What is your investment thesis?
Backstage Capital focuses on investing in companies led by underrepresented founders (women, people of color, and LGBTQ+). Most of these founders have been overlooked or underestimated, whereas, as Brittany Davis (General Partner) puts it, “We make it our intention to find these founders.”
We find founders who have good metrics, and we try to stay “industry agnostic,” meaning that we don’t want the industry to play a large role in our decision. We often discover these founders at their early stage and track them for a few years (often investing in them at least one round prior to presenting them to the syndicate), which means that when we present them to you, we’re confident that it’s a great investment opportunity.
Backstage Capital examines traditional investment criteria (team, addressable market, idea, competitors, etc.), while also pattern matching for grit. We’re attracted to strong founder/product-fit, and are hyper-conscious of those indicators that may slip by a more traditional critique.
What is Backstage Crowd? What is a syndicate?
Backstage Crowd is the name for our syndicate. An investment syndicate describes several people (usually accredited) joining forces to invest in one company. In this case, Backstage Capital & Arlan choose from the “deal flow” (the traffic of businesses to invest in), and then investors (you) will choose whether you want to invest on a deal by deal basis.
What is an accredited investor?
The SEC defines what it means to be an accredited investor.
In general, accredited investors meet one or more of these requirements:
- Make $200,000 in annual income as an individual
- Make $300,000 in annual income with a spouse
- Have at least $1 million in personal assets (not including your permanent home)
- There are other ways you can qualify (see your CPA or legal for more info)
Backstage Crowd works with approximately 1,000 accredited investors on 2-3 deals per month. For non-accredited investors, we carefully curated recommended public crowdfunding deals from our portfolio and deal flow, and link those non-accredited investors to these deals on 3rd-party sites (like republic.co, Wefunder, and SeedInvest).
While we must work within the confines of the SEC’s definitions of accredited investors, we are hopeful that one of two things will happen: either you eventually become accredited by these criteria and we will meet you when you do, or the SEC will change the criteria sooner than later. (For more information on Arlan’s thoughts on this, listen to her guest episode of NPR’s Marketplace
Does everyone on the Backstage team have to be all-in on investment decisions or is it a majority vote?
At Backstage Capital, our partners have autonomous investing abilities, but we always collaborate on making decisions. You can rest assured that by the time the syndicate (you) sees the deal, we’ll be all-in as a firm.
Can I sign up if I’m outside the U.S.?
Yes. It will be almost the same process, but you may need to prove your accredited status in a different way through our third party back office.
What is the minimum amount for each deal?
It will vary, but generally it will be $1,000 to $2,000 minimum per deal. In some cases, it will be as much as $5,000 or $10,000 depending on the deal terms.
How many people can invest in each deal?
Previously, it was only 99 (legally), but it’s now 250. Here’s how it works:
If Backstage Capital agrees to support a business, we may negotiate the ability to invest $500,000 out of the $2 million the founders need. Backstage Capital will then take the business to the syndicate (you), providing company information, deal terms, and supporting documents including a Backstage-generated investment memo. Then, the members of the syndicate (you) decide whether you each want to invest. Usually 30 - 100 individuals will back each deal at $2,000 - $4,000 average, with as little as $1,000 (if the minimum) and as much as $50,000 depending on individual preference.
Backstage Capital manages the deal top to bottom, and the Backstage investment shows up as 1 entity on the company’s cap table (which they appreciate!).
How many deals per year do you plan to present?
We see ourselves doing 30 to 50 deals per year, but it depends on the deal flow, the appetite of the investors, and how long it takes to close each deal. As a case study, between June and October, we had 10 deals, for a total of $1.6M invested.
Do I have to upload documents every time to show that I’m accredited?
In order to verify you are accredited, you will need to upload documents the first time you make an investment. After that, you will need to keep your information current every 3 to 6 months. If you already have accreditation from a third party like AngelList, that is acceptable. The amount of time allowed between needing to upload will depend on which method you choose to prove accreditation. More details inside the deal rooms.
Will the syndicate invest on the same terms that Backstage invests?
Yes, if Backstage invests in the same round as the syndicate, we will be investing under the same terms. Please note: our information rights will be different than the syndicate’s in most cases.
How involved can we be? How can we interact with the companies?
After each deal is officially closed and wired, Arlan contacts each syndicate member who invested and lays out the details of what can be expected when it comes to updates from founders. So far, founders have chosen to either update once or twice per year via Backstage, or to have direct communications with syndicate investors. Generally, it is expected that syndicates have limited contact and updates, since we want founders to be able to focus on their work.
Any round focus?
We generally take Seed, Series A, and Bridge rounds to the syndicate.
Can you speak to assumptions about timelines of returns and payouts?
Venture investing is inherently risky and illiquid. Payouts will be on an individual basis. A lot will be early stage, so that investment will be illiquid for several years.Keep in mind that the process will take time, and there’s always a chance that some businesses will go under. You should think of these investments as a lottery ticket: there’s no guarantee you’ll get your money back.If you have the means, we encourage you to spread your investments out over a few different opportunities.All payouts will be handled by our back office, Assure.
Am I able to invest through my IRA?
How often do you think there could be investment opportunities for non-accredited investors?
Generally, 1 to 2 x per month.
Will you send opportunities to the syndicate that Backstage Capital doesn’t intend to participate in itself?
No. Backstage Capital won’t ask the syndicate to take a risk with a company that we decided to pass on.
Will the syndicate deal include information rights?
That will be determined on a case by case basis. In many cases, there will be extremely limited information rights for the syndicate.
I feel out of my depth. What resources do you recommend?
JOIN BACKSTAGE CROWD
To start, we highly recommend Arlan’s book It’s About Damn Time
. If you want to learn more about investing, Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist
by Brad Feld, and Angel: How to Invest in Technology Startups
by Jason Calacanis all offer great advice and information for both new and veteran investors.Arlan’s podcast, Your First Million
, has 3 great episodes to dive into, including this
interview with Jason Calacanis, this
interview with Paige Craig, and this hour
with Arlan on syndicate strategy.