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Minority Small Business Loans for an Inclusive New Normal

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The following text is a transcription of the Fundamental Fairness podcast.

Empowering Minority Entrepreneurs for an Inclusive New Normal

Sean Salas

Hi and welcome to another episode of Fundamental Fairness. We have a very special guest: Henri Pierre-Jaques. But before introducing him, it’s worth noting that this podcast takes place a week and a half after the murder of George Floyd. Our sympathies goes to the Floyd family, peaceful protesters and law enforcement.

We are appalled against the brutal acts committed towards George Floyd and many others like him whose stories have been lost in the shadows of injustice.

We hear the thousands of well-intentioned, peaceful protesters who are rightfully disgruntled by this systemic racism inherent in our country. An injustice that certainly goes beyond the death of these individuals.

Since the emergence of COVID-19, we’ve seen racism polarized across our system as many black and brown communities have struggled to access relief funds or health care to withstand and survive this health crisis. 

We recognize that today’s issues are a symptom of much deeper causes: racism, injustice and oppression. I believe that for change to occur, we each must find our niche and relentlessly push for change. 

Our unique positions as leaders and contributors of companies dedicated to growing minority-owned businesses and fostering financial inclusion provide us with both the opportunity and the responsibility to create change. 

I believe V.C. and fintechs are vehicles that can drive equality; something we like to call at Camino Financial: fundamental fairness.

Presenter

Welcome to Fundamental Fairness, a podcast about bridging the gap between fintech and financial inclusion, brought to you by Camino Financial. With your host, Sean Salas. 

Sean Salas

So I’d like to introduce you to our speaker today: Henri Pierre-Jaques. And one Henri is a managing partner and co-founder of Harlem Partners, a New York based early stage venture firm on a mission to change the face of entrepreneurship by primarily investing in minorities and women founders.

Their goal is to invest in 1,000 diverse founders over the next 20 years. That’s awesome! Henri also had previous experience in private equity at ICV Partners and investment banking at Bank of America Merrill Lynch.

And it’s worth noting that Henri and I share a very similar path: not only did we do investment banking and thereafter worked at ICV Partners, so for the same firm, but we also went to HBS and effectively used that as a launch pad to really 10x our ventures. In the case of Henri, Harlem Capital Partners.

He’s been able to partner in this journey with this partner at Harlem, Jarrid. Both of them are marvelous individuals, and I really have a lot of gratitude for them to, quite frankly, be a voice for a very just cause. And last, I want to note that Henri has received the Forbes 30 under 30, INC. 30 under 30, EBONY Power 100, The Root 100, Business Insiders Rising Star, Crain’s New York Rising Star, HBCUVC’s 31 under 31 awards… And boy, he’s just getting started. 

So without further ado, I read… that was a long intro, but I think it merits a long intro, given your voice and during these difficult times. So thank you very much for joining.

Henri Pierre-Jaques

I appreciated it. I’ve never heard anyone actually bought off the list of awards (laughs). 

Sean Salas

But there you go. And I’m going to be the first of many, my friend.

So let’s get started. How do you feel right now? How do current events reinforce Harlem Capital’s mission?

Henri Pierre-Jaques

Yeah, I feel like before during COVID we would be on a call and people would ask how are you doing? Where are you? And now when they ask that question it just feels differently. So I think it feels like we’ve been in a constant state of trauma for the past two, three months, especially for us here in New York, just given the magnitude of COVID-19 and how serious people are taking it, and it feels like now, like totally is kind of a side piece, even though it’s one of the largest killings of Americans in the history of the country.

So there’s also this weird feeling of race riots is going on, COVID is still going, do I wear a mask or not wear a mask. But, I thought of home… Over the weekend I tell them how I express my voice: I do poetry on the side and so, that was, like, what I wanted to do and how I felt like I wish… It was more for myself than it was for others. 

But yeah, we had a lot of conversations as a team, obviously as African-American firm, and 30% of our founders are black, and 30% of our LPs are people of color. So we were very thoughtful and just trying to not make short term decisions. We’ve obviously tailored a firm where our goal is to create economic empowerment over the next several decades, so in the short term we’re not, we don’t plan on changing anything massively. 

But now that we have more people’s attention, how do we better use our platform to help service the mission we already have? Is there anything that we need said, just for our process standpoint?

I think the biggest thing I’ve seen is whether it be the amount of new people reaching out, the amount of my friends from school, work partners and large VC funds reaching out for advice or questions. I’ve had more conversations in the past four days with non-black people about black topics than I probably have my entire life, which is also emotionally draining. 

Some may say: I know a lot of black people feel that way, it’s tiring to have several conversations about your daily life in such a condensed amount of time. But I think at the same time, they’re inspiring, and a lot of hope… 

I was on Twitter last night watching the protests in Paris, Amsterdam and New Zealand. And just to see that many people in these countries shouting like “We stand for you” where I know Americans would never really protest for any of these riots in New Zealand. So I also appreciate that other countries are standing with us.

I realize that this has become a global topic and it’s so much bigger than us. It’s so much bigger than Minneapolis. That it’s what gives me even more hope is that this issue is now becoming a global issue where minorities, in those countries are also minorities, but you see a lot of people in action, which is a majority white country protesting for us.

