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- [00:03]
Sarah Lynch
I'm Sarah lynch, and you are listening to youo Next Move audio edition. Produced by Inc And Capital One Business. Today's episode comes from the youe 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. Here is be's conversation with Henri Pierre Jacques. Enjoy.
- [00:43]
Bea Dixon
Henri, it's so good to be here with you. I've been so excited to have this conversation all week.
- [00:48]
Henri Pierre Jacques
No, I'm super excited. Thanks for having me.
- [00:50]
Bea Dixon
So, Henri, you have a mission at Harlem Capital to invest in 1000 humans. Not just any human, but diverse humans over the next 20 years. How are you running up against that?
- [01:06]
Henri Pierre Jacques
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 10 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. Like, should we do 100? Like, no, that's too easy. Like, should we do a thousand? Like, oh, a thousand's really hard. We're, like, perfect. That's exactly what. 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 some number, some time period of 20 years, and, like, some goal of, 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 going to be. And ultimately, that's what we landed on. And it's really what our guiding post is for the firm.
- [01:58]
Bea Dixon
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.
- [02:10]
Henri Pierre Jacques
I appreciate it. When we started, 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.
- [02:19]
Bea Dixon
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?
- [02:45]
Henri Pierre Jacques
Yeah, I would say, you know, 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 5 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 big businesses.
- [03:12]
Bea Dixon
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?
- [03:23]
Henri Pierre Jacques
Yeah, so it depends on the firm. I would say for us, because we are more value add, 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 have the capital, so the founders, you know, pretty much pitching the 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. 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 to answer any core questions they have.
- [04:36]
Bea Dixon
Which is beautiful because you're showing them that they're choosing you as well.
- [04:41]
Henri Pierre Jacques
Yeah, it's a two way street.
- [04:43]
Bea Dixon
Yeah, 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. Like I remember those moments of desperation and 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.
- [05:26]
Henri Pierre Jacques
I would say we've learned that as well because we similar to our founders, we fundraise, right? 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 100 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, we empathize because we go through that journey as well. Like we're asking people for money. This is money, so we get it.
- [06:06]
Bea Dixon
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?
- [06:16]
Henri Pierre Jacques
Precede or seed. I mean nowadays the round names are harder to define. So traditionally pre seed typically met pre product or pre launch and seed typically met post product post launch. Like you have some customers, I would say in today's market they're very merged. And so essentially a lot of precede or seed funds are taking the same level of risk and giving founders capital before they have an idea, before they have a customer, before 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 are 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, 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 like you know, you see the Crunchbase, the TechCrunch articles, but understand, like, the market you're in matters a lot for the level of traction or 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.
- [07:29]
Bea Dixon
And do you Are. Is Harlem Capital investing in certain types of businesses? Like are. 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 are the. Is kind of your sweet spot?
- [07:46]
Henri Pierre Jacques
Yes. I mean, we remain agnostic. Like, our core is black, Latino, and women founders. Like, that's our mission. And 100% of fun too is in that. But I would say 80% of our deals are in four sectors. So web three 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 Sarah'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 want to like back that founder.
- [08:28]
Bea Dixon
I love that I met them recently and they were talking about their company. That's. That's amazing.
- [08:33]
Henri Pierre Jacques
They're great people.
- [08:35]
Bea Dixon
They are. They're really beautiful humans. So will Harlem Capital go past Seed?
- [08:42]
Henri Pierre Jacques
We'll do Series A as well.
- [08:44]
Bea Dixon
Okay, so that's, that's.
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Henri Pierre Jacques
We do a lot.
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Bea Dixon
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.
- [09:07]
Henri Pierre Jacques
So 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. So I was in private equity before, and my partner Jared was my cue mate in pe and we said, hey, like, why don't we start doing what we're doing at work for ourselves? And we were buying companies, and so we said, hey, why don't we keep. 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. Jerry 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 want to work for a firm with no black partners, which was essentially 99% of firms. And also we wanted to invest into 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're going to raise a fund. We thought we like raise maybe a side vehicle. Then we started recruiting. It 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.
- [10:34]
Bea Dixon
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 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?
