goal. And so we were trying to have like some number, some time period of 20 years, and like some goal, like what are we changing?

And that phrase was like us in a WeWork for two or three hours, figuring out like what our end mission was gonna be and ultimately that's where we land on and it's really what our guiding post is for the firm. It's a really dope mission, you know, it's important because it makes the space human. It doesn't make it about race or background

or you know, sexual orientation or anything like that. So I love it. Now appreciate it. You know, when we started, we didn't, we didn't know what it really fully meant. And now we're, we're excited that we created that mission and we continue to try to evolve. We all start with missions that we don't know what they fully mean, but that's the thing about startup life.

That's what makes it so fun. Right. So can we actually back up a little bit because I'm sure that there are people that are watching this that don't even know what venture capital means. Can you tell us what the actual definition is of that and what that means to a founder

from a venture capital firm like Harlem? Yeah, I would say, I don't know the exact definition. My definition would be an investment firm giving an early stage business capital and taking some amount of ownership, you know, typically five to 15% ownership in the business and helping them scale, you know, with capital and also with resources. Simply like my job is to give really smart people money and help them create really good businesses. I love it.

And what would you say is kind of an idea for what happens after you give a founder money? Like typically, what's the next step? Yeah, so it depends on the firm. I would say for us, because we are more value-added hands-on, like, you know, literally right after we give somebody money, we're doing an hour launch call, right? So before we get people money, the founders are typically answering a bunch of

questions for us. But like, they don't actually get to know their VCs as well, because the power dynamic is the VCs out the capital, so the founders, you know, pretty much pitching to VC. And so we want to take time to reset and say, hey, you know, we've gone through this process, you've answered all our questions. And we got, like, you got to know us some, but probably not a ton.

And we actually have a deck that we give to the founders on like who we are, which is basically a revised portion of our fundraising deck for our LPs. And we give that to the founders and we walk them through it and say like, hey, this is who we are. This is our core values. This is like what we believe in.

This is our mission. And we're going to grow just like you and we're learning just like you are. We're three years old and we're trying to like scale with you and like, we're grateful that you let us come on your journey. But like, here's the time for you to ask us questions. So that's really important. Like that's literally immediately after we invest. And then you've kind of got the stages after that where we're doing check-ins every three

months with the founders and helping them answer any core questions they have. Which is beautiful because you're showing them that they're choosing you as well. Oh yeah. It's a two-way street. Exactly. Which doesn't happen all the time. But I feel like that it has to kind of turn into this new model where it is a two way street because you guys need businesses just like we need you.

And I think that a lot of times founders don't necessarily know that. I mean, I'll take myself as an example. I remember those moments of desperation. And it's like when you're pitching, it's like, when you're pitching, it's like, please, please, please give me money. Please give me money, you know? But it's, the dynamic is that. So that's really beautiful that you start,

that you kind of bring the founders that you work with into that fold and get them conditioned into thinking that way early. I would say we've learned that as well because we, similar to our founders, we fundraise, right? It's saying we've had hundreds of fundraising meetings and you know, fund one versus fund two, which is basically the seed round versus the series A,

like it's different, right? You've learned something. So when we went to raise fund two, we've done a hundred meetings. We kind of understand that like we do, the LPs need us just like we need them. And similar for founders, we see our founders in the seed stage versus series A,

you can see their confidence level go up, their processes are tighter. And so we empathize because we go through that journey as well like we're asking people for money. This isn't our money, so we get it. Yeah, that's beautiful, man. That's beautiful. And so just to talk about how you guys invest,

typically the way that you're investing is kind of pre-seed, right? Pre-seed or seed. I mean, nowadays the round names are harder to define. So traditionally pre-seed typically meant pre-product or pre-launch. And seed typically meant post-product, post-launch. Like you have some customers.

I was saying today's market, they're very merged. And so essentially, a lot of pre-seed or seed funds are taking the same level of risk and giving founders capital before they have an idea before they have a customer for they have revenue. And that wasn't always the case. Now, I would caveat that and say that the industries matter a lot. And if you're watching venture capital now like Web3, crypto, fintech or the hot sectors and you can kind of put e-commerce into there as well. And so more seed funds will make pre-seed type bets where it's pre-revenue in those spaces. But in other sectors that are maybe more consumer-focused

or hardware-focused, there's going to be a little bit more of a higher bar. So I always tell founders, you see the Crunchbase, the TechCrunch articles, but understand the market you're in matters a lot for the level of traction of the stage of business you have to be at for VCs to give you capital. And it's hard to know because it's very nuanced. And do you, is Harlem Capital investing

in certain types of businesses? Like, do you like more tech-driven companies? Do you like more companies that are kind of focused on consumer packaged goods? What would you say is kind of your sweet spot? Yes, I mean, we remain agnostic. Like, our core is black, Latino and woman founders. Like that's our mission and 100% of Fund2 is in that. But I would say 80% of our deals

are in four sectors. So Web3, FinTech, e-commerce and enterprise SaaS. That's like the four sectors that make up 80% of our deals. The other 20% are largely just founder bets into markets we don't know as well. Right, so whether that's the deal we just invested in, House of LRC, which is Russell Wilson and Sierra's fashion line. Like we'll take bets in spaces where we don't typically know,

but like we love the founder, we don't know the market as well, and we just still wanna like back that founder. I love that. I met them recently and they were talking about their company. That's amazing. I love that. They're great people. They are. They're really beautiful humans. So will Harlem Capital go past Seed?

