Backstage Capital (Raise Closed)
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Highlights
Company Highlights
- Venture capital firm that has invested in 160+ early-stage startup companies led by underrepresented founders.
- Focus on people of color, women, and LGBTQ+ founders
- Backstage’s first 100 portfolio companies raised a combined $250 million, adding 500 new jobs
- Secured big-name co-investors like Sequoia Capital, Techstars, Y Combinator, and Initialized
- Other investors include Marc Andreessen, Ellen Pao, and Stewart Butterfield
Offering Highlights
Product & Service
This company doesn’t sell a product or provide a service to consumers. Rather, it’s an investment adviser that’s focused on investing into startups led by people of color, women, and LGBTQ+ founders.
There are three parts to Backstage Capital’s business: a venture fund, an accelerator, and a crowdfunding platform. Let’s dive into all three below…
The Venture Fund: Backstage Capital
Since its founding in 2015, Backstage Capital’s venture fund has invested over $12 million in 160+ different startups led by founders who identify as women, people of color, and/or LGBTQ+. The company describes its investing approach as sector-and geographic-agnostics, meaning its portfolio companies are in nearly every industry and are headquartered in locations worldwide.
Backstage offers its investors the chance to see returns in two different ways: through carried interest and management fee splits.
Carried interest: This is the money that Backstage makes for managing its fund – about 25% of profits. In this unique deal structure, Backstage plans to carve out 10% of that for investors like you. So, as an investor, you’re not investing directly into the fund, but rather an entity that receives a portion of the carried interest.
Management fees are a “percentage of the assets under management (AUM) within the fund.” Let’s unpack that — AUM is the combined value of all the investments in Backstage Fund. Assets can be comprised of equity in startups, capital on hand, and other elements. So, if the combined value equals $100 million…the fund’s manager (Backstage Capital) gets a portion, in this case 2%. So, the manager gets $2 million. Backstage plans to split its management fees, with 90% going to Backstage Capital and 10% going to its Republic investors.
Right now, Backstage has approximately $13.5 million under management. But as the AUM grows, so will the management fee revenue.
Republic investors will also receive 10% of an unspecified portion of the carried interest from Arlan Was Here Investments (AWHI), a $5.6 million joint venture with Mark Cuban. Mark Cuban is the sole limited partner, or investor, in AWHI. See the full flow of funds here:
Venture firms like Sequoia Capital, Initialized Capital, Y Combinator, and Techstars have co-invested into Backstage’s portfolio companies. Additionally, Backstage’s investors include massive names like Marc Andreessen, Stewart Butterfield, Ellen Pao, and more.
The first 100 companies in Backstage’s portfolio have since gone on to raise a combined $250 million and have created over 500 jobs.
The Accelerator: Backstage Accelerator
In March 2019, Backstage Capital officially launched Backstage Accelerator in London, Detroit, Philadelphia, and Los Angeles. The team had previously announced its launch in 2018 at Techcrunch Disrupt.
The accelerator is a 3-month program. Backstage invests $100,000 into each startup, selected from a competitive pool of applicants. For its first cohort in 2019, Backstage reviewed over 2,000 different applications and accepted 24 companies.
During the accelerator program, selected companies have the opportunity to participate in hands-on mentorship experiences, develop mentor relationships, build their networks, prepare for and meet investors, and more. The accelerator was launched with three values in mind… that diversity is strength, that nobody succeeds alone, and that supporting startups is not a zero-sum game.
The accelerator program goes above and beyond the industry standards in terms of the percentage of underrepresented founders accepted to the program. Check out this chart:
The Crowdfunding Platform: Backstage Crowd
In June 2020, the company launched Backstage Crowd to allow both accredited and nonaccredited investors to invest into underrepresented founders alongside the Backstage team. Backstage Crowd is a syndicate, or an angel investing group led by a syndicate lead in which a group of people can invest together in one company.
In Backstage Crowd, the Backstage Capital team and Arlan select startups from their deal flow. After that, members of the Backstage Crowd syndicate can choose on a deal-by-deal basis whether they’d like to invest. Interested investors can apply to join Backstage Crowd via a short application hosted on the Backstage website.
Backstage reports that 55% of people involved in Backstage Crowd are non-accredited investors. The team’s goal with launching Backstage Crowd was to open up access to startup investing resources, education, and opportunities for all people who are interested… not just the already-wealthy.
Since its launch, Backstage Crowd has raised over $1.5 million for 10+ startups. Several of these companies already belong to Backstage Capital’s portfolio. According to the company, hundreds of investors have registered to be a part of Backstage Crowd.
Market Overview
Startup funding and venture capital boomed in 2020. VC funding to startups around the world increased by 4% from the year before, hitting a whopping $300 billion in total capital invested.