Sean Salas

Great. And let’s talk about the silver lining. I think a lot of the narrative has been about some of the negative elements and byproducts of some of these protests. 

But I love what you’re saying, because I think: one, in essence, the protests are serving its purpose, which is raising awareness around real issues, around injustice, racial injustice in the United States. And between yesterday and today, three organizations off the top of my head have already announced big initiatives to bridge this social economic injustice.

Bank of America, allocating a billion dollars for this cause; Andreessen Horowitz just announced their efforts to invest in our communities; and most recently, SoftBank, and they went big! They went big! They went a hundred million dollars big. 

And what’s interesting is that what they’re announcing they’re going to do is very similar to what Harlem Capital is doing today. And so I want to get, one, your reactions on this silver lining in particular and how the SoftBanks’s hundred million dollars commitment amplifies, or not, what you’re already doing?

Henri Pierre-Jaques

It’s interesting. I was just having a read on Wall Street Journal about this exact question. Yeah, I mean, I think… I think there’s two sides of the coin. I’m active following a lot of black Twitter today and their response, and I think a lot of the GPs split on how they feel. I’m trying to meet them in the middle, I think it’s definitely a positive sign.

SoftBank already has an accelerated focus on black families, which I’ve done office hours for, so they’ve been doing this work silently already anyway, but obviously, they have a three billion dollar Latin American fund, which is a large slice of American VC fund. So they’ve already shown that they’ve had geographic or racial focus, so I don’t think it’s inauthentic, which I think some people do.

I think from a strategy perspective, I think the hardest thing is, like, you have to make sure you have a pipeline large enough, and your open access enough, where… I didn’t know anybody who worked at SoftBank before I spoke on a panel at that CEO conference in March with one of their principals, and I… on Wall Street once Harvard Business School, so like, the majority of people of color are not people who work at SoftBank, so how do we actually provide open access…?

Or you can (inaudible). VC is a 1% game: you have to see a hundred people to invest in one. So unless your funding was massive… There may be a hundred black companies, but you need a thousand to invest in ten, right? And so, I think the biggest thing is going to be: can you actually create a sourcing pipeline that’s open enough and transparent enough outside of your existing networks and not have such a constraint… We need this to be in these three industries at this amount of traction… And you’re creating institutional barriers which already existed across the venture and LP capital as well. I think that’s going to be the real testimony. So, I mean, can you actually deploy that capital? So, we’ll see.

TBG I think it’s a positive, it’s great for us because a lot of these early LC focused on early stage so you don’t have many downstream late stage LC focused funds. So I think the more later stage larger clients that can focus on diversity, the better for us who are earlier stage. I’m really curious just to see how they structure their sourcing and diligence process to actually enable them to deploy the capital.

Sean Salas

Great, great. Now, let’s talk about Harlem Capital’s mission and what you do. So I read that 50% of Harlem Capital’s individual LP, Limited Partners… These are the investors in investors, for those that don’t know what LPs are. So, once again, 50% of Harlem Capital’s individual LPs are women or people of color, which directly aligns with the firm’s mission of investing in women and minority entrepreneurs. Why do you think it’s important to not only invest in women and minority entrepreneurs, but also to partner with women and people of color? How else does your company uphold this mission?

Henri Pierre-Jaques

You did your research (laughs). Yeah, I mean, so… We, our goal is to raise 25. We’re fortunate that our capital raised 40. When we started raisin, we knew the majority of the capital itself would be from white people, right? There’s just not enough… There’s six black African-American billionaires that are probably known. There’s not enough large dollars where most people can write byliner checks on people of color. So we always knew that was the case, but we wanted to make sure, at least from a number standpoint, that we would have more women and people of color.

And so that was like a big focus for us. When you’re raising… For us, our minimum investing was a hundred thousand dollars. There are not a ton of people of color when we do the hundred thousand dollars checks, so we did take some checks that were smaller. But knowing that we wanted to ensure that we had some people of color, 30 thousand dollars may not be as meaningful in the scheme of a 40 million dollar fund, but it’s still meaningful for that person and still meaningful for them to be part of the mission, and somebody who we respected, taught that can add value.

And so it was a very conscious thing that we did. And you have to be conscious about it because as we get bigger we plan on raising larger funds. The next one, the minimums continues to go up and unless you are being conscious about that, at some point you would have no people of color willing to fund another than Robert Smith and Oprah.

Sean Salas

You’re right.

Henri Pierre-Jaques

And so I think that that’s something you have to be aware of. I don’t know if I’ll be able to maintain 50% as we scale just because of the way the numbers work, but it’s something that we are definitely thinking about and aware of and want to make sure when we make money. 

The reason we started the firm is because we felt like the fastest way to economic empowerment for people of color and women was ownership. And the easiest way to get ownership is to start your own business. That’s being proven time and time again, regardless if you’re educated or you’re making six figures as a person of color, you are likely to close a walkout.

And so ownership and equity is important. So we felt like venture capital, which is why we went from private equity to venture capital, we felt like venture capital was the best means of economic empowerment at scale in a much faster way.