We'll do Series A as well. Okay. So that's- We do a lot. Yeah. Yeah. Y'all will do a lot. How did you, because you used to be an angel investor, and then you transitioned into being, obviously, in this venture capital world. What was that transition like? Unplanned.

So... The best things are? I was in private equity, which essentially, instead of venture where you're getting minority ownership, you're taking majority ownership and you're buying the companies. I was in private equity before and my partner Jared was my Q-mate in PE and we said, hey, why don't we start doing what we're doing at work for ourselves? We were buying companies and so we said, hey, why don't we give companies money and start getting ownership? So essentially angel investing,

not knowing that was what the word was. We did that for two and a half years. Jared and I got to Harvard Business School, we were roommates, started recruiting. And essentially really the switching point was when we were recruiting, we'd worked at a black owned private equity firm and we didn't wanna work for a firm

with no black partners, which was essentially 99% of firms. And also we wanted to invest in some people of color because that's what we had been doing while we were angel investing, which now is, you know, 0.5% of all firms. And so it just became really clear early on, like in recruiting at business school, that if we wanted to actually do what we wanted to do, we essentially had to do it ourselves. And that's like, that's the moment. So we didn't go into business school saying like, Hey, we essentially had to do it ourselves. And that's like, that's the moment.

So we didn't go into business school saying like, hey, we're going to raise a fund. We thought we like raised maybe a side vehicle. Then we started recruiting and just became clear, like if we really want to stick to our mission and do what we want to do, like we have to raise a fund because there's really no one out there doing what we want to. And that's like really how we went from angel investing to being venture capital fund. But it was very unexpected and kind of like forced based on what we were looking for. So when somebody's coming to you to essentially pitch you, what would you say that you're

looking for from the founder? Because really you're investing in founders, right? You're investing in companies, but you're investing in the humans that are coming to present. What are you looking for in these companies when they're coming to you? Yeah, we have our triangle. So the founders, the market, the business, right?

The founders, definitely the top of the triangle by far most important piece. And we have a number of traits we look for in founders, whether that's notes for the money, visionary, passion, passionate, etc. We have the metrics, but it doesn't mean if you hit certain characteristics, like we're going to give you money, it's kind of a fluid situation. The market side, the four markets I mentioned, we're very bullish on. So that helps if you're not in those markets and you have to be a better founder. And then from a business side, which is the least important because whatever your business

plan is at the seed or pre-seed is almost always going to change. But we do want to know that you're thinking about the business, you're thinking about your economics, and we believe that at scale, your business can be successful. But I would say if I had to rank them, it's founder, market, and then business. And if you have two of those three, you're usually pretty strong. If you have three of the three, like that's great. One of the three, if it's a founder, you don't have market, you don't have a business, like you might still make the bet.

But it does help to have two of the three where it's a strong founder, strong marketer, strong founder, strong business. And how have you built the team behind you to be able to put the structure behind, you know, understanding which are those two or three marks that they're hitting? And then on a second layer to that question is, what is your team like that's actually reaching out

and talking to your founders every quarter? Right, like I understand that that's a board meeting, but it seems like you offer a little bit more support. We have seven people, we're in five cities, we're super remote, I'm in Miami, the team's in New York, LA, DC, and Cleveland. Three partners, three junior investors, then we have a platform manager whose full job

is to focus on companies that we've already invested in. So that's how the team's split up, and usually for like reviewing deals, it's one partner, one junior investor, and then we also have a very large intern program that we leverage. That's typically the deal team. Once we actually invest to your point, some of our companies will be monthly meetings. So before this call, I had a monthly call with one of our

companies, someone who quarterly meetings, some don't have them involved, I would say majority have at least monthly or quarterly, at least the start before the business kind of hits an inflection point. And then, you know, what we do on a daily basis is we have a Slack with all of our founders. And so like our founders are constantly asking each other questions,

or they're DMing us personally and asking questions. And that ebbs and flows, right? If you're fundraising for the series A, like one of our companies is now, then I'm talking to the founder every day, right? Getting updates, like how the, you know, what's going on? I'm doing references for the founder and there are gonna be slower periods

where I'm talking to the founder once a month or once every two months. So there's not a consistent communication. It really depends on what are the needs of the founder. Like we're one of a few investors. so we know that the founder has multiple other people helping him, right? And so like the goal isn't like we need to be the one, it's just ultimately are you getting the resources you need from us or from somebody else around the table?

And we just want to make sure they're asking the right questions and the right person to answer that question. God, that's so amazing. That's incredible. How are you sourcing these deals, man? Like, how are you, people are coming to you, are you coming to them as well? Like, how's that tracking? Yeah, so 2021, we sought 3000 deals, 60% were inbound. So like on our website, we have a pitch form where people can just submit their, their decks and information.

And then 40% of the deals came from other venture capitalists, our network, our interns, et cetera. Right. For sure. Having it come from an end network, the 40%, you're going to have a higher chance of getting an investment. Like the data just doesn't lie. We look at our funnel and analyze it.

Um, cause when you're seeing 3000 deals, you know, there has to be some mechanism for like, why we want to spend time, right? But like we have done deals, actually, one of my companies here in Miami, where I was with this weekend, like was a LinkedIn inbound message, right? Now, like there's something about that message, I got my attention because it's two co founders, one with the Harvard Business School, one went to Northwestern, and one of them worked at Bank of America.