But there’s a massive problem. Despite its boom, only a sliver of that total funding went to founders of color, female founders, and LGBTQ+ founders… and this isn’t the first year that’s happened. In fact, lack of funding to underrepresented groups is one of the most chronic problems faced in the world of private equity.
A study conducted by DiversityVC and RateMyInvestor found that less than 10% of total VC funding has gone to female founders since 2014. Around 1% of venture capital-funded founders were Black, and less than 2% were Latinx. Backstage Capital reports that less than 1% of venture capital deals in the United States go to LGBTQ+ founders.
Approximately 91% of venture capital goes to men, according to Marketplace. Of that 91%, around 80% of those men are white. And 90% of venture capitalists themselves are men. All in all, a report from Morgan Stanley estimates that VCs lose out on around $4 trillion in unrealized value, simply because they lack diversity in both their decisionmakers and the companies in which they invest.
Diverse startups and venture capital firms tend to perform better than their homogeneous counterparts. And the numbers don’t lie…
West River Group reports that diverse founding teams are more innovative and see better business results. For example, diverse teams see 30% higher multiples on invested capital (MOIC) once a company goes through an exit event.
Startups with at least one female founder see, on average, 63% higher valuations than all-male teams. And finally, teams with at least one person of color see 65% higher valuations than all-white teams.
What does all of this mean? Well, not only do these data indicate that diversity is one of the most important factors for a startup or venture firm’s overall success… they also increase the chance of a profitable return for investors.
A 2019 report by All Raise, Goldman Sachs, and Pitchbook indicated that almost 70% of the top scoring angel investing groups and venture funds included female decisionmakers. In contrast, only 30.8% of them were all-male. Additionally, venture capital firms in the U.S. with a higher number of female partners performed with 9.7% more profitable exists than those that didn’t. And investments made by VC funds that lack diversity perform almost 6% lower than those that don’t.
That’s exactly why Backstage Capital sees investing in underrepresented founders as one of the biggest opportunities in venture capital. They believe that diversity is a competitive advantage, and that when underrepresented founders succeed, everyone succeeds.
The Backstage team, led by Arlan Hamilton, started this fund to do just that. They aim to provide necessary funding to founders of color, female founders, and LGBTQ+ founders, while opening the venture capital doors wider and turning traditional venture capital on its head.
Business Plan
Backstage Capital is in the business of investing in “underestimated” founders. These include people of color, women, and LGBTQ+ founders, all of whom are historically ignored by the venture capital community. Venture capital suffers from similarity bias. White male venture capitalists tend to invest in white male founders. This means that VCs as a whole are investing too much money in this demographic relative to its share of the entrepreneurial community. In turn, there is a massive under-funded pool of talented founders who are women, people of color, LGBTQ+, or part of a demographic overlooked by VCs. Backstage Capital believes investing in underrepresented founders is not only equitable but also potentially lucrative.
Backstage Capital, LLC, the entity issuing securities in the Republic campaign, is an investment adviser to the Backstage funds and other investment vehicles. As a venture capital firm, Backstage Capital manages investment vehicles, funds and special purpose vehicles (SPVs), on behalf of investors. Backstage Capital makes investments in early-stage companies through its investment vehicles. Backstage Capital, LLC receives management fees, typically calculated as a percentage of assets under management, from the Backstage funds. Backstage Capital LLC also receives a portion of the carried interest, or profits, from the underlying investments in the funds.
Backstage Capital plans to grow its assets under management (AUM) to $100+ million. This would increase its management fee revenue. With higher AUM, Backstage can make more investments and increase its probability of generating carried interest.
Competitive Advantage
Backstage Capital’s primary competitive advantage is Arlan Hamilton. This company is a great example of backing the jockey. Although the horse is also worth backing. Arlan does not fit the VC mold at all. As a Black woman and member of the LGBTQ+ community with no Ivy League education, Arlan hustled her way into venture capital with grit and determination. Arlan set her mind to starting a VC firm to give opportunities to people like herself, and she succeeded against tremendous odds. That’s the type of founder you want to back.
Arlan’s story has garnered a lot of media attention, which is a valuable asset in venture capital. In venture capital, you need investors so you have enough money to write meaningful checks, and you need founders worth backing. All the headlines and magazine covers have helped to spread the Backstage Capital brand, which is now attracting both investors and founders to want to work with Arlan and her team. In fact, Arlan manages a portfolio exclusively for billionaire Mark Cuban, and Silicon Valley icons like Marc Andreessen and Stewart Butterfield are investors in her fund.
Another competitive advantage is Backstage Capital’s focus on underrepresented founders. Most VCs are looking for the same types of founders, which is like fishing in a crowded pond. Meanwhile, Arlan and Backstage Capital are casting their nets into a wide ocean where few VCs are fishing.
