The following is from my pov and does not necessarily reflect the opinions of all Backstage’s employees, investments, investors, or community members.
While I don’t pay much attention to trends in venture and startups, I have been paying close attention to waves and patterns of sentiment and intent since I discovered Silicon Valley. In the summer of 2015, before I had raised a penny towards the more than $10mil I’ve raised to date for my fund Backstage Capital, I wrote a blog post called “Dear White Venture Capitalists…”. In it, I shared my vision for what the next 5+ years might look like, and what could be done in the present to catch the wave while there was still an opportunity to do so.
I mentioned a few things that at the time may have seemed light years away for some, but are things we have come to know as almost mundane just a few earth years later:
- We aren’t talking about diversity, and if we do, it’s in hushed tones
- We should be screaming to the rooftops that there are financial returns being left on the table due to our lack of these conversations (in fact, only Digital Undivided, Kapor Capital, and Intel Capital are really making waves here).
- There should be at least 50 Seed deals/year in minority-owned startups, if it’s to be fairly compared to U.S. demographics
- Established firms should hire more women and poc check writers and decision makers
- Savvy LPs should and are going to get more and more insistent that funds are allocated more fairly and broadly
Welcome to 2019 where we are in the thick of it (!) thanks to the hundreds of new/promoted investors and dozens who were always there but now have the spotlight. So much has happened in the past 4.5 years since writing the original post, and yet so much remains to improve. On a personal note, I love that I said 50 Seed deals should happen per year and Backstage has done an average of 30 pre-Seed and Seed deals per year since 2016:)
Let’s levelset: Between Backstage Capital, Backstage Accelerator, and ArlanWasHere Investments, we’ve invested in 130+ companies since Fall 2015. Approx 10% of those companies have gone under since, 2% have raised more than $10mil and generated millions in revenue, ~68% are still active and generating revenue, building their teams, raising, bootstrapping, etc, and ~20% will, in my opinion, be ready for Series A funding in the $1mil to $10mil range, or Series B funding in the $5mil — $30mil range in 2020.
Recently, there’s been some talk about the quality of investments Backstage and I have made over the past few years. This comes from all over, and it is all unsolicited opinion. While I don’t agree with the negative opinions, and ignore most of it, I respect everyone’s right to critique, and as I’ve said in the past, I do not feel above reproach. So fair is fair, and I can not control other’s opinions of me, the fund, or our strategy.
What I can control is what I choose to let you in on. Much of it is internal, behind the scenes, and frankly no one else’s business, but some of it, I think is crucial information for the greater ecosystem of underrepresented, underestimated founders and funders, so I’d like to share briefly.
Help, or get out of the way.
That 10% of companies I mentioned above — the ones that have had to fold, and close up shop — those have been tough for the founders mainly, and for the employees, customers, and supportive investors. And because Backstage has a large portfolio — much larger than most funds, especially of our age and especially of our size — we feel and experience these “losses” on a pretty intense scale. Instead of 1 of our 20-30 companies going under once per year, 1 of our 130 companies is going under per quarter. And spoiler alert: I expect this percentage to ramp up in 2020. Pick up your pearls, and let’s talk about why.
Since even before I raised my first dollar for Backstage Capital — hell, even before it had a name! — it was being judged and measured to a double standard. The goal post has been moved more times than I can count since this journey really got under way in 2013, and it’s become par for the course to be all at once canonized and villainized, praised and mocked, and ultimately…misunderstood.
But the bottom line is that 30% of all startups “fail” within their first year, and 50% “fail” within their first five years. We met many of our founders their first few months in, and in other cases they had been around 1–3 years when we made our first investment. So statistically, and compared to other VC firms, our portfolio founders are KILLING IT.
They’re envisioning, creating, and building companies that 10 years ago they may not even have imagined they could work at, let alone spearhead. From beauty products to deep tech digital health, financial inclusion platforms to next generation VR and media, to proprietary satellite technology that will empower millions more to have wifi over the next few years, they’re working on elegant solutions to complex problems, with a fraction of the resources they deserve and need. We haven’t even touched on the systematic and institutional racism, sexism, homophobia, misogyny, ageism, etc that they have to deal with. That would take an entirely new post.
I just wanted to lay that foundation for you, that in a sea of funds of our size and much larger, our stats are more than healthy. They’re impressive. And they’re downright staggering when you think about the companies and founders we have helped get discovered and highlighted. There’s a fine balancing act between boasting and staying tastefully behind the scenes, and the former is what attracts the most ire and disdain from my contemporaries and critics alike. But let me tell you something: I’ve been seeing into the future and around corners for years, we’ve executed on the impossible, and we’re thrusting hundreds of underestimated founders into the limelight. So love it or hate it, the impact is undeniable, and I am not ashamed of it.
Let’s be real here. When you see a fund celebrate an acquisition or a major round of funding, you’re seeing their best foot forward. But statistically, all funds have companies who have to fold, companies that do ok, and some funds also have companies that outperform. Day in and day out, that’s the game of venture capital.