That's three assets of my life that overlapped. I have more of an incentive to respond to this LinkedIn DM. There has to be a reason for an inbound or a network. We still do deals that are inbounds, but the network outbounds definitely have a higher conversion. For us, we're way above like most VC firms, like most VC firms are like 10, 20, 30% in bounds. And they're mostly focused on network,

which is why the system exists where diverse founders are getting funding. Right. And so we were trying to be very intentional and say, Hey, like, you know, we're successful African-Americans and women. Like, we can't be naive and think that, like, just funding our successful networks of minorities, like it's changing the infrastructure, the landscape. Right. We we obviously can fund people who've gone to Harvard and Columbia. I'm not going to ding them for that. But like, are we also backing people who are outside of our networks, who are people of

color and women? And I was happy because in Fund One, we looked at where all of our networks, who are people of color and women. I was happy because in Fund One, we looked at where all of our founders went to college and the number one place was actually dropped out. And like of the 35 schools they went to, only like four or five of them were Ivy Leagues. And so we actually have a really good dispersion across our founders, like them going to schools and like being outside of our networks.

And that's really important. And you can't be naive and think, as a diverse investor, you don't have biases. All of us as humans have biases. And so even if you're diverse and you're investing in diverse people, you're still going to have biases. You have to look at the data to understand, how do I correct those biases?

And we've tried to do that as much as possible. Which is responsible. Yeah, it's extra work. So that's why people don't do it. Right. You know, you got to have the data first, right? And so, like, we track every deal by race, gender, geography, where we're sourced from, et cetera, and then we, like, look at and analysis and understand what are the differences

in the convergence in the funnel by these different types of groups, and, like, where can we improve that? But you choose to do it is what I'm saying. Yeah, right. Which is beautiful. So I have an audience question from Lenice Logan. Lenice wants to know, what would make a business unappealing?

There's more answers to that than appealing. Right. Just because, you know, if we see a hundred deals, we only invest in one, right? So 99 out of 100 are not gonna pass. And I always tell founders, just because a VC pass or any angel passes, it doesn't mean you don't have a great business, right?

Ultimately, a deal we passed on last year actually is a unicorn now and it breaks my heart. Like it's just part of the game, right? It's really, there's opportunity costs. And ultimately I get down to three or four companies and it breaks my heart. Like it's just, it's just part of the game, right? It's really, there's opportunity costs. And ultimately I get down to three or four companies and they're all great. And I just have to decide like, Hey, I can only choose one of these four.

And for whatever reason, whatever part of the season I'm in, I just invest in a similar business or whatever it is. Like I chose this one of the four. So I think that's the first thing as I found to like understand like it doesn't mean that like you need to change something because everybody has different lenses they're viewing to make their decisions. But obviously, some of the big red flags, not knowing your numbers, you have to know your numbers. Even if it's early on, you don't have revenue, at least know your projections and the unit economics. I would say number two, having a deck that's

just not designed. It's very clear that you're the one who made the deck designs and there's square images that were copied and pasted from Google versus transparent images, just taking that extra step. Particularly if you're a consumer tech business, you're telling me, hey, I'm going to be designing things for consumers, but yet you can't design your deck. It's just not like, you know, cause ultimately all VCs are doing is they're trying to figure out,

how do I think this translates to you getting customers, to you hiring talent, and to you raising capital, right? And so the way you present to me, how do you emotionally make me feel? And do I think that like, the way you're making me feel is going to make other investors want to give you money. The way you make me feel is do I think that like the way you're making me feel is gonna make other investors want to give you money the way you make me feel is gonna make talent want to leave their you know big tech companies to come work for a startup the way you make me feel as a customer you know particularly if you're

enterprise is gonna make me want to sign up for your product and so that's why I think a lot of VCs probably you know overweight like extroverts speaking that like which I don't think is necessarily great, but I do understand it. And I would say our best companies typically have co founders where one is a CEO and one's a CTO, because fundraising is a very different job for running a business. And just because you as a founder don't have the fundraising capabilities, like doesn't mean you don't know how to build a

good business. And you have to be aware of like hey, there are two different jobs here and raising capital is required to run my business. And sometimes you need another founder, sometimes you don't. Some founders can do it both, but it doesn't mean you're not a good founder if you can't fundraise and run a business. Right. Because it doesn't mean that you're not a good founder, but you probably need to up the ante because you're going to have to learn, right?

Because cash is king, and nobody can really do that for you. You know? Like if you're the person that's founding the business, nobody is going to know it the way you do, is going to have the passion the way you do, is going to have the drive the way you do. So I'm personally of the camp that, even if you don't know how to fundraise well, you're going to have to drive the way you do. So I'm personally of the camp that even if you don't know how to fundraise well, you're going to have to figure it out.