- [10:53]
Henri Pierre Jacques
Yeah, we have our triangle. So the founders, the market, the business. Right, the founders definitely at 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, you know, like we have the, the metrics but it doesn't mean like if you hit certain characteristics, like we're going to give you money. It's kind of a fluid situation. The market side, you know, the four markets I mentioned, like we're very bullish on. So like 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 precede is almost always going to change. But we do want to know that like you, you're thinking about the business, you're thinking about unit economics. And we believe that at scale your business can be successful. But I would say like, 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, 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 market, or strong founder, strong business.
- [12:07]
Bea Dixon
And how have you built the team behind you to be able to put the structure behind understanding which of 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.
- [12:33]
Henri Pierre Jacques
We have seven people, we're in five cities, we're super remote. I'm in Miami, the team's in New York, Louisiana, D.C. and Cleveland. Three partners, three junior investors. Then we have a platform manager who's full job is to focus on companies that we've already invested in. So that's how the team 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, we leverage. That's typically the deal team once we actually invest. To your point, some of our companies will do monthly meetings. So before this call, I had a monthly call with one of our companies. Some will do quarterly meetings, some don't have them at all. 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, 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 could 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 them, 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 answering that question.
- [14:05]
Bea Dixon
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?
- [14:19]
Henri Pierre Jacques
Yeah. So 2021, we saw 3,000 deals. 60% were inbound. So like on our website, we have a pitchforum where people can just submit 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 in network, the 40%, you're gonna have a higher chance of getting an investment. Like, the data just doesn't lie. We look at our funnel and analyze it. Because when you're seeing 3,000 deals, 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, who I was with this Weekend, was a LinkedIn inbound message. Right? Now, like, there was something about that message that got my attention because it's two co founders. One went to Harvard Business School, one went to Northwestern, and one of them worked at bank of America. Like, that's three facets of my life that overlapped. And so, like, I have more of an incentive to respond to this LinkedIn, you know, DM. So there has to be like a reason for an inbound or network. Like, we, you know, we still do deals that are inbound, but the network outbounds definitely have a higher conversion. And for us, we're way above like most VC firms. Like most VC firms are like 10, 20, 30% inbounds. And they're mostly focused on network, which is why the, the system exists where diverse founders are getting funding. Right. And so we, we're trying to be very intentional and say, hey, like, you know, we're successful African Americans and, and women. Like, we can't be naive and think that like, they just. Funding our successful networks of minority is 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 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, like, you don't have biases, like, all of us, as humans have biases. And so even if you're diverse and you're investing in diverse people, like, you're still going to have biases. You have to look at the data to understand how do I correct those biases. And, like, we've tried to do that.
- [16:44]
Bea Dixon
As much as possible, which is responsible.
- [16:47]
Henri Pierre Jacques
Yeah, it's extra work. So that's why people don't do it. Right. 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 to look at an 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?
- [17:10]
Bea Dixon
But you choose to do it, is what I'm saying.
- [17:12]
Henri Pierre Jacques
Yeah. Right.
- [17:13]
Bea Dixon
Which is beautiful. So I have an audience question from Lanise Logan. Lanise wants to know what would make a business unappealing.
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Henri Pierre Jacques
There's more answers to that than appealing.
- [17:26]
Bea Dixon
Right.
- [17:27]
Henri Pierre Jacques
Just because, you know, if we see 100 deals, we only invest in one. Right. So 99 of 100 are not going to pass. And I always tell founders, like, just because a VC pass or any angel passes, it doesn't mean you don't have a great business. Right. Ultimately, like, a deal we passed on last year actually is a unicorn now. And it breaks my heart. Like, it's just. It's just part of the game. Right? It's really. There's opportunity, cost, and ultimately I get down to three or four companies and they're all great. 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. 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 I would say, like, some of the big red flags, not knowing your numbers. Like, you have to know your numbers, even if it's early on, like, you don't have revenue, at least know, like, your projections and the unit Economics, I would say number two, having a deck that's just not designed like it's very clear that like you're the one who made the deck designs. And right there's like, you know, square, square images that were copied and pasted from Google versus like transparent images, like just taking that extra step. Particularly like if you're a consumer tech business, right? And you're telling me like, 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, because 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 going to 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 going to 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, like there are two different jobs here and raising capital is required to run my business. And like 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?
