Summary of "Investing in the New Faces of Entrepreneurship" – Your Next Move Podcast by Inc. Magazine

Your Next Move, produced by Inc. Magazine in partnership with Capital One Business, features authentic and insightful conversations with today's most innovative entrepreneurs and business leaders. In the episode titled "Investing in the New Faces of Entrepreneurship", released on December 23, 2024, host Bea Dixon engages in a compelling dialogue with Henri Pierre Jacques, the Managing Partner of Harlem Capital. The conversation explores Henri's investment strategies, commitment to supporting diverse founders, and his vision for fostering a new generation of entrepreneurs.

1. Harlem Capital’s Ambitious Mission

Henri Pierre Jacques opens the discussion by outlining Harlem Capital's bold mission to invest in 1,000 diverse founders over the next 20 years. As of the conversation at [01:05], Harlem Capital has invested in 58 founders, with Henri emphasizing the anticipated exponential growth in the coming years.

“We fully intend that to spike in the last five to 10 years… that's exactly what we needed to be.” – Henri Pierre Jacques [01:05]

Henri explains that the mission was intentionally set to challenge the firm and push it beyond its comfort zones, ensuring a sustained focus on diversity and inclusion in their investment portfolio.

2. Demystifying Venture Capital

Bea Dixon seeks to clarify the concept of venture capital for listeners unfamiliar with the term. Henri describes venture capital as an investment firm providing early-stage capital in exchange for equity, typically ranging from 5% to 15%, and assisting companies in scaling through both financial support and strategic resources.

“My definition would be an investment firm giving an early stage business capital and taking some amount of ownership… helping them create really big businesses.” – Henri Pierre Jacques [02:45]

He further elaborates on Harlem Capital’s hands-on approach post-investment, highlighting the importance of building strong relationships with founders.

“After we invest, we're doing an hour launch call… we give you our core values and mission and we're grateful to come on your journey.” – Henri Pierre Jacques [03:22]

3. Strategic Investment Focus and Sectors

Henri outlines Harlem Capital's investment strategy, noting that while the firm remains agnostic overall, 80% of their deals are concentrated in four key sectors: Web3, Fintech, E-commerce, and Enterprise SaaS. The remaining 20% represents founder-driven bets outside these primary sectors.

“80% of our deals are in Web3, fintech, e-commerce, and enterprise SaaS. The other 20% are largely just founder bets into markets we don't know as well.” – Henri Pierre Jacques [07:45]

He emphasizes Harlem Capital’s willingness to invest beyond seed stages, including Series A rounds, illustrating their commitment to supporting companies through various growth phases.

4. Building a Robust Investment Team

Bea delves into how Henri's team operates to evaluate and support portfolio companies. Henri details the firm's structure, which includes seven team members spread across five cities, comprising partners, junior investors, and a dedicated platform manager focused on existing investments.

“We have seven people, we're in five cities, we're super remote… One partner, one junior investor… we have a platform manager for invested companies.” – Henri Pierre Jacques [12:32]

He highlights their flexible communication approach, tailored to each founder's needs, whether through monthly or quarterly check-ins or daily interactions during critical fundraising phases.

“Our founders are constantly asking each other questions or they're DMing us personally and asking questions.” – Henri Pierre Jacques [13:22]

5. Sourcing and Selecting Deals

Henri discusses how Harlem Capital sources its deals, noting that in 2021, 60% of their 3,000 deals were inbound via their website’s pitch forum, while 40% came through networks, other VCs, and interns. He underscores the higher conversion rate of network-sourced deals compared to inbound submissions.

“In 2021, we saw 3,000 deals. 60% were inbound… 40% came from other venture capitalists, our network, our interns.” – Henri Pierre Jacques [14:19]

Henri also emphasizes the importance of data-driven strategies to mitigate biases and ensure a broad and inclusive investment pipeline.

“We track every deal by race, gender, geography, where we're sourced from… to correct those biases.” – Henri Pierre Jacques [16:43]

6. Evaluating Founders and Identifying Red Flags

Bea inquires about what Harlem Capital looks for in founders. Henri describes a foundational triangle prioritizing the founder's qualities, the market potential, and the business model. The founder's attributes, such as vision and passion, are paramount.

“We have our triangle. So the founders, the market, the business. Founders are the top of the triangle.” – Henri Pierre Jacques [10:52]

He lists red flags for investment, including a lack of financial understanding and poorly designed pitch decks, emphasizing that these issues might reflect on the founder’s potential to attract customers, talent, and additional investment.