And you do. Nobody, I mean, unless you went to school for it or you know what I mean? But even when you went to school for it, you still have to get out in the world and do it. And that is just the horse of another color. We're fundraising, right? And so it's like, you know, for being an analyst in a bank, you know, 45 people and you're at the bottom of the totem pole

to, you know, going and talking to multi-billion dollar institutions and asking them for millions of dollars, like, that wasn't like a natural transition. I think it helped that I already love interacting with people. But I could see the challenges if you didn't have that natural instinct, right? Because just as employees, and many firms, those employees,

you're not trained to speak your voice until you get to certain levels, right? And so if you haven't gotten to whatever that principle or mid-career level is, your job or your whole life has pretty much been like, here's the work, do it, and then hand it off to me so I can go, like, present it to the customer, present it to the team. Uh, so that's a hard transition, particularly for a lot

of younger founders who haven't, like, had that experience. It's an interesting transition. But it gets easier with time. It gets easier with time. I enjoy it. I think fungry is fun, honestly. Well, Armie, you don't count because you... You do this every day, you know? Yeah, it's true. Founders have, like, these windows,

and they get super stressed, and they're like, I want to get back to work. And I'm like, I literally fund... You're like, this is your work. Fund one, fund one fundraising was 18 months. And, like, you're complaining about one month of fundraising. Right. A proper fundraise can't take that long.

You know, diligence is the worst, but it's necessary. Audrey, what would you, if you had one piece of advice, I actually want two pieces of advice. One to future founders, and then one to a future venture capitalist. What would that be? Hmm. Future founder, I would say, and this is more like just like people. One of my biggest things is just like you have to be you and you have to,

like, authentically be you and be confident in yourself. The same for venture capitalists. I honestly think it's for both. Like when we're when we're fundraising, I mean, fun one, you think, okay, I'm gonna go to black people and they're gonna understand and they know that we don't get money. And they were the hardest people to convince to give us money.

Right? And in that moment, you have to remind yourself, these are people who you're closest to, these are your mentors, this is your former bosses. Basically saying, I don't believe in what you're doing, even though I've known you for some amount of years and I've even like, you know, paid you as an employee. That's like really hard to take in

and you're getting it on a repeated basis, right? And so if you don't have like that conviction as a VC or as a founder that, you know, ultimately I remember calling my dad, my best friend's dad turned me down, eventually he came in. But when he turned me down, I called my dad and I was like, hey, like, you know, my best friend's dad, turned me down. Eventually he came in. But when he turned me down, I called my dad and I was like, hey, like, you know, my best friend's dad didn't invest.

He's really well off. Like who, like who's gonna invest in me? Like this is like, I've known this guy for, you know, five, six years and my dad was like, you know, awesome, and like, if people don't think you're crazy, then you're not dreaming big enough. Right? And so it's like, you kind of have to expect it. And I think there's so it's like, you kind of have to expect it.

And I think there's this balance of like, confidence and conviction and, you know, ego. But I think ultimately it's implicitly implied, if you are a founder, you are cocky to some extent, because you believe that you can create something that nobody else has created. That's pretty egotistical. Whether or not people want to say it,

whether or not you come off as humble versus confident, there is an inner cockiness or confidence to you to say, I'm going to go out and do something nobody else has tried before. You have to own that. You have to be comfortable with that. Now there's balances to how you present that externally, but internally, you better have that full cockiness turned all the way up. Yeah. Oh, I see it. Yeah. That's the biggest advice that I would give you can dial it back. Oh, I can't. Yeah. That's the biggest advice that I would give to either VC or founder.

I think it's just important for anybody who wants to go out and do their own journey and understand how to take those no's. You gotta believe in yourself. Yeah, and sometimes others have to believe in you before you believe in yourself. For sure, I agree. But I think, like what you said earlier,

you know, with your best friend's dad, he was really well off, and you just expected him to invest, right? Which would have been kind, it would have been noble, it would have been the right thing to do, especially because the work that you're doing is so important. But also, it's important to remember, they don't have to invest. Nope.

You know, nobody owes you anything. You take your personal though. You do. You do. I mean, I've been there. You know, I remember one of my friends works at Bank Capital. I remember complaining to him that somebody that I had pitched didn't invest. You know, and I said words like supposed to,

and he was like, B, nobody's supposed to do anything for you. If they're moved to do it, is their money, is their capital, then they're gonna do it. But if not, that's their business. They don't owe you anything. So I think it's important to walk in neutral. It takes time,

because those first few, you're going to take personal. No matter how much we tell you, it's inevitable. And eventually you realize, especially now I'm on the other side and I'm investing in my friends and fund managers. I just said no to one of my classmates from business school last week and that wasn't easy. I have no hand. Our wives are friends and it's not personal. There's opportunity costs. I only have so Like that wasn't easy. Or like, I've know him, like our wives, like our friends. And it's like, it's not personal. Like there's just, there's opportunity costs. I only have so much capital, right?

And so I empathize now that like I'm on the other side and like, I'm like, oh man, I remember how that made me feel. And so it also makes me more cautious and like, you know, say like, hey, this is why I'm passing and kind of get more exclamation. So that my friends or people who I know, who I think are going to think that I think I'm going to give them money don't feel the way I felt. Right, which is beautiful.

We're going to take a quick break and be back with more from Bea and Henri. Here's a little tip for growing your business. Get the Venture X Business Card from Capital One and earn unlimited double miles on every purchase. Plus, the Venture X Business Card has no preset spending limit, so your purchasing power can adapt to meet your business needs. And when you travel, you'll have access to over 1,300 airport lounges. Just imagine where the Venture X Business card from Capital One can take your business. Capital One, what's in your wallet? Terms and conditions apply.