- [20:03]
Bea Dixon
Because it doesn't mean that you're not a good founder. But you probably need to up the ante and like, 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 gonna 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 a horse of another color.
- [20:47]
Henri Pierre Jacques
We're fundraising, right? And so it's like you go from 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 billions 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 that in, like, the challenges if you didn't have that natural instinct, right? Because, like, just as employees, like, you're not in many, many firms as employees, like, 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 principal or mid, you know, mid career level is, like 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. So that's a hard transition for. Particularly for a lot of younger founders who haven't, like, had that experience.
- [21:40]
Bea Dixon
It's an interesting transition, but it gets easier with time. It gets easier with time.
- [21:46]
Henri Pierre Jacques
I enjoy. I think fundraising is fun, honestly.
- [21:49]
Bea Dixon
Well, Ari, you don't count because you. You do this every day, you know?
- [21:56]
Henri Pierre Jacques
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 is your work. Fund. One fund. One fundraise was 18 months. I'm like, you're complaining about one month of fundraising, right?
- [22:11]
Bea Dixon
A proper fundraise can take that long. You know, diligence is the worst, but it's necessary. Henri, 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?
- [22:31]
Henri Pierre Jacques
Hmm. Future founder, I would say. And this is more like future just, like, people. Like, one of my biggest things. 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. So I honestly, I think it's for both. Like, when we're. When we were Fundraising. I mean, fun one. You think, okay, I'm gonna go to, like, black people, and they're gonna understand. And they know that, like, we don't get money. And, like, they were the hardest people to convince to give us money. Right in that moment, you have to, like, reminders. These are people who you're closest to. These are your mentors. This is your former bosses. Like, basically saying, like, 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. I was like, hey, like, you know, my best friend Z didn't invest. He's really well off. Like, who? Like, who's gonna invest in me? Like this? Like, I've known this guy for, you know, five, six years. And my dad was like, you know, ultimately, 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 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, like, there is an inner cockiness or confidence to you to say, I'm gonna go out and do something nobody else has tried before. Right. And you have to own that. You have to be comfortable with that. And now, like, there's balances of how you present that externally, but internally, you better have that full cockiness turned all the way up. Right. And you can dial it back. Yeah, that's like. That's the biggest advice that I've. I would give to either a VC or founder. I think it's just important for anybody who wants to go out and do their own journey and understand, like, how to take those nos.
- [24:41]
Bea Dixon
You gotta believe in yourself.
- [24:43]
Henri Pierre Jacques
Yeah. Before. And sometimes others have to believe in you before you believe in yourself.
- [24:48]
Bea Dixon
For sure, I agree. But I think, you know, 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.
- [25:09]
Henri Pierre Jacques
Nope.
- [25:10]
Bea Dixon
Nobody owes you anything.
- [25:12]
Henri Pierre Jacques
You take it personally, though.
- [25:14]
Bea Dixon
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 their move to do it is their money, is their capital, then they're gonna do it. But if not, that's their business. You know, they don't owe you anything. So I think it's important to walk in neutral.
- [25:45]
Henri Pierre Jacques
It takes time. Cause those first few you're gonna take personal, like, it's just no matter how much we tell you, it's inevitable. And eventually you realize, like, especially now, I'm on the other side and I'm investing in my friends and fund managers. And I have to. I just said no to one of my classmates from business school last week. And, 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, 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 explanation so that my friends or people who I know, who I think are going to think that I think I'm gonna give them money, don't feel the way I felt.
- [26:33]
Bea Dixon
Right. Which is beautiful.
- [26:39]
Sarah Lynch
We're going to take a quick break and be back with more from Bea and Henri.
- [26:51]
Bea Dixon
Have you had any companies that you pass by that you, like, kick yourself about now? Like, damn, I should have done that.
- [26:58]
Henri Pierre Jacques
Isusu, the one I just mentioned, that's a unicorn. So Abby and Samir lived in Harlem. Their office was seven blocks away from my house on 25th. 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 they're 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, you know, founder who has unicorn stat. Like, that's like what it's all about. And ultimately, like, our belief is like, if we believe in this market and we continue to be top players in the market, if the market rises, we will rise. Right. And so our, our goal is like, ultimately we want to have diverse founders just win and we want to keep being the best we can be. And like, if, if both of those go together, like, we're going to be better off long term. Right. So you kind of like, you know, you swallow your pride and you realize like, hey, you can't see them all. You got to support. Abby's a great friend. And then, you know, what you do is you go back and reflect. Right. And so we literally went back and we looked at the memo and we like asked ourselves, like, what do we miss? Like, what would we have changed today? Like, 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 invest in. And so it's really important to like, take the time to like go back. And like we do, we look at like our missed deals every quarter. And so like, you know, what are companies that we pass on that are continuing to do well? And like, 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.
