200 investments in, Backstage Capital moves to fund only existing portfolio companies

Backstage Capital, founded by Arlan Hamilton in 2015, officially invested in 200 companies led by historically unknown founders. And that’s all, for now.

Going forward, the company will only invest in existing portfolio companies, which means that Backstage Capital will no longer make net new investments. The company says it will remain active and grow assets under management — including Comcast’s ongoing $30 million and $1 million opportunity fund — but that money will only be invested in follow-on rounds in Backstage companies.

While the Opportunity Fund is still in the process of being raised, Backstage plans to invest $250,000 to $1 million in 30 companies, and also set aside funds for follow-on funding. This check size is up from Backstage’s initial average check size of $40,000.

The change, which will be announced at Backstage’s stakeholder meeting later today, is a rare – if not unprecedented – move for a venture capital firm to take so publicly. The move might lead some to assume that the company’s pause spells trouble, as most companies are using growth investment vehicles to invest in existing and new portfolio companies. However, Backstage thinks it’s hit enough businesses, so far, to pause and look inward.

“There will be people who will take this negatively or take this as if we’re not active, and it’s anything but that,” Hamilton told TechCrunch in an email, noting that the investment cadence of Backstage exceeds other funds. “So we’re strategic and thoughtful in our approach, as we always have.”

Backstage gives a huge stamp of validation to its existing portfolio by betting the company’s future returns on the cohort. He noted that early vetting helped him earn spots in limited rounds, such as Career Karma’s $40 million Series B round. In an interview with TechCrunch, general partner Brittany Davis talked about the next phase.

“So I think about creating value, and I think in the beginning, creating that value was struggling with that notion of being a pipeline founder,” Davis said. “Portfolio 200 sort of responds to that – and the next phase is creating value for businesses.” Hamilton said she personally is an investor in more than 25 funds and owns more than 500 funds in Backstage’s co-investment network. Backstage thinks the details highlight just how many options there are for newbie founders that didn’t exist before. While this is certainly true, data shows that despite an uptick, historically overlooked founders still receive disproportionately less funding than their white male counterparts; it will always be important that there are more check writers dedicated to this cohort.

Backstage Capital says the change in strategy was not in response to the market moving towards more discipline. The majority of the portfolio is considered to be in the early stage, so partners consider their businesses to be insulated from much market movement; unicorns, on the other hand, have faced cuts after a pandemic boom.

“I’ve seen other investors talk about how they devalue companies or create a hierarchy in their healthcare portfolio based on who they’re going to be successful in, and we’re deliberately not going that way,” Davis said. .

That said, the firm is not the first institution to change strategy in recent months. Venture capital firm Homebrew announced in March that it would exit the “strictly seed-stage” investment stage and pursue an evergreen capital model independent of the stage. The company will also be self-funding for its next fund, only investing capital from general partners Hunter Walk and Satya Patel. The change gave Homebrew the ability to not be in constant fundraising mode and to invest without needing returns to be achieved within a specific time frame. Another institution, Techstars, announced a fund to support startups too soon, even for its own accelerator — joining a cadre of early-stage companies earlier to gong to gain a superior edge over late-stage-focused funds.

Christie Pitts, general partner at Backstage Capital, told TecCrunch the change reflects priorities. She said Backstage’s deal flow volume has been a “big lift to staying on top” with a small team and the company prioritizes energy for new portfolio companies they don’t. haven’t met in person yet.

Hamilton said only follow-on investment is the “strategy for the foreseeable future”. Still, the company has left room for exceptions to be made in the future.

“Doors are open at Backstage,” Pitts said. “We are not currently adding new companies to the portfolio, but we work every day to ensure that our companies are successful and we continue to provide resources to founders as a whole.”