Find out more at CapitalOne.com slash Venture X business. Have you had any companies that you passed by that you like kick yourself about now? Like, damn, I should have done that. Isuzu, the one I just mentioned, that's a billion dollar unicorn. So Abby and Samir lived in Harlem. Their office was seven blocks away from my house on 125th. I know his fiance as well.

She's a friend of the firm. And so I've known them for years. We've seen their business and you know, we just didn't, we didn't get the long-term vision, right? And they just, they're, you know, what kicks me even more is the first unicorn in Harlem. And obviously like, I'm like, how did we miss the first unicorn in Harlem? So it hurt, you know, like from like a selfish standpoint, yes, like you're like, you're mad at yourself. How did you miss it? From like an ecosystem standpoint, like Harlem got its first unicorn.

There's another black founder who has unicorns. That's what it's all about. Ultimately, our belief is if we believe in this market and we continue to be top players in the market, if the market rises, we will rise. Our goal is ultimately we want to have diverse founders just win and we want to keep being the best we can be. And if both of those go together, we're going to be better off long term. Right?

So you kind of like, you swallow your pride and you realize, hey, you can't see them all. You got to support. Abby's a great friend. And then what you do is you go back and reflect. Right? And so we literally went back and we looked at the memo and we asked ourselves, what did we miss? What will we have changed today?

Do we think the process worked? Because really, your anti-portfolio, the unicorns that you miss, often can tell you more than the ones that you actually invested in. And so it's really important to take the time to go back. And we look at our missed deals every quarter. And so what are companies that we pass on that are continuing to do well?

And how do we figure out why we made that mistake? That's that's really important. It doesn't mean you have done them all, but it's at least important to reflect. Yeah, it is. And not only that, they're going to need money again. Very likely. If they exit, you know, you stay close and they exit, they come back, they start a new company and you just give them money. Exactly. And or not even that.

They may just be going into a series B or something like that. Can you tell the humans that are watching this about how important it is to date the VC or the investor that you're interested in? That doesn't just happen overnight. You don't just meet somebody and then next month, you're investing. Like you want to talk to those people every month or every quarter, you know, get to know them.

Like what's your thought process on that? Yeah, it varies so much by founder. I would say I've actually done this analysis, but like we've invested in 39 companies. I would say out of the 39 companies, maybe six or eight, like we have known the founder for at least a year plus. So the majority of the companies we've invested in, we've known the founder for weeks to months. Right.

And so, and that was even before COVID too, like before COVID we weren't, we didn't fly to meet founders in their cities. We're in 13 cities and now three countries. So we weren't flying to meet these founders. That's never kind of been our belief. Like we believe references work. So we do a lot of references. Personal references, if you had a pre-seed round,

we talked to the investors in the pre-seed round, asked them like, hey, like how was the founder before selling and after selling? Cause like, what you say to me while you're fundraising is very different than how you are after you're fundraising. And so we want to understand how similar is that person or are they just pitching me and acting really nice and being responsive as they need my money.

And so we try to do a lot of those references. We do background checks, et cetera. But I would say the majority of the founders we invest in, we've known for less than two or three months and even than two or three months. And even sometimes like two or three weeks. That's just where the market is now and you have to get comfortable with that. But yeah, it could be uncomfortable like to give somebody $2 million

that you met two weeks ago. So it's, you know, I think about where we went from angel investing $25,000, then fund one, we were doing a quarter million and we went to 750. Now in fund one, we were doing a quarter million and we went to 750. Now in fund two, our biggest check has been 2.4 million. And it's like, man, like, in like a four year period, you know, we've gone from 25,000 to 2.5 million. So essentially like a hundred X increase. And as you scale, you actually get more comfortable being uncomfortable.

And that's really powerful. Because before, to write that $2.5 million check, we would have been doing diligence for months. Like, hey, I need to know your social security number. Right now, I can do it in two weeks. And so I think it's interesting. You can do diligence in two weeks, Anri? Yeah.

I mean, we've done our fastest deal has been 48 hours from like first pitch to term sheet. Now, like those are unique circumstances where like, we really love the investors or the founder has like a super particular background and we love the market. otherwise we're not gonna like see it in the future. So, I think it varies, but I would say yes, founders should try to at least get to know VCs. If not, try to get introductions to them where you're not going through kind of like their standard process or emailing. Still do it, cause it does work. Building relationships is important.

Yeah, but the relationship, everything like, my old boss used to always say, everything in life is a people's business. And like, it just couldn't be more true. Like everybody's like, how's your job? You know, what do you do? And I'm like, honestly, my job is just to meet as many smart people as possible.

Like that's it. Like that's really as simple as it comes down to. I need them to think about me, and I need to think about them all the time. That's real. I don't know if this is just the landscape of venture capital now, but things are a little different, right?