- [28:46]
Bea Dixon
Yeah, it is. And not only that, they're going to need money again. Very likely.
- [28:50]
Henri Pierre Jacques
And if they exit, you know, you say close and they exit, they come back, they start a new company and you just give them money.
- [28:57]
Bea Dixon
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. You want to talk to those people every month or every quarter, get to know them. What's your thought process on that?
- [29:27]
Henri Pierre Jacques
Yeah, it varies so much by founder, I would say I haven't actually done this analysis but like of the. We've invested in 39 companies. I say out of the 39 companies, maybe six or eight, like we have known the founder for at least a year plus. Right. So the majority of the companies we've invested in, we've known the founder for weeks to months.
- [29:50]
Bea Dixon
Right.
- [29:51]
Henri Pierre Jacques
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 talk to the investors in the precede round, ask them like, hey, like how is the founder before selling and after selling? Because like what you say to me while you're fundraising is very different than how you are like after you're fundraising. And so we want to understand like how similar is that person? Or are they just like pitching me and acting really nice and being responsive because they need my money? Right. 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 like we've known for less 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's, you know, it could be uncomfortable like to give somebody $2 million that you met two weeks ago. Right. It's, it's, you know, I think about where we went From angel investing $25,000, then Fund 1, 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 100x increase. And as you scale, you actually get more comfortable being uncomfortable. And that's really powerful because like before to write that two and a half million dollar check, like 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.
- [31:32]
Bea Dixon
Can do diligence in two weeks, Henri.
- [31:34]
Henri Pierre Jacques
Yeah, I mean we've done. 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. Right. And ultimately, like, we have to make this bet because otherwise we're not going to, like, see it in the future. So, you know, 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 because it does work.
- [32:11]
Bea Dixon
Building relationships is important.
- [32:12]
Henri Pierre Jacques
Yeah, but the relationship, everything. Like my old boss used to always say, everything in life's a people's business. And it just couldn't be more true. Everybody's like, how's your job? What do you do? And I'm like, honestly, my job is just to meet as many smart people as possible. That's it. 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.
- [32:32]
Bea Dixon
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, do you want your founders to stay private, to exit, or to go public at some point?
- [32:52]
Henri Pierre Jacques
We always want you to exit because all of us need a return on capital. I would say when we first started, we thought that M and A would be the exit strategy. Like, if you look at, like the number of companies that exited, M and 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 you have to think about that, like, hey, what about this business do I think will enable them to be a public company? Right? And 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 a valuation standpoint? So like a valuation 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, etc. 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 accruing, like dramatically. You think about Airbnb and Zoom, et cetera. Like all these public exits are like multi, multi billion dollar exits, coinbase, et cetera.
- [34:15]
Bea Dixon
How do you prepare the founders that you work with? Right. Especially because your founders are kind of more. Are 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?
- [34:52]
Henri Pierre Jacques
Typically not at the stage we invest in. I would say the core questions we ask before we invest are, you know, 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 want to 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 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 0 to 1, right. And the next phase is 1 to 10, and then eventually it's 10 to 100 or 10 to a billion. So that's not a core part. But I think our best founders are always thinking about it, like, whether it's their data room's 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, right? And so it's like, if you're not thinking very long term, then ultimately, like, what's the point? In my, in my view, like, you don't raise a venture fund to have one fund. You're not going to make money on one fund. Like, absolutely. You've got to have three, four, five funds. And so for a founder, it's the same thing. Like, you shouldn't be making decisions based on them, but like, you're not starting a company and raise a seed round, right? 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, like, how do you think, like, your journey is going to get there? Right? And so I think visualization for anybody, for goals is important. So you better be visualizing, like, ringing the NASDAQ bell. What does that mean? Like, obviously you don't know exactly how you get there, but, like, you have some understanding. Like, okay, my, 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, visionary? Cause like, if you're not thinking in the future, then it's hard for us to like, give you millions of dollars.
