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

·4-min read

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

Going forward, the firm will only invest in existing portfolio companies, meaning that Backstage Capital is no longer making net new investments. The firm says that it will remain active and grow assets under management -- including the in-the-works $30 million opportunity fund and $1 million from Comcast -- but that cash will only be put toward follow-on rounds in Backstage companies.

With the Opportunity Fund still being raised, Backstage plans to invest $250,000 to $1 million across 30 companies, and also reserve funding for further follow-on funding. This check size is up from Backstage’s initial average check size of $40,000.

The shift, which will be announced at Backstage's stakeholder meeting later today, is a rare -- if unprecedented -- move for a venture firm to take so publicly. The move might cause some to speculate that the firm's pause means trouble, because most firms use growing investment vehicles to invest in both existing and new portfolio companies. However, Backstage thinks that it has hit enough companies, for now, to pause and turn inward.

“There will be people who take this negatively or will take this as us not being active, and it is anything but,” Hamilton said to TechCrunch in an e-mail, noting Backstage’s investment cadence outpaces other funds. “So we are being strategic and thoughtful in our approach, as we always have.”

Backstage is giving a huge stamp of validation to its existing portfolio by betting the firm’s future returns on the cohort. It noted that early checks have helped it land access to spots in limited rounds, such as in Career Karma’s $40 million Series B round. In an interview with TechCrunch, general partner Brittany Davis spoke to the next phase.

“So I think about creating value, and I think in the early days, creating that value was fighting this notion against being a pipeline founder, Davis said. “The 200 portfolio kinda answers that -- and then the next phase is on creating value for the companies.” Hamilton said that she is personally an investor in over 25 funds, and has over 500 funds in Backstage’s co-investing network. Backstage thinks that the detail underscores just how many options there are for early-stage 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's always going to be important for there to be more check-writers dedicated to this cohort.

Backstage Capital says the strategy shift was not in response to the market’s shifting to be more disciplined. The majority of the portfolio is considered early-stage so the partners view their companies insulated from a lot of the movements in the market; unicorns, on the other hand, have been dealing with cuts after a pandemic boom.

“I've seen other investors talking about how they are marking-down companies or are creating a hierarchy in their portfolio of health based on who they are going to succeed, and we are deliberately not going in that direction,” Davis said.

That said, the firm isn’t the first institution to change strategy over the past few months. Venture firm Homebrew announced in March that it would leave the “strictly seed” stage of investing and pursue a stage-agnostic, capital-evergreen model. The firm is also going self-funded for its next fund, investing capital solely from general partners Hunter Walk and Satya Patel. The shift gave Homebrew the ability to not be in constant fundraising mode, and invest without needing returns to hit in a specific time bracket. Another institution, Techstars, announced a fund to back startups too early for even its own accelerator -- joining a cadre of early-stage firms in gong earlier to get an upper edge against late-stage-focused funds.

Christie Pitts, general partner at Backstage Capital, told TecCrunch that the shift is a reflection of priorities. She said that Backstage’s deal flow volume has been a “big lift to stay on top of” with a small team and that the firm is prioritizing energy for new portfolio companies that they haven’t met in person yet.

Hamilton said solely follow-on investing is the “strategy for the foreseeable future.” Yet, the firm did leave room for exceptions to be made in the future.

“The doors are open at Backstage,” Pitts said. “We're not currently adding new companies into the portfolio, but we're working everyday to make sure our companies are successful and we’re still pumping out resources to founders as a whole."

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