The landscape, I think, is changing every single day. Do you find that you want your founders to stay private, to exit, or to go public? At some point, we always want you to exit, because all of us need to return capital. I would say when we first started, we thought that M&A would be the exit strategy. Like if you look at like the number of companies that exited, M&A used to be the dominant factor. If you look at the last three years, I don't know the number Delta,

but the dollars are 80 to 85% is public, right? So there may be more companies that are getting acquired, but in terms of like, who's actually generating the bulk of returns for venture, it's definitely the public markets. That's something that we've been thinking about recently because 2021 was such a big year for public exits. And so now like you have to think about that, like,

hey, what about this business do I think or enable them to be a public company? Right? And then like, so we do a lot of public comps analysis. So we look at who do we think the competitors are to this business, indirectly or directly, and where do those companies trade out publicly from like evaluation standpoints,

so like evaluation multiple, right? And based on the multiples in that space, how much revenue do we have to believe that this business has to get to in order for them to be worth a billion, 10 billion, et cetera. Right? And so I think that's something that we do because we do see that with the public markets

are where the value is occurring dramatically. You think about Airbnb and Zoom, et cetera. All these public exits are like multi, multi-billion dollar exits, Coinbase, et cetera. How do you prepare the founders that you work with, right? Especially because your founders are kind of more Latinx, black, diverse humans. I'm a black founder, you're a black founder of a VC firm. How are you preparing them to have these conversations around exits and going public, right? Because sometimes in our community, and this is just facts, when we do make those leaps, it can be looked at as though we're selling out,

even though that's not the case. But are you having these conversations with your founders? Is that a thing anymore, do you think? Typically not at the stage we invest in. I would say the core questions we ask before we invest are, you know, what is, like, how do you know you achieved what you wanted to achieve separate from making money? And another question we'll ask is, who are the businesses that you think would

acquire you? Largely because we want to understand, one, who do you view as like your bigger competitors, two, the ones that are public, we're looking, like we wanna put that into our public comp set to figure out what are the multiples in the space that you think of these people buying you, or where would you trade as a public company relative to those companies? So those are the two core questions we ask,

and then once we invest in the company, like at the early stages, we're not like, we're just trying to get you from zero to one, right? And the next phase is one to 10, and eventually it's ten to a hundred or ten to a billion so that's not a corporate I think our best founders are always thinking about it like whether it's their data rooms always ready for the next round or in case somebody approaches them whether it's the way they think about their vision because similar for us like you know we mapped our 20

year vision in our mission. If you're not thinking very long term, then ultimately, what's the point, in my view? You don't raise a venture fund to have one fund. You're not going to make money on one fund. You've got to have three, four, five funds. And so for a founder, it's the same thing. You shouldn't be making decisions based on them,

but you're not starting a company to raise a seed round. You're starting a company because you want to scale or go public and get acquired. It's like, if you're not visualizing that, then how do you think your journey's gonna get there? And so I think visualization for anybody, for goals is important. So you better be visualizing,

reading that asset, what does that mean? Obviously you don't know exactly how you get there, but like you have some understanding, like, okay, these are my like, my stepping points to get to the NASDAQ. I think that is important. And that gets like the vision question, like do we believe you as a founder or visionary? Cause like, if you're not thinking in the future,

then it's hard for us to like give you millions of dollars. But sometimes it's not that they're not thinking in the future, it's just a narrative, right? Like you own something and you want to continue to own it. You want to control it. So I think a lot of times I don't think it's net people have that frame of thought because they think. Do you understand what I'm saying? By the time you go public or get acquired, that frame of thought would have disappeared.

Oh, it's died. Because like ultimately, you know, maybe you didn't realize when you raised the seed around and you gave up 15, 20 percent, but by the time you raised the A to the B, you've gone from 100 percent to 30 percent or 20 percent. The mindset of you owning your business, you've realized, hey, that's not going to work in venture. Right. And so that might be an early hesitation, but I haven't seen that for founders after

they raised the series A because I think reality sinks in pretty quickly. You've got to scale this business because you're not going to have 50% of the company when it exits. Absolutely. It does come with time, but I think in the beginning, you may not necessarily be thinking that way inside. And then you realize when somebody asks you for 10, 20%, like, oh. Yeah, with a straight face.

You got to make that decision. Yeah, with a straight face. You gotta make that decision. Yeah, it's a real decision. So what would you say are like your goals? What are your goals for your company, like their growth? And then as they're kind of going in to do another round, what are your goals that are indicating, your KPIs that are indicating it's time? Yeah, I mean, the goal, as my partner Jared always says,

is like, our goal is to get you from high school to college, right, and that's C to Series A. And we're going to continue to help you get to go public, but like, there are teachers who are more equipped to get you to the next level. Our first priority is like, how do we get you from C to Series A? Right, and typically the KPIs for that is, you know, it ranges, but like, let's keep it,'s keep it more high level averages,

a million plus of ARR, which is annualized revenue, depending on the sector and what's your retention. So how much do your customers, if I gave you a dollar this year, how much should I give you next year? Hopefully I'll give you more than a dollar next year, so I'm growing as a customer. So what's your retention? What's your churn of your consumer business? How many customers are you losing on a monthly basis?

Right. So depending on what sector you're in, like there's going to be three or five KPIs that matter most to raise a series A and we're going to watch those very tightly and you usually want to raise a series A 12 to 24 months after the seed round, sometimes it's longer, but I would say in today's market, that's happening for most of our companies within 24 months. And so you gotta back into it.

Okay, if I gotta get to a million dollars of revenue in 24 months and I'm at zero, you can basically project out what your growth rate is to get to that in 24 months. If I'm at this gross margin, I need to get to 50% gross margin in 24 months, how do I take out my costs to get to that in 24 months, right? If I'm at this gross margin, I need to get to 50% gross margin in 24 months, like how do I take out my costs to get there, right? So those are things that we're trying to talk

to our founders about, and it's an art and a science, but like you definitely wanna know like, what are your top three or five metrics that you need to get to the series A and how do we continue to focus on those? That's real. What would you say was the defining moment for you when you knew that Harlem Capital was on the trajectory, like you were there, you were in it, like you knew you were winning?