I think the same is true for LPs. A lot of these larger firms which were partnered with GBG or KKR, their minimum thresholds are millions of dollars. And so a lot of people of color who are wealthy to us are not wealthy in the scheme of things and cannot get access to a majority of these top funds more than venture or private equity. And so I think it’s also a fast way for economic empowerment for rich, very rich…

Some people may say you’re making rich black people only richer, but I think there is a significance to going from rich to wealth and going from being doctors to be passed down… While both my parents are doctors, and I was always very aware, like, my parents had nothing to pass on to me but the money they made. And if they… we would go on ski trips and my parents would always be like ‘I’m not going down the black diamond’ ’cause literally if they, like, hurt their wrist, they can’t make money.

Sean Salas

Right.

Henri Pierre-Jaques

Like, wealth is when you don’t have to worry about injury stopping you from making money. And there’s a completely different mindset and different stuff like freedom of thought. And so I was always aware of that, like the difference of like “ok, I was clearly privileged. My parents are doctors. I’m a rich African-American. I’m going to private schools my entire life. High school, Northwestern, Harvard Business School”. 

Especially at HBS as you know you’re nothing, it’s just, like, people make what you make in a year in a day. And I think it’s just eye opening and it makes you realize what you can do as a difference when you get to these different tiers of richness versus wealthness. 

And you can underestimate that you also, we also need to help people of color who are already privileged to some extent become more privileged so they can do more things like Robert Smith, because if you don’t have a million dollars you can’t pay off a school debt, right? And so there, I mean, these are just things that we, I think about a lot as well, and that balance of empowering underserved communities, but at the same time, also empowering underserved communities for people maybe already have some privilege, but not to the same extent as our peers.

Sean Salas

Yeah. You said so much, so many things that I had to take notes of the three questions that branch of what you just said. And I’m gonna start with the last point you made about helping, in essence, entrepreneurs build wealth so that they can drive change. 

The title of our fireside chat is “Empowering minority entrepreneurs for an inclusive new normal” and that term, “new normal”, gets bounced around a lot in different contexts. And so, let me narrow this down a little bit, because, so we can go three or four layers deep with someone with your institutional knowledge. 

So. The protests are happening. We’re all emotional and frustrated about the injustices that are happening. At the same time, I feel a lot of us want to go out there and boil the ocean, right? In terms of the change.

But sometimes, and this is my opinion, and please let me know if you disagree with it… One thing that I announced in our town hall meeting on Monday, given all the protests that have been happening, was: hey! One, we need to stay in our way. How can Camino Financial, as an organization, move the conversation forward? How can we contribute to eliminating racial injustice in the United States?

And I don’t want to put words in your mouth, but you just said it, right? One way I think Harlem Capital is doing it is by effectively empowering minority entrepreneurs for an inclusive new normal. So can you go two or three layers deeper in terms of why investments in early stage startups enable you to move that conversation for a move? Is that effectively your swim lane? Are there others swim lanes that we’re missing as well as the ones related to Harlem Capital and you?

Henri Pierre-Jaques

Yeah, I definitely agree with the lane part. I mean, I think a question we always ask ourselves or ask founders is what are you uniquely qualified to do, right? I think as diversity focused firm, we get a ton of inbounds from different organizations that are helping people of color or women and people would also be offended like, “oh, why aren’t you going to partner with me or why aren’t you helping me if we are solving the same thing?” And we’re not just helping, our goal is not to just solve all black issues or people of color issues. 

Our goal is to solve issues for early stage seed, pre-seed series A, U.S. base, black entrepreneurs who have scalable businesses that can return our fund, right? And like, and that, I think people just make… Oftentimes there’s this anger that we can’t do more and I think I’m a firm believer in specialization, you know?

Robert Smith, one of his favorite quotes that he has: what is your specialty? And, essentially, I focus on, I think, it serves better. So for us as a firm, we do believe that targeting the early stage is what will lead to eventual exits and IPOs.

And so when we started, coming from private equity, we were like we’ll work out our black owned firm. ICV Partners started you but our portfolio had no people of color, and when I was there, we had our first woman CEO. So it’s very clear, okay, my skills are in private equity, but if I want to invest in people of color, private equity is not going to be where I can start today. 

Now, my goal in the long term is we want to be a TBG, we want to be a multi asset class firm. So eventually we will have private equity, but like, how do I actually build a pipeline to get to a point where I could have a private equity fund on top of whatever my venture growth equity fund? And that is you start with early stage capital, you build these companies, you hope that they scale over time, eventually maybe either you find those same companies to buy them out or they’re creating new companies as a result of their first companies and now they’re starting new venture capital growth equity, private equity backed companies.

So that’s our thesis, is that if we can start at the top and create downstream capital, eventually there will be a market for later capital, there will be more IPOs, there will be more M&A acquisitions for these companies, and you would hope that the bias of color, the reality is when you sell, you’re going to sell your minority owned firm to a majority owner.

There are very few black owned or woman owned companies that can buy or purchased millions of dollars, and so you have to accept that. And you have to hope that the founders, someone like Richelieu Dennis who bought some brands, once he got bought out, he went and bought Essence, he went and bought Madam CJ Walker’s house, he started a hundred million dollar fund with some black women. 

That’s not going to happen for every black founder or every woman founder, that’s not the case. Every person isn’t supposed to be an advocate for change. But I think that you hope that a majority… I think people of color and minorities are prone to want to change their communities, it’s ingrained in us. That’s why you see more people of color and women founders who are in the space of health care that are changing their communities ’cause it’s what they’re passionate about.