- [36:54]
Bea Dixon
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. People have that frame of thought because they think. Do you understand what I'm saying?
- [37:10]
Henri Pierre Jacques
By the time you go public or get acquired, that frame of thought would have disappeared.
- [37:14]
Bea Dixon
Oh, it's died.
- [37:16]
Henri Pierre Jacques
Because, like, ultimately, you know, maybe you didn't realize when you raised the seed round and you gave up 15, 20%, right? But by the time you raise the A, the B, you know, you've gone from 100 to 30% or 20%, like, the, the mindset of you owning your business, like, you, you've realized, like, hey, that's not going to work in venture, right? And so, like, that might be an early hesitation, but I haven't seen that for founders, like, after they raise a series A, because I think, you know, reality sinks in pretty quickly. Like, you've got to scale this business because you're not going to have 50% of the company when it exits.
- [37:47]
Bea Dixon
Absolutely. It does come with time, you know, But I think in the beginning, you may not necessarily be thinking that way inside of that.
- [37:54]
Henri Pierre Jacques
Then you realize when somebody asks you for 10 to 20%, like, oh, yeah, with a straight face, you gotta make that decision.
- [38:00]
Bea Dixon
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?
- [38:17]
Henri Pierre Jacques
Yeah, I mean, the goal, as my partner Jared already says, is like, our goal is to get from high school to college, right? And that's lead 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 let's keep it, you know, 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 do I give you next year? Right. Hopefully I give you more than a dollar next year. So I'm growing as a customer. So what's your retention? What's your churn? If you're a 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, like, that's happening for most of our companies within 24 months. And so like, you got, you got to back into it. Okay, If I got to get to a million dollars of revenue in 24 months and I'm at zero, you can basically project out like, what your growth rate is to get to that in 24 months. Right. If I'm at this gross margin, I need to get to 50% gross margin. 24 months. Like, how do I take out my costs to get there? Right. So those are things that we're, we're trying to talk to our founders about. And it's, it's an art and a science, but like, you definitely want to 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?
- [39:55]
Bea Dixon
Mm, that's real. What would you say was the defining moment for you? You know, when you knew that Harlem capital was like on the trajectory? Like, you were, you were there, you were in it. Like you knew you were, you were winning.
- [40:10]
Henri Pierre Jacques
I mean, there's a couple Defining, like, what we call elevator moments. So one was when we decided to raise a fund. 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 want to. I. Like, I was. I don't want to recruit anymore. I can't work for non people of color. It's non starter. So I actually got a fellowship from HBS where they basically giving me money to 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 people were hitting us up, the market was liking us. And I was like, hey, you didn't get your job. I've got this fellowship. We're in two major publications. We don't even have a fund yet. 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 $3 million, and we came back to campus our second year of business school, and we started recruiting because we were like, hey, we can't graduate business school with $3 million. Like, you only get 2%, which is $60,000. Like, 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.
- [41:29]
Bea Dixon
I love that. Our first billionaire.
- [41:31]
Henri Pierre Jacques
Yeah, it's the first. And so it was like, that moment we went from 3 to 4 million, but that million dollars was worth 10 million. So, like, 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 the 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 so we literally, like, stop recruiting. We closed on $2 million 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 hand in there on Amtrak and screamed because it was just so significant. And so, yeah, those are, like, two of the moments I remember, like, vividly of, like, changing points, of, like, Harlem Capital's journey.
- [42:35]
Bea Dixon
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?