I mean, there's a couple of defining, what we call elevator moments. So one was when we decided to raise the fund. I remember it vividly because it was January of 2018 and J, and I remember it vividly, because it was January of 2018, and Jared and I were in our kitchen, which was our office, because we were roommates, and Jared wasn't sold on fundraising yet, but I was like, hey, I don't wanna recruit anymore, I can't work for non-people of color,

like, it's non-starter. So I actually got a fellowship from HBS, where they basically have given me money to like work on Harlem Capital. And so Jared didn't get the job he wanted. We had just gotten a Black Enterprise and a Forbes article. So like people were hitting this up, you know, the market was liking us.

And I was like, hey, I can get you a job. I've got this fellowship. Like we're in like two major publications. Like we don't even have a funding. Like there's something here, right? and so that was the first moment and Jared agreed and he said okay fine like let's let's fundraise the second big moment was that summer we raised three million dollars and we came back to campus our second year business school and we started recruiting because we

were like hey we can't graduate business school with three million dollars like you only get two percent which is $60,000. That's not going to work. So we started recruiting, and then we got a million dollars from our first billionaire. And he's like a very big legend in the private equity space. I love that. Our first billionaire. Yeah, it's the first.

And so it was like that moment, we went from three to four million, but that million dollars was worth 10 million. So to the point I was saying before like we believed in ourselves but like this million was the belief from somebody else that like gave us that extra conviction to stop recruiting and say okay like if this person who literally created private equity is giving us a million dollars like we have to go for it right and? And so we literally like stopped recruiting. We closed on two million dollars a month later, which was crazy because we were raising a $25 million fund and everybody was like, you can't do a close on $2 million. And we were like, we got to start doing deals.

We got this million dollars. We're going for it. Right. And so like that was like a very important moment. I tell that investor and his wife like all the time, like it was, I was on the Amtrak going from Boston to New York when we had the call and like I literally like put my hands in there on the Amtrak and screamed because it was just so significant and so yeah those are like two of the

moments I remember like biblically of like changing points of like Harlem Capital's journey. I love that. And with Harlem Capital doing all the beautiful work you're doing, like, how does that unlock you investing in diverse humans, right, and making that like your sole mission? What does that unlock for the venture capital space and for the human space? Yeah, so we're, I'm actually working on our 2021 Diverse Founder Report, which is basically there's 870 black and Latino founders who've raised a million dollars in the history of the US based on what we can find. And of those 870, we were 28 and we started investing in 2016. So since 2016,

there's been like 350 companies. So we've already invested in like in roughly 10% of all black Latino founders who raised a million dollars since we started four or five years ago, which is kind of crazy. And so I think it becomes cyclical. And our founders, their friends now, they literally hang out together. And then when other founders see them, they reach out and say, hey, can we talk to you?

Or can we talk to Harlem Capital? And you can't be what you can't see. And so we're very public. One, because I think the last generation, for a number of reasons, you know, including my former firm, like, just couldn't be right. Like you even think about I think about I'm a big basketball fan. You think about the Jordan era versus the LeBron era, like just basketball players voices are very different today than they were in the 90s. Right. It's very similar for us as well as as investors.

And so we're trying to use our platform to inspire founders who create companies. And I think the flip side is also inspire more diverse investors. Cause like Harlem Capital is not going to change this problem alone. Like it's going to take away from us. And so like one of my product accomplishments was actually tweeted yesterday,

is our internship program. Like we've had 76 interns over the course of three or four years, 13 classes. Of those 76, 22 now work in venture capital. A number of them now have gotten their MBAs and work at top firms. That's super inspiring for me because now it's like they're at all these different firms, female founders fund, et cetera. Now they're taking what they learned at our firm and whether that firm is diverse or non-diverse, they're bringing that lens to that firm and they see deals.

Right? And so that's the way we can get extra reach and expand the market even faster than just like, because we're only investing in 15 companies a year. Right? There's only so much- Not only. That's a lot. It's a lot. It's a lot. But there's only so much we can change in an ecosystem that does four to five

thousand deals a year when we're 15 of that. Right? And so we need other people. And the way for us is like our interns can be those nodes at other firms. And if each of their firms does 15 deals and now we've got 20 interns and then next year's 30. Now you've got three, four, 500 companies where you've got like a diverse lens that's being used. And so like that's been super inspiring for me. We never thought that would be the case. Like we just started an intern program April of 2018 because we were fundraising.

We were like, hey, we need somebody to make our deck, you know, and then Gabby, who's our principal, was in our first intern class. So now I've known Gabby for four years. And since then, we've hired four of our interns to work for us full time. And so it's been great for us as a firm because we can hire that talent.

But then also, the ones we can't hire, they can go out and they can go work at other firms because people trust our funnel because we see so many interns. That's really dope. That is being the change in the world, right? Are you noticing real changes in the black community when money is invested into new businesses there? Broadly, like, we haven't done a lot of investments where the founders only focus on a certain demographic, right? Like, we tell people all the time, like, or at least I tell people,

like we're not an impact fund, we're a VC fund with impact. And what I mean by that is like, we're not requiring the founders to like say, I have to approach, you know, I have to be targeting underserved communities. Or as a black founder, I have to be targeting black people. Cause like other founders don't have those restraints. And it's not like you already have so many things against you.