And so you hope that the majority of these founders who do see exits, will use that platform and their capital to lead to more future change. That’s all you can really do, because the reality is once they sell their companies, it’s probably not to be owned by a minority person. And what do you do? Say, “hey, keep your company so a white person doesn’t own it or sell your company, make some capital and figure out how you want to use that capital yourself.”

Presenter

This episode of Fundamental Fairness about empowering minority entrepreneurs for an inclusive new normal is brought to you by Camino Financial.

Sean Salas

Let me paraphrase what you said using an analogy. When you board a plane when pre-COVID… You have to remember, you’ve been on a plane pre-COVID, I know it’s hard for us to imagine, it feels like a lifetime ago, but, before the plane departs, there’s an announcement and one of those announcements is if there’s high cabin pressure you need to put the mask on yourself first before you put the mask on your child. And, in many ways, I think that our way of putting the mask on first is making a lot of money. 

And I know that sometimes within our community, I can speak to that as well, that sounds controversial. It sounds selfish. But I can’t tell you how important it is that, yes, we be selfish and make money, and then in turn, because to your point, we have an innate nature to give back to our communities, to our families… then we will give back. And I really do give the benefit of the doubt to entrepreneurs of color for doing that. But at the same time, ensuring that you get your priorities straight.

Now, I do think what you’re doing is something that not everyone can do because you’re doing it at face value, which is, you’re making money and making money by investing in the community. And that’s amazing because there is a real lack of capital in investing in minority entrepreneurs. So I’m glad you mentioned that.

Henri Pierre-Jaques

I would just add to that point. You should also be doing things along the way. So my goal, I already have a name for my foundation. I’m a big believer in affirmations, so I’m claiming that I will be successful. I’m going to have a foundation for my family, no different than the Obama Foundation, or Robert Smith or Oprah, and I know what I want to do, what are the key topics I want to focus on when I have the capital. But at the same time, until that point, I’m going to make sure I serve the community whether it’s through investing capital, using my platform, using my voice, encouraging others, speaking to kids, whatever it may be.

I think that’s important that you don’t just wait because it’s no different than… You are not all of a sudden, after 20 years of focusing on your career, focus on yourself, and 20 years of it all of a sudden you become unselfish. So you have to build in the habit of being an unselfish person, and that’s something I think people should focus on as well as what can you do in the interim. 

And I also believe that no day is guaranteed. I think the last three months have clearly shown that for everybody, whether it be COVID at the rise or the killings of people. You can’t wait. You don’t know if he’ll be around in 20 years. And what is your legacy going to be if you were to die tomorrow? I think about that a lot. Just like, am I… Have I done everything I could up until this point that would make me satisfied with my life? And typically the answer to that is yes, of course, I want to have a longer life and there’s a lot more things I want to do, but up until this point, with the time you’ve had… 

One of my professors, I don’t know if you’ve heard of him, Steven Rogers, at HBS, he started the first black entrepreneurship class at any MBA school in the world, and one of his quotes is: what are you going to tell to your ancestors when you meet them in heaven what you did with their sacrifice? 

That always stuck with me, and as somebody who was half African-American, half Asian-American, I just I see it, I live it. My dad is from the poorest country in the western world. My mom grew up in Detroit the 1960s. And so I always think about the sacrifices they made for me to get to where I am, and then their grandparents made… Like, what are you going to do with everything? 

So I think in this time with the race riots and protests, it’s the same thing. Yes, I’m scared, but in the day, like onward and upward… There’s no other option but to have progress because any other option is disrespect to what Obama did, to what Martin Luther King did, to what everybody else did before. So I think it just also… It’s humbling that it’s bigger than you, but it’s also encouraging that no matter what I face, the diversity doesn’t matter, we’ve been here, we’re gonna still be here. And maybe to be around and to have that, like, focus on that sacrifice is what inspires all of people of color. And it’s what inspires me personally as well. 

Sean Salas

I love that. And I love that positive affirmation of your advice. And it’s worth noting: I met Henri when he was in his, either first or going into second year, at ICV. He was dreaming about going not only to Harvard Business School, but also, starting this fund, not this fund, I think, a marquee funding investment in minority entrepreneurs and female entrepreneurs in the United States. And it was just a dream there. And we had a great conversation.

Not only did he do both things that he set out to do. When you say not only are you going to make it and you’re going to invest behind your foundation, I am 120% confident that you’re going to do it. And so for those that are listening in on this podcast, it works, it works. And you also need to reach out and ask. 

And now I am the humble cheerleader on the sidelines of Henri, where only about four years ago he was calling me for advice. And so not only that, just deepen into what you actually did get accomplished at Harlem Capital, you guys oversubscribed your first fund, right?

Henri Pierre-Jaques

We did.

Sean Salas

Wow! I mean, so right now, how much are you guys working with?

Henri Pierre-Jaques

Forty million.

Sean Salas

What’s the age of the companies you are investing in? And how can people learn more about Harlem Capital?

Henri Pierre-Jaques

Yeah. So we raised 40 million for the first fund…

Sean Salas

Market was 20, right? So you two… Wow!