Financials
Backstage Capital, LLC was formed in 2018 but is just beginning operations. The company does not have any meaningful financial history. According to employees of Backstage Capital, the company manages between $13-14 million as of March 2021. These assets are not held in Backstage Capital, LLC but in separate entities.
Backstage Capital Portfolio
Since founding Backstage Capital in 2015, Arlan and her team have invested in 160+ companies. Backstage Capital’s portfolio spans industries from AI to Wedding. Backstage has even backed several Angels & Entrepreneurs companies, including Dollaride, Fleeting, and PopCom.
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Team
Arlan Hamilton, Founder & Managing Partner
Arlan Hamilton is the Founder and Managing Partner of Backstage Capital, which she built from the ground up while homeless. She founded Backstage Capital in 2015 to minimize venture capital funding disparities that exist in the startup space for high-potential founders who are people of color, women, and/or LGBTQ+. In 2018, Arlan was the first non-athlete, non-entertainer Black women to be featured on the cover of Fast Company magazine. She also published her first book, It’s About Damn Time, in May 2020.
Prior to launching Backstage Capital, Arlan founded the blog “Your Daily Lesbian Moment,” which has a monthly readership of 50,000 people worldwide. She founded and published international indie magazine Interlude, and has written for several other publications like AOL, Curve Magazine, and SuicideGirls. Arlan is also a music professional who has worked with notable artists like will.i.am, Toni Braxton, and Jason Derulo. She was recently named as a member of Fortune’s 40 Under 40 list, and Vanity Fair’s The 2018 New Establishment List.
Christie Pitts, General Partner
Christie Pitts is a General Partner of Backstage Capital and CEO of Backstage Studio. She is an active startup investor and leads the Backstage global accelerator program. Christie came to Backstage with extensive experience in the startup space. Prior to Backstage, Christie was the Venture Development Manager at Verizon Ventures.
Brittany Davis, General Partner
Brittany Davis is a General Partner at Backstage Capital, bringing with her extensive experience in sourcing early-stage deals, conducting due diligence, and managing investment pipelines. Before Backstage, Brittany was a principal for #ANGELS, where she sourced startup investments and contributed to their #TheGapTable initiative. She was also a Manager at Village Capital, an Associate at Techstars, and a mentor at Startup Jamaica. Brittany is an entrepreneur who founded her own ecommerce startup, Runway Technologies. She worked in finance at Bank of America Merrill Lynch for five years.
Chacho Valadez, Principal
Chacho is a Principal at Backstage Capital and works as the Chief of Staff for Arlan Hamilton. Prior to working at Backstage, Chacho developed retail experience in a Sprint store in Detroit. He worked on side projects with Arlan and soon became a full-time employee at the firm. Chacho brings with him ample experience in working at SMBs, as well as experience in business development and sales. Chacho is the son of a U.S. immigrant and works hard to highlight diversity in the Latinx entrepreneurial community. He’s been featured in publications like Quartz, Inc., and Business Insider.
Deep Dive
Learn more about the offering before the Hot Seat Session. We’ll take you through our due diligence and the offering materials prepared for this investment opportunity:
Hot Seat Session
Tune in to see Daymond John and Arlan Hamilton discuss the Backstage Capital offering available through Republic.
| How to invest |
Final Take
Here’s the Research Team’s final take on Backstage Capital:
For the first time ever, Shark Tank’s own Daymond John presented a deal to the Angels & Entrepreneurs Network and to the research team. If you haven’t seen it yet, make sure you click on “Hot Seat Session” in the sidebar and check it out… you won’t want to miss the exclusive conversation between these two icons of entrepreneurship and success.
First, let’s dig into the deal terms. In this first-of-its-kind deal, investors will be entitled to a portion of the company’s management fees and carried interest. This means that as Backstage Capital grows its assets under management (AUM), its revenue from management fees will grow – and it will share a portion of that with Republic investors. Republic investors will also share in Backstage’s carried interest, or the profit made off of its investments. For instance, if Backstage buys equity in a company at $2/share and the company takes off and goes public at $20/share, Backstage will share some of its gains with Republic investors. As Backstage is able to invest in more startups, its chances of earning a profit will likely increase.
Arlan Hamilton’s journey to build Backstage Capital has been nothing short of amazing. But beyond that, we believe that Backstage Capital is tackling an important and potentially lucrative market opportunity. Daymond and Arlan brought up a great point during their interview: If roughly 30% of the U.S. population are white males, and up to 90% of VC funding goes to this demographic… logic dictates there’s too much money chasing those deals.
This unequal focus means there are many missed opportunities from women, people of color, and LGBTQ+ founders. Famed investor Howard Marks said, “You can’t do the same things others do and expect to outperform.” And as Daymond put it during his Hot Seat Session, Arlan’s approach is likely to unearth some “diamonds in the rough.” In fact, Morgan Stanley estimates that VCs have missed out on trillions of dollars by not funding a greater proportion of underrepresented founders.