And so for me to say like, Hey, like you have to like, as a woman, only serve women founders, like it just doesn't make sense in our view. Like there's nothing wrong with that. If you have that, like it's fine, but like, it's not a requirement. So that's the first thing. Like we, we, we have founders working across different industries and their race and gender and sexuality has nothing to do about whatever their end markets are. So that's something that we haven't focused on as much

but I would say the biggest change is that, and this has been proven across a number of part reading in Yale studies, diverse founders hire more diverse employees, right? And so like, if you're one of the early diverse employees, like you have more equity. And if you have more equity and your business is successful, like you make more money and your family makes more money. And then not only that,

if you're an early employee, then like when that business exits, like you see the PayPal mafia, like then you are like that, that can be five black people who now go and start LinkedIn, Tesla, SpaceX, right? And so it's a long-term view. But I think the belief for us is that diverse people hire more diverse employees. If diverse companies win, those diverse people have money to either invest as angels or if they go and start a new company, it's like they're going to be able to raise capital much easier. Now you have a new diverse company hiring more diverse people and it becomes cyclical.

This is other communities have seen this for decades. And so that's like what we're focused on. Our belief is that the largest driver in closing the wealth gap is through equity and ownership. And so unless, and there's also been studies on this, where if you look at a black person versus a white person who has a six figure job and goes to Harvard Business School, over time the wealth gap actually doesn't close that much. The largest driver of wealth income in the US has been home ownership and past net zero net person.

Many millennials don't believe in home ownership. So I don't think that's gonna change anything in the near term. So number two, after home ownership is equity in businesses. Right, and so like, it's pretty clear, like if I stayed at Bank of America, I probably wasn't gonna become the CEO or C-suite. Right, like there's not a lot of black people at the top at any of these firms.

And so the only way you're going to get real equity is if you start your own business. And that's just the reality. Like most of us, you know, there's fewer black CEOs in the Fortune 500 today than there were 20 years ago. So, like, good luck getting real equity at a Fortune 500 company. Right. And with the work that you're doing, because what you just said was important, right? Anybody that I talk to that wants to come to me for business advice, especially, I mean,

obviously I talk to a lot of black founders as you do, right? Or just humans of color. And what I find a lot of times is we want to like, sometimes they want to zero in. What my advice is, is always sell your products to humans, right? Be that company. You don't have to necessarily, like you just said, only keep it focused to one race. You want to keep it generalized. Would you agree with that?

I love that you use humans over people. Humans of color is, that's fire phrase. Thank you. Fire phrase. Yeah. Humans of color is that's fire phrase. Thank you. Fire phrase. Yeah, I would say you can be targeted, right? Cause I don't wanna be hypocritical cause we target people of color and women.

Now the reason we were intentional about targeting black, Latino and women, cause people wanted us to target black people. We did the marketing analysis and we said, okay, well how many black founders are there that have raised a million dollars? And we assume some percent like we're gonna see it and some percent that we're gonna okay, well, how many black founders are there that raise a million dollars? And you know, we assume some percent like we're going to see it and some percent that we're going to win.

Right? It was pretty clear early on, like to us, at least, based on our research, we could not be a black only focus fund. Like maybe that would have worked as a $20 million fund, but we sure as heck weren't going to be a billion dollar fund in five to 10 years like we want to be if we only focus on black founders. Like it takes, it doesn't mean there's not enough black founders, but it takes time to build that ecosystem to have those founders get through. And so we realize, hey, we also need women founders. And who is winning? Who is after

white and Asian men, which are by far getting the most capital, next is white women and Asian women. And then it's black men, Latino men, then it's black women at the bottom. Like we understand those dynamics. And so it's like, if we look at the market and understand where do we want to go, how do we segment in a way where it gives us room to scale? Right, so I don't think there's anything wrong with funds or companies that are targeting

super, super subsegmented, whether it's the black community, the Latin community, but you better understand what your skill assurance are. Now, if you're an SMB and you're like, hey, I'm on Amazon's Business Accelerator for black businesses, and what they call tier one is if you have a quarter million dollars of sales or more, means that that person can live a life just off of Amazon.

Right, so if that is your. Like that's fine. But you better understand like it's gonna be really hard for you to build a hundred million dollar business if you have a sub segmented audience. Right? And so I think ultimately what matters is like, what is your end goal? Right? For you as a fund and for us, we're pretty public. Like we want to raise a billion dollars of capital by 2030. Right? And so we look at that and we look at our end goal, to my point of having a vision, how do you back into the market that enables you to hit your vision in that time period?

Yeah, I agree. You can be successful in both ways. I'm not saying that. I just think that you get further, you scale quicker, your company can move faster if you're serving humans and you're not just focusing, you know. Yeah, and that's the venture way, right? And being on Amazon board, like, forces me to take a step back, right? Because 95 or 92% of black businesses are sole proprietors.

It's like the reality is, is like most black businesses aren't going to be or trying to be venture backable companies. And that's completely fine. Right, and so whatever advice I give, I caveat it with like, my mindset is from a venture mindset. Anri, that is such a great note to end our conversation on. Thank you so much for being here with us today to share your story and business perspectives.

That's all for this episode of Your Next Move. Our producer is Matt Toder. perspectives.