Henri Pierre-Jaques

Yeah, we are very fortunate. So typically, I would say our check size, we usually start at 50K and 10 million. We can go as low as 500K. Our sweet spot is seed stage rounds from one and a half to three billion dollars. We typically target 5-10% ownership. So usually sub-twelve and a half million dollar valuations. We do not invest in San Francisco for that reason, but we are investing in cities with New York, L.A., and Boston being our top three. 

And then, yeah, besides that we are just focused on women and people of color who are running US based companies. We are industry agnostic. We’ve invested in 10 industries where software, fintech and HR techs have been our top three, but we do not invest in capital intensive industries like hardware or energy or infrastructure, and then we don’t invest in what we call deep tech, which is like biotech, quantum mechanics or future tech, kind of like Space X where we just really can’t add any value to the foundation.

Sean Salas

Great. Well, if you haven’t heard of Harlem Capital yet, now know who they are, and please go to Harlem Capital’s website. What’s your website?

Henri Pierre-Jaques

harlem.capital

Sean Salas

There you go. And learn more and reach out to Henri through their website. Reach out to me, I’m happy to prever that you have before you talked to Henri. I’m a proud mentor of many entrepreneurs, I always allocate time on the weekend to talk to people that have big dreams, and one day… You know, it used to be Henri, now it’s the future Henri. So that’s great. 

So let’s talk a little bit about before these protests, right? COVID-19. Because before this madness was happening, we were already deep into a crisis. And, wow, it’s crazy. And you’ve probably heard that Forbes reported that 50% of black and Latinx owned businesses expect to close their doors if, in the next six months, if these circumstances continue.

And so we’re in a difficult situation. So I want to better understand how you think this is going to transform VC. In other words, where do you see the future VC heading? How does funding diverse entrepreneurs play into COVID-19 recovery?

Henri Pierre-Jaques

So recessions always impact certain communities more. Though a crisis was no different from a housing perspective, COVID was, it’s been no different. You know, 40% of people making less than 40 thousand are unemployed, and people of color and women typically have lower income jobs, so it’s going to disproportionately impact them. And right now, there’s +40 million people who are unemployed.

So, I think that is the first acknowledgment that these were impacts of diverse founders more. From a capital standpoint, from your family members losing their jobs to not having to support them. I have friends whose roommates lost their jobs, now you have rent to deal with. So it’s not even just the business and the venture capital aspect. 

And this is true in general for people of color, which is why there is a study done for black people who graduate Harvard Business School being, over time, still lessly positioned than their white peers because oftentimes they have more debt coming out of business school, oftentimes they were helping to cover their families, right?

And so there’s so many more implications outside every business where if you are a successful person of color, you just have more burden on your shoulders and since I think that’s the acknowledgments, to acknowledge that your business may be more inclined to but now your burden this mental shelfs, you have more people to feed. And so I think that’s what I think about. 

From how it will impact future venture, I don’t think COVID will. I think the race protest will do more of an impact than COVID did. I think COVID was leading to more people turning back into their network, so you saw women founders getting funded less.

Nobody tracks by race really at scale besides us, so we don’t do quarterly reports, we do annual reports, so we haven’t done a report to analyze that. But just anecdotally, we share on our side channel, any time we see a person of color who raised a million dollars, that’s how we build our research reports, and that channel has been very quiet. So I think… We generally just know that it is decrease, even though we haven’t done that analysis yet, and so I think that’ll be the case because people are becoming more and more network driven.

In the great recession, you had a recession, but people could still meet people. You have a recession, if not depression, and people can meet people, and so you have a double edge to want to turn back to the people that you know, which will always impact women and people of color more because they don’t know a lot of VC firms.

But I think after the protest side, you will now see more focus on this piece, whether it be similar to Andreessen or I saw (inaudible) made an announcement as well. Now, the question, one of the Q&A questions is the authenticity of it. Is some long lasting? Is it short term? That’s CBD. I think, people… I talked to my friends and, we were talking about reparations and all these things like, oh, it’ll never happen, there’s no way. And a lot of things have happened that nobody expected.

 The Great Depression is a reason we have Social Security in the first place. I do think COVID will lead to universal health care because we have 40 people unemployed. It’s almost impossible for this structure to exist without universal health care ’cause people don’t have employers paying for their health insurance. You talk to your family; none of my family members, our grandparents ever thought to see a black president while they are living, not alone, the two term black president. And so all in… The Great Recession, when we had a two hundred billion dollar tarp bill, people were outraged like, how can it even be possibly use a two billion dollars? 

So I think people’s mindset of what is possible is so historical, which is why venture exists because we don’t believe historicals determine the future. And so I think people will be surprised by the changes that will happen from now. History has proven that things have happened that seem impossible because of traumatic and large scale events such as COVID or global race riots where the country is slowly burning.

Sean Salas

And for those that are dying to ask their own question, I will ask one more question directly and then I’ll open it up to Q&A. We already have nine questions on that, so I’m really excited that people are excited and engaged. Our founders and small business owners that are listening to this podcast right now or will download it via Fundamental Fairness on all main podcast platforms… What guidance are you giving your founders right now as we move into COVID-19 recovery?

