Conceiving a product and turning it into a successful high-growth startup is challenging work, but it can be absolutely punishing for underrepresented founders. While a strong product and a great go-to-market is critical for early success, that’s not enough to ensure a successful venture capital fundraise. Instead, what often matters is building relationships with investors, and the evidence is clear that people love to work with people who look just like them.
In an industry dominated by white men, it can be hard for founders to find investors who look like them. That’s why Arlan Hamilton built Backstage Capital. Her firm’s mission is to provide early seed financing exclusively to founders who are women, people of color, and LGBT — groups that are massively underrepresented among Silicon Valley founders compared to the general population.
“I think the figures speak for themselves: less than .2% of all early stage venture funding goes to Black women, while we make up approx 8% of the U.S. population and are one of the fastest growing entrepreneur segments in the country,” she wrote in an email exchange with TechCrunch.
My colleague Megan Rose Dickey interviewed Hamilton early last year about raising her firm’s second fund. Dickey wrote at the time that “Hamilton wasn’t able to say the exact size of the second fund but says they’re the size of the catering budget for the Christmas party at Andreessen Horowitz.”
Well, that second fund has now launched and is targeting $36 million in commitments by its final close (Hamilton is continuing to fundraise). And unless A16Z’s Christmas party has gotten even more ritzy than I remember it, it appears that Hamilton has far exceeded her own expectations on what size fund she would be able to ultimately aggregate. The fund’s mission is to specifically focus on black female founders.
The burgeoning size of the fund can also be seen in the size of checks the fund is targeting. Originally, Hamilton said she wanted to target $25-100k seed checks. Now, she foresees the fund investing $1 million checks into 15-20 companies over the next three years, with the remainder of the fund reserved for follow-on investments.
While Backstage certainly has a mission, Hamilton sees a huge potential for outsized returns. “It is my firm belief that because Black women have had to make do with far less for centuries, equipping them with early stage capital that is on par with their white male counterparts has the potential to lead to outsized returns,“ she wrote.
Hamilton pointed to last month’s Vanity Fair spread featuring black women who had raised $1 million in venture capital. “While this was a proud moment for us all, I want to do my part to make sure that number reaches heights such that the next photo shoot isn’t contained in one single room,” she wrote.
The firm has invested in more than 80 portfolio companies, and Hamilton expects to make two or three seed investments out of this new fund by the end of the year.