“Red flags include not knowing your numbers and having a poorly designed deck.” – Henri Pierre Jacques [17:23]

7. Transitioning from Private Equity to Venture Capital

Henri shares his journey from private equity to venture capital, explaining the motivations behind starting Harlem Capital—particularly the desire to support black, Latino, and women founders who he identified as underserved in traditional private equity.

“We were in private equity… but we wanted to invest into people of color… so we had to raise a fund.” – Henri Pierre Jacques [09:07]

This transition was driven by a commitment to creating a more inclusive investment landscape and addressing the disparities in funding opportunities for diverse entrepreneurs.

8. Learning from Missed Opportunities

Discussing the inevitability of passing on deals, Henri reflects on how Harlem Capital learns from these decisions, acknowledging that some past passes have led to unicorns. He emphasizes the importance of continuous reflection and adapting the investment process to improve future outcomes.

“A deal we passed on last year… is a unicorn now… it breaks my heart.” – Henri Pierre Jacques [17:23]

He highlights the value of reviewing missed deals quarterly to understand and rectify any gaps in the investment process.

“We look at our missed deals every quarter…and it’s important to reflect.” – Henri Pierre Jacques [26:38]

9. Creating Cyclical Impact in Communities

Henri conveys the broader impact of Harlem Capital’s investments, illustrating how supporting diverse founders fosters cyclic growth within communities and broader ecosystems. He underscores the role of equity as a means to close the wealth gap and empower minority founders.

“The largest driver in closing the wealth gap is through equity and ownership.” – Henri Pierre Jacques [46:10]

Additionally, he points out the success of their internship program in nurturing future venture capitalists who carry forward a diverse investment lens.

“Our internship program has had 22 interns move into venture capital… bringing the diverse lens to other firms.” – Henri Pierre Jacques [42:52]

10. Advice for Founders and Aspiring VCs

Henri offers key advice for both founders and aspiring venture capitalists: the importance of believing in oneself, maintaining confidence, and being authentic. He stresses that resilience in the face of rejection is crucial for success in both roles.

“You have to be you, and you have to authentically be you and be confident in yourself.” – Henri Pierre Jacques [22:30]

He advises that founders should not focus solely on specific demographics but rather aim to sell to humans broadly, facilitating scalability and broader market reach.

“Sell your products to humans. You don’t have to necessarily just focus on one race.” – Henri Pierre Jacques [49:31]

Key Takeaways

• Mission-Driven Investing: Harlem Capital's mission to invest in 1,000 diverse founders exemplifies a commitment to inclusivity and systemic change within the venture capital landscape.

• Strategic Focus: Concentrating on sectors like Web3, Fintech, E-commerce, and Enterprise SaaS allows Harlem Capital to leverage high-growth opportunities while maintaining flexibility.

• Data-Driven Approach: Tracking deals by race, gender, and geography helps mitigate biases and ensures a diverse and inclusive investment pipeline.

• Continuous Learning: Reflecting on missed opportunities and adapting strategies is crucial for improving investment decisions and fostering growth.

• Cyclical Community Impact: Investing in diverse founders not only supports individual businesses but also creates a ripple effect that benefits entire communities through equity and ownership.

• Authenticity and Resilience: Founders and venture capitalists alike must maintain authenticity, confidence, and resilience to navigate the challenges of fundraising and scaling businesses.

Notable Quotes with Timestamps

1. Expanding the Mission:

   “We fully intend that to spike in the last five to 10 years… that's exactly what we needed to be.” – Henri Pierre Jacques [01:05]

2. Defining Venture Capital:

   “My definition would be an investment firm giving an early stage business capital and taking some amount of ownership… helping them create really big businesses.” – Henri Pierre Jacques [02:45]

3. Foundational Investment Triangle:

   “We have our triangle. So the founders, the market, the business. Founders are the top of the triangle.” – Henri Pierre Jacques [10:52]

4. Identifying Red Flags:

   “Red flags include not knowing your numbers and having a poorly designed deck.” – Henri Pierre Jacques [17:23]

5. Closing the Wealth Gap:

   “The largest driver in closing the wealth gap is through equity and ownership.” – Henri Pierre Jacques [46:10]

6. Advice on Authenticity:

   “You have to be you, and you have to authentically be you and be confident in yourself.” – Henri Pierre Jacques [22:30]

This comprehensive summary encapsulates the key points, discussions, insights, and conclusions from the episode "Investing in the New Faces of Entrepreneurship". By highlighting Harlem Capital’s strategies and Henri’s perspectives, the summary serves as an engaging and informative guide for listeners and those interested in the evolving landscape of venture capital.