Henri Pierre-Jaques

I mean, the first thing we did was we tried to figure out which companies are likely going to benefit, be neutral or have negative responses. And we got three buckets and we just literally put them in, and these are our hypotheses. And then we did the analysis to understand from a cash perspective, how much cash you need.

Do you need to raise capital in the next 12 months, which is going to be hard? If so, there’s three options. You either increase your revenue, you decrease your costs or you raise capital. And so we’re trying to create a strategy around preventing the business from going out of the business in less than 12 months because we didn’t prepare ahead of time.

 I think from a business standpoint, we only saw a few businesses have to pivot. Two of them had to make dramatic pivots. One benefited greatly from that pivot and one is kind of TBD (to be determined), we are going to see how that lays out and now we are focused on kind of the immediate move of the industry, which obviously is at a zero right now. Most of the other businesses still have fundamental businesses that will exist, the question will be whether revenue increased, stayed the same or went down, and time will tell.

I think just understanding based on the current trends, where do I think my business ends up right now during COVID? I think the COVID downturn era is over and now we’re going to see as the recovery happens what businesses are long term, who benefits from best telehealth, online education… Surprisingly, direct to consumer businesses that are focused on beauty or kitchenware or furniture, like Wayfair, is up like 6X. And so…Just think about the trends and then, and there’s not much else you can do, I mean: are you going to pivot or you’re not, if you are going to stay with your business and figure out how you’re going to adjust, are you going to cut payroll, are you going to furlough people or are you going to have to try new market strategies for different verticals…

But usually it’s not theoretic it’s more, what are the questions you should be asking yourself? And then how do you go along this process of trying to answer them and taking the hypothesis to test to answer them? ‘Cause having a discussion about pivoting your business isn’t going to happen in one city. You’re going to need to go out and test things out and figure that out. 

So I think don’t rush it but at the same time, be mindful based on how much runway you have, the time you have to actually test this hypothesis. The more runway you have, the slower you can go to make that, but the less runway you have, the faster and more iteration you need to do. But there’s no simple answer to it. It’s really… 

We’ve just been telling our founders we’re starting with you, we are going to ask you the questions, you try and figure out the answers, come back to us, we’ll give you our perspective. And this is a either a process where nobody has ever… Even investors who have experienced much more than me, who are our LPs, have had recessions, but nobody nobody’s had a recession plus a pandemic. This is completely new and a different experience for founders and for investors.

Sean Salas

Great. Well, thank you for these amazing points. I’m really excited to get started with a Q&A session, so I’d like to call Kenny Salas, who is my co-founder at Camino Financial. He has a question… Go ahead Kenny.

Kenny Salas

Hey guys, can you hear me?

Sean Salas

We can hear you perfectly, Kenny.

Kenny Salas

Alright! Hey, this is Kenny. Henri, thanks so much for joining our fireside chat. My question is a follow up from a comment you mentioned about how recessions impact minorities, especially minorities that are raising money and because of the networking effects or the limiting networks of potentially, brown black people, and they may limit them so. And you also mentioned pipeline. So I’m just curious to know: what are the key factors and challenges for Harlem Capital to build a pipeline in black need?

Henri Pierre-Jaques

Yeah, so, from a sourcing perspective, 50% of our deals come directly from founders, either via email or LinkedIn. So all of our emails on the website and our criteria is on there. I think we are very open and transparent about what we look for.

It’s still a venture, right? So, as I mentioned, it’s still a 1% game. So if we see… On typical, a year we see a 100 deals a year. We talk to 200 to 250 of those founders and we’ll do deals, like real diligence, on 40 to 50, and then we invest in 10. So we’re investing in 1%, we’re having conversations with 20-25%, we’re doing diligence on 5-10%, and investing in 1%. 

So we’re very methodical about our time ’cause time is the most precious thing, but we also are very transparent and try to make it open where people can get in touch with us. We try to produce content that makes it very clear what we look for. Industries that we’re not necessarily focused on, doesn’t mean I think, you know… 

One of the things I mentioned in my recent blog posts is people often get angry or mad, you know, “why are you having a conversation with me” or whatever it is. But it’s not that your business is bad, your business doesn’t meet our criteria or your business isn’t what we’re focused on or what we can help you with. Like, you want investors who know your industry, who understand your mission right away, who understand your vision and you don’t have to explain yourself to somebody five times just for them to get what you’re doing. 

So it’s really a way for us to manage our time and your time –I think founders to be very mindful of their time as well–. So am I reaching out to people who actually align with what I am doing? Because the capital is nice but capital is only on day one, it’s the next 10 years which is going to be based on your relationship with an investor.

So try to be remindful of that, we’re transparent and we try to produce content and do stuff like this where people can have a very clear message of what we look for so that they can best utilize their time. There are other people, or people reach out and it’s not good for us, occasionally, if we know somebody then we’ll send to them as often and say, “hey, are you interested? This is something that is more directly aligned with what you do.”

Kenny Salas

Thank you.

Sean Salas

All right. The next person I like to call out is Jessica Leon. She’s spectacular. She has a great question.

Jessica Leon

Thank you so much. Well, there’s a lot of support right now which we love and just working a lot on the impact side and investing and founders of color, that’s great. But, I guess, how do you sustain this momentum and how do you know what the difference between a fund that is being authentic and meaning what they’re saying or posting vs. those that are not?