At Backstage, there’s steak atop the sizzle. Indeed, for every headline, tweet, or photo you see, there are 10x other moves being made behind the scenes. The founders we have invested in and their companies are, too, playing the long game.
And that 20% group I mentioned earlier is incredibly exciting (as is everything in between). I’d love everyone to understand that this is a long game. We are playing in decades, not quarters. So, while we watch headlines of other funds raising tens of millions of dollars while our prospective anchors continue to retreat, we are not seething, we do not look at this as a failure on our part, or even as competition. We think of them as benchmarks and milestones along the larger journey.
All boats rise with the tide. And we’ve been stocking our yacht for quite a while, steady, and ready.
At the end of the day, I believe three things are true:
- Our returns will be outsized and remarkable because some of the founders we’re choosing are going to outperform their circumstances,
- It may take longer than “normal” to achieve this, because nothing we do as underestimated founders and funders is status quo,
- I don’t mind that.
And while we have the receipts safely locked inside our hearts and minds, we press on. Cardi B wrote on her Instagram a few days ago: “Never get the credit I deserve, if it wasn’t for me, you b*tches wouldn’t be heard.”
If you’re agitated by us for whatever reason, please know this is because we are agitators by craft and necessity, tilling the soil, so that in due time we can enjoy the fruits of our labor, and more importantly, prime fruit and oxygen from others (yes, even you) can be planted with less stress and friction. In other words, you can say all day long that you hear about Backstage too often, but the truth of the matter is, you DO hear about us. Which means you hear about our founders, and their products, and their companies, and we’re talking about things we never have in a way we never thought possible. I literally know of people who have their current jobs because of Backstage’s existence and agitation in the ecosystem, but who disparage us at any opportunity. And I am no longer able to sit idly by and tolerate the insult and insinuation.
The intricacies of what I do on a daily basis — the ecosystem building, the financial stakes, the risk taking, and pace at which it’s done, the space of which we’re expanding, the dodged daggers, the collective spinning plates that have not been dropped, the elegance of design and the nuance of knowing who’s throwing the daggers, yet still in some cases doing this all for them too, the humanity in which it’s all done… your favorite critic could never.
Each time Backstage passes on a deal that would bring us great returns but may not fit our thesis or agenda enough, or each time we say we won’t invest in Startup A just yet because their founder is a white woman and we haven’t invested in a woc in the same lane, we are looking at the positive return that will bring us and others a decade from now. We are not mourning the return we would have made the next quarter had we done it a different way.
At the same time, we are not martyrs, taking it all for the team. There’s strategy upon strategy, lanes being built upon lanes, strings being pulled from this side and that. One of my favorite pieces of strategy has been in quietly personally investing in other emerging funds for the past 1.5 years. That’s what happens when you’re measuring time and impact with light years, and not earth years: in other words, if you’re seeing a headline from us today, it was already written in the stars.
In 2015, I wrote about a lot of things I predicted that have ended up coming true. Here’s what I think will happen over the next 5 years:
- More white women will do well, opening the door for more woc to do well. Remember, the most important thing here will be that there is strength in numbers, so we can’t be siloed. We must work together. Bottom line.
- Impact LPs will start to outnumber and overrule LPs who have done the status quo for years, if not decades,
- Next generation leaders will emerge in their family offices, and they will care about sustainability (cause this is their planet when we’re gone),
- Next generation leaders will emerge in their family offices, and they will care about diversity — because the U.S. will be a minority-majority within just a few decades and 18–35 year olds are going to fall in love and have children in a very different world than their grandparents. Family and love above all else drives financial decisions at the end of the day),
- Racists and sexists in business will become fossils at an accelerated rate,
- There will be more Black and Brown angel investors than ever before, which will beget more power than ever before,
- Venture capital will be considered a consolation prize, with bootstrapping, angel rounds, equity crowdfunding, responsible b2b lending platforms, our new president’s forward-thinking on entrepreneurship, and things I haven’t even imagined ruling the day,
- In 2020, there will be more rounds of funding with funders from several countries than ever before,
- Celebrities and entertainers will become more and more investment-savvy, and will no longer rely on “middle men” gatekeepers to find their deals. There will be more elbow grease and less blind faith,
- We are all going to optimize more for FUN, PERSONAL DEVELOPMENT, GOOD ENERGY, SHARED BENEFIT, and IMPACT than ever before, because we’ll be seeing our impending doom and mortality more than ever, so these things will have more leverage than they ever have before,
- It’s going to be one hell of a party on that yacht of ours!
- We know what we’re doing.
Invest in Backstage founders by becoming customers or equity investors. Reach out to BackstageCapital.com/contact for more info. Meet us on tour in 2020 at Backstage.com/Tour2020. My new book It’s About Damn Time is out on May 5, 2020. Pre-order it at prh.com/itsaboutdamntime. My podcast YOUR FIRST MILLION is available weekly wherever you stream your favorite podcasts.