In venture capital, a firm’s reputation is critical. You have to be known to get access to high-profile deals and attract investors to your fund. Backstage Capital and Arlan Hamilton have built a strong reputation. Arlan made history as the first Black woman to make the cover of Fast Company magazine who wasn’t an entertainer or athlete. Backstage has been featured in Forbes, Fortune, CNN Money, Inc., Entrepreneur and Quartz magazines. People like Marc Andreessen, of Andreessen Horowitz, and Stewart Butterfield, founder of Slack, have entrusted Backstage to invest their money. And firms like Sequoia Capital, Y Combinator, and Techstars have co-invested with Backstage Capital.
On top of that, we think the Backstage Accelerator will be a fantastic source of deal flow for Backstage Capital. It’s already attracted thousands of applicants, from which Backstage Capital carefully selected the top 1% to invest in and nurture through its network. This same network is growing through last year’s launch of Backstage Crowd, a platform hosting a community of accredited and non-accredited investors who want to invest alongside Backstage.
All around, this is an inspiring deal with the potential to produce life-changing returns. Backstage Capital closely aligns with Angels & Entrepreneurs in our collective mission to democratize startup investing. In our case, we’re focused on investors; in Backstage’s case, they’re focused on the founders’ access to capital. We can’t wait to see how Arlan and her team grow their business and put investor money to work.
To learn more about Backstage Capital and its current raise, click on “How to Invest” in the sidebar of this page. That button will take you to Backstage’s page on Republic. If you do decide you want to invest, just click the blue “Invest” button and follow the prompts. And don’t forget to come back and share your thoughts on this company in the Deal Forums.
Profit Roadmap
An angel investor typically sees a return when a company they invested in has a liquidity event. The most common liquidity event is when a company is acquired and shareholders are paid cash or stock in the acquiring company. Alternatively, a company may go public, and shareholders can choose to sell or hold their stock. An investment in Backstage Capital offers a different type of potential return.
As described above, Backstage Capital plans to share 10% of its management fees and 10% of its carried interest with Republic investors. At management’s discretion, Backstage will make yearly distributions to Backstage Capital, LLC investors. These distributions are comparable to dividends from a traditional stock investment. Backstage will most likely wait until the combined management fees and carried interest reaches $5 million or more.
For example, if Backstage generates $3 million from management fees and $7 million from carried interest, the company would return $1 million (10% of $10 million) to the Republic investors. Each Republic investor would get their pro-rata distribution based on how much they invested in the offering. Backstage intends to provide a 2-5x return on investment over the next 10 years by significantly growing its assets under management and investing in companies likely to generate carried interest.
SWOT Analysis
How to Invest
Sorry, this offering has closed. We’ll notify you if Backstage Capital opens another round. In the meantime, we encourage you to check out the other deal recommendations on the site!
Deal Forum
There are 2 conversations in the Backstage Capital (Raise Closed) Forum. Here are the latest:
Go to Forum60-Second Lightning Review
Data Room
Risks & Disclosures
The issuer only participated with respect to fact-checking. Aside from content directly attributed to the issuer, all other content, including opinions contained within this communication, are attributable only to the publisher, and wholly independent of the issuer.
The following risks were taken directly from the Company’s Form C filing. For a more comprehensive discussion of risk factors that could have a material adverse impact on the Company, please refer to the Company’s Form C filed with the SEC.
- The Company has a limited operating history upon which you can evaluate its performance, and accordingly, its prospects must be considered in light of the risks that any new company encounters.
- Global crises such as COVID-19 can have a significant effect on the Company’s business operations and revenue projections.
- The amount of capital the Company is attempting to raise in this Offering may not be enough to sustain the Company’s current business plan.
- The Company may face potential difficulties in obtaining capital.
- The Company’s success depends on the experience and skill of its manager and other key personnel.
- Although dependent on certain key personnel, the Company does not have any key person life insurance policies on any such people.
- As a portion of the Company’s revenues rely on the profitability of the Backstage Funds, the Company is subject to numerous risks generally related to investing in securities and other investments, and the additional risks associated with investing in non-marketable securities and other non-public companies.
This website features investment recommendations, research and analysis by the A&E team. You should always do your own due diligence before deciding to invest, and rely solely on information contained in the investment documents provided to you by the issuer. Private investments carry significant risk. Do not invest more than you can afford to lose. If you have questions about an investment’s suitability for your specific situation, we recommend you consult a licensed investment adviser. Information on how to invest in each featured deal contains a hyperlink to the issuer’s fundraising page, a page outside of Angels & Entrepreneurs’ control.
Contact
Navigate to Backstage Capital’s official website by clicking here.