Henri Pierre-Jaques

Yeah, I mean, it’s a tough one to answer. And I don’t… I know people love kind of the authenticity topic were there before Andreessen or others that are making announcements today or throughout the week. I don’t tend to focus on that. People would always ask us for the white investors we have. Why do they invest in you? And I’m like… I don’t know. I didn’t ask him that question. They gave me five million dollars, I took it. They align with our mission, they weren’t, to my knowledge, people who are doing bad things.

Whether they did it because they believed in us as founders or they did it because they have a racial and diversity lands, they want to invest in diverse GPs and diverse founders, they want to invest in early stage venture… That’s up to them. I think oftentimes outside of minority topics, when somebody invests in TBG, like nobody asks why did you invest in you invest in TBG, when investing in TBG is implied to make money, right? But when you invest in diversity, it’s: did you invest because of the impact?

Those are just questions that nobody is asking in the rest of the capitalism society that exists. And so I tend to focus on those as much as long as I believe that the person or the institution itself is one that I would stand by, ’cause it’s a question I don’t think I can answer. 

I think most people could answer to me that actions speak louder. It only is a question to me about authenticity the first time. But then if somebody is doing something over and over, putting their time and energy… Which is more valuable than the money itself, ’cause for a lot of these firms, even SoftBank, a hundred million dollars is a chump change. So it’s: are you putting the time and the effort to the use of your network and your resources over time? And that’s where you’ll tell the authenticity.

 But upfront, when somebody offers you a check, you have no way of knowing unless you’ve known that person for many years, you may have done two or three weeks of reference calls or whatever it may be. But it’s very different once you’re on the other side of investing versus free investment. So for me personally, that’s what I typically focus on. 

Sean Salas

Great. Thank you so much for the question. The next person I’m going to ask is Alex Ontiveros. He has a really good question around this connects between the activism we see in the black community vs. the Latino community, and I’m really curious to hear his question in more depth and get your perspective on this.

Alex Ontiveros

First, I appreciate the time. I do apologize, I have my one and a half year old son in my arms so you may or may not hear him. So my question was: one of the things when I went to business school what I noticed is the African-American community has a very strong bond between themselves and business owners, so they’re willing to take a flyer on, buying a friend’s product or downloading an app.

Partly based off of the fact of trying to improve the community myself. I think in my question, I as a “Chicano”, which makes us Mexican-American, we don’t have that connection amongst ourselves, between Chicanos and Latinos and Hispanics, or what we call ourselves. So my big question for you was: do you view that as an advantage almost for that connectivity? Were you able to advocate on that platform?

And then, should Hispanics, Chicanos, Latinos, whatever you want to call us, should we be marketing our products and awareness to our own demographic first? Should we expand it to all minorities as a whole? Or should we just go after the whole pie right off the bag and kind of lose some of that automatism just to talk about where we’ve previously how we’re going to target just a Hispanic brand, but instead we want to go for the biggest pie possible, because, obviously, there’s more Caucasians than there are Hispanics…

Henri Pierre-Jaques

Depends on the business model. So, the majority of our investments are not in… Diverse fund is our focus purely on diverse communities. We are specifically not an impact fund. We do not measure impact metrics. We are venture funding, we’re very clear about that when we are fundraising because we just don’t believe… You think about who are the first unicorns for women (inaudible) and now one of our first investments was in Blavity, which is the only investment, one of the two investments where it’s a minority focused company focused on minority communities.

‘Cause in most industries it’s too niche, right? African-Americans represent 30% of the population, Latinos, I think are18% percent. And so it’s just, it’s too small of a segment and it’s like 30% of the total population from age zero to 60. So depending on what market you’re targeting, 25 to 40 year olds are making some amount of money in some cities, now you’re at 2-3% of the population. That’s not venture scalable.

If you’re in a small business, very different perspective, but in venture, 3% of the market is not going to cut a billion dollar company. So I think it depends on the industry, depends on the sector, depends on the business model.

You ask if I should focus on, but we separately don’t push our founders to do that. I think that’s something that has been a bias that’s started and is now changing where people initially thought, “oh yeah, you’re a woman, you should do fintech or you should do clothes like Stitch Fix”. “Oh, you are black so you should do Blavity or beauty care like Beauty Bakery.” But, the largest black run startups are (inaudible) and Compass, which are both real estate companies, have nothing to do with black communities, and that’s what we’re encouraging, is that people can create things of anything because white people create stuff for anybody. 

There’s no reason why we shouldn’t ourselves, particularly for us just focus on the venture space, I do think that you still need black owned and Latino owned businesses and their communities focus, but I think particularly for venture capital, we need people of color to be focused on bigger issues that can impact the world, the US and if not, the world. And that’s my personal view.

Sean Salas

If I may add to that, as all of you know, Camino Financial is an online finance company focused on money to be under the bankable Latinx Business segment. And so I get a lot of outreach from minority entrepreneurs, and sometimes they come to me with the question “hey, where can I apply a Latinx spin to my business model?”