- [42:52]
Henri Pierre Jacques
Yeah. So we're. I'm actually working on our 2021 Diverse Founder Report, which is basically, there's 870 Black Latino founders who raised $1 million in the history of the U.S. 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, you know, four or five years ago, which is kind of crazy. And so I think it becomes, like, cyclical. And our founders, their friends now, like, they literally hang out together, you know, and then when other founders, like, see them, they reach out and say, hey, like, can we talk to you? Or can we talk to Harlem Capital? And you can't be what you can't see. Right? 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 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 investors. And so, like, we're trying to use our platform to inspire founders to create companies. And I think the flip side is also inspire more diverse investors because, like, Harlem Capital is not going to change this problem alone. Like, it's going to take any of us. And so, like, one of my product accomplishments, which I actually tweeted yesterday, is our internship program. Like, we've had 76 interns over the course of three or four years, 13 classes. And of those 76, 22 now work in venture capital. A number of them now, like, have gotten their MBAs and work at top firms. And, like, that's, like, super inspiring for me because now it's like, they're at all these different firms, female founders, fine, etc. And now they're, like, taking what they learned at our firm and whether that firm is diverse or non diverse, like, they're bringing that lens to that firm and they see deals, right? And so, like, that's the way, like, we can kind of get extra reach and expand the market even faster than just like, because we're only investing in 15 companies a year, right? Like, there's only so much.
- [44:55]
Bea Dixon
Not only that's a lot, it's a.
- [44:58]
Henri Pierre Jacques
Lot, but there's, there's only so much we can change in an ecosystem that does 4 to 5,000 deals a year when we're 15 of them, right? And so we need other people. And the way for us is like, our interns can be those, those nodes at other firms and if each of their firms has 15 deals, and now we've got 20 interns and the next year it's 30, now you've got 3, 4, or 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 intern program April of 2018 because we were fundraising. We're 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 like, since then, we've hired four of our interns to work for us full time, right? 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. Our funnel because we see so many interns.
- [45:58]
Bea Dixon
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?
- [46:11]
Henri Pierre Jacques
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 funnel or VC funnel for impact. 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 because, 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 Harvard and Yale studies, diverse founders hire more diverse employees, right? And so like, and diverse, if you're one of the early diverse employees, like, you have more equity. And if you have more equity in a business that's 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 new companies, 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, right? And this is, other communities have seen this for decades. And so that's like what we're focused on, like our belief is that the largest driver in closing the wealth gap is through equity and ownership. Right? And so unless, and you know, 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, you know, over time, like the wealth gap actually doesn't close that much. Like the largest driver of wealth income in the US has been home ownership and passing that to your next person. Many millennial millennials don't believe in home ownership. So I don't think that's going to change anything in the near term, right? So number two, after home ownership is equity in businesses, right? And so like it's pretty clear, like if I've stayed at bank of America, I probably wasn't going to 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.
- [48:55]
Bea Dixon
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?
- [49:32]
Henri Pierre Jacques
I love that you use humans over people. Humans of color is. That's fire phrase.
- [49:37]
Bea Dixon
Thank you.
- [49:39]
Henri Pierre Jacques
Yeah, I would, you know, I would say you can be targeted, right? Because I don't want to be hypocritical because we target people of colored women. Now the reason we were intentional about targeting black, Latino and women because, you know, people wanted us to target black people. We did the market analysis and we said, okay, well how many black founders are there that have raised 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. And it was pretty clear early on, like to us, at least based on our research, we could not be a black only focused 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 focused on black founders. Like it takes, 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 realized like, hey, we also need woman founders, right? And like who, like who is winning? Like, who is after white and Asian men which are by far getting the most capital? Like 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, like how do we segment in a way where it gives us room to scale, right? So I, I don't think there's anything wrong with funds or companies that are targeting super, super self segmented, whether it's the black community, Latin community, but you better understand, like what your skill assurance are. Now if you're an SMB and you're like, hey, I want to, you know, I want to, like, I'm on Amazon's business accelerator for black businesses and what they call, like tier one is if you have a quarter million dollars of sales or more means that that person can live like a life just off of Amazon. Right? So if that is your goal, like, that's fine, but you better understand, like, it's going to be really hard for you to build $100 million business if you have a subsegmented 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?
- [51:44]
Bea Dixon
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, you, your company can move faster if you're serving humans and you're not just focusing, you know?
- [51:58]
Henri Pierre Jacques
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. And it's like the reality 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.
- [52:26]
Bea Dixon
Henri, 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.
- [52:38]
Sarah Lynch
That's all for this episode of youf Next Move. Our producer is Matt Toder. Editing and sound design by Nick Torres. Executive producer is Josh Christensen. If you haven't already, subscribe to your Next Move on Apple, podcasts, Spotify or wherever you listen, your Next Move is a production of Inc. And Capital One Business.