And I tell them, first of all, there were… There are very specific reasons from a business model standpoint why it makes sense for us to focus on the Latinx market. And even then, we don’t exclude other markets. And so you really need to think through not just leading with “should I focus on this market or go after this market and then build the business model around it?” Yeah, that’s one approach you should do. But I sometimes feel that sometimes the only approach, or by and large, the approach that I see most often amongst minority entrepreneurs. And I think maybe we need to think a little bit bigger. 

And then, of course, if it makes sense to create more a vertically integrated focus on a specific demographic, whether it’s Latino, African-American, Asian-American, whatever, then do it. But there has to be a good reason to do it vs. more aspirational reasons to do it. And that’s what we found at Camino Financial does make sense. But I do encourage people to question whether they should be demographic focused or not. Thank you very much for the answer to that question. 

The next question I’m going to ask is to Kevin. I’m going to have one more question.

Kevin

Hi, good afternoon. My name is Kevin. My question is: sometime when we start out, maybe we may not need the funnel. We need mentorship to get along to to see where we are in our business, in our project. So I was wondering if there is any way we can have access to some mentorship. I know you are maybe extremely busy, but is there anywhere we can have some kind of access to some mentorship? 

Because sometimes we get we can go and do business thinking we can raise a certain amount of money, but it’s not the case. So I rather go and talk to someone who can mentor me and say “hey, listen, at that stage where you can raise some money, take a couple of steps back and review this, review that, in order to get advance. So what’s your thought on that? Thank you. 

Henri Pierre-Jaques

Yeah, so, I put a link in the chat of a blog post I did a couple of weeks ago for a high level venture capital, people are looking for a high to think about things. I mean, from our perspective, I generally do not do one-off mentorship because my schedule just doesn’t permit it. I think, you know, and even for me personally, when people ask me in interviews like, who are your mentors? My mentors are my partners, Brandon and Jarrid, but that’s from you personally.

I personally get mentorship from being in the trenches with people, and when I’m on Slack 24/7 with Brandon and Jarrid and we’ve been doing this for four and half years, nobody’s mentored me more. Nobody has spent my life more with me than my wife and my parents than my partners.

My former boss has mentored me to some extent, and was somebody who empowered me to do what I’m doing. But in terms of the execution day-to-day, most black male mentors of mine, and we have many who are really well prominent, are not the people who taught me to do what I’m doing. And that’s just the reality. And so if I’m not in the trenches with you, I can’t mentor you in a process. I can give you advice and guidance and whatever that means to some people but for me personally, I learned from doing. I learned from seeing other people do. Now, it’s probably the greatest asset for me.

I worked at ICV Partners in private equity where seeing what a black ramp firm does. Not hearing my bosses tell me in a 30 minute call, this is my advice, but being in the trenches actually, I see “oh, this is your discussions, this is the questions you’re asking, this is what you’re doing.” And that’s just a personal thing for me.

Other people do get benefits from more mentorship. I think you have to figure out what is the focus for you? What do you focus on? How do you learn? And then try to find people who are aligned to that. Personally, I’m not aligned with that, and then I think from…

To the question, what are you uniquely qualified to do? We are not builders. I do not build things from scratch. I’ve come from late stage equity. I know how to scale businesses. It is the reason why you don’t have an accelerator. People often ask us, you’re targeting people of color, why don’t you have an accelerator? Well, because I can’t build anything, why do you want me to have an accelerator, just so that I can say I’m helping black people who are starting their business from the ground up? That is no good for anybody. It’s a waste of my time, it’s a waste of their time.

And so for us, firstly, we know how to scale people who already have existing businesses. We’re going to raise a million plus in capital in trying to get to a millionaire within 12 to 18 months in a Series A. So I think the more focused you are, and the more clear you are on your lane, the farther you go, which is why I don’t particularly mentor people who are kind of at ground zero, because I have no advice. 

 I’ve never done it before. And I don’t mentor companies who have done that. (inaudible) to give you some high level review of venture capital, looking for how they’re thinking about it. But then also just reflect on how you learn. If I’m going to have a 30 minute conversation with somebody once a quarter, why am I getting from that experience? What do I want to get from that experience? What benefit does it do for my mentor?

Some mentors will do things just because they want to help. Long term mentorship often happens because there’s a two way street. And so I think that’s something I also just think about from a long term perspective. And to continue, what are the things you’re trying to help, and what you’re doing for your mentors as well to get back. I think about that often. 

I build relationships with many of my mentors or sponsors where I benefited them whether it be having our firms get combined with their friends and partnerships, etc. 

Sean Salas

Great, well. Henri, thank you so much! One common thing that I’ve taken away from this conversation is stay in your lane. And sometimes it’s hard to do when the problems inherent in the system are so big.

But I think the way you really drive change is not only staying in your lane, but going as fast as you possibly can go. And the focus of Harlem Capital is evident, passion is clear. And I couldn’t be happier to have you on our podcast, sharing the knowledge, sharing the love. Thank you so much.

Henri Pierre-Jaques

Thanks for having me. Talk to you later man.

Sean Salas

Thanks, bye!

Presenter

Thanks for listening. Please make sure to like and subscribe to our podcast on your favorite platform. We’d like to thank Bethany Sands for sound and editing. Our creative team: Tanya Chaidez and Daniel Bustamante. Talent producer: Gerry Cervantes. And our senior producer: Elliante Romero.

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