Arlan Hamilton Wants to Change Who Funds the VC Industry

• It took Arlan Hamilton three years to get her first check to launch her VC firm, Backstage Capital.
• Now she intends to rely less on the institutions, known as LPs, that traditionally back VC firms.
• She hopes to become Backstage’s largest LP while opening up its returns to the average investor.

Much of the dealmaking in venture capital occurs long before founders pitch their startup ideas. Arlan Hamilton, the founder and managing partner of Backstage Capital, is seeking to open up access to the room where it happens.

The money venture capitalists put into startups typically comes from deep-pocketed institutions known as limited partners. For newer VCs seeking to raise their first few funds, it’s often a tough slog to find LPs.

Hamilton, whom Insider named to its list of 100 People Transforming Business in 2021, knows this all too well.

A former production coordinator for musicians such as Toni Braxton and Jason Derulo, Hamilton decided to become a VC after seeing the dearth of capital invested in women, people of color, and LGBT founders. She wanted to back underrepresented entrepreneurs like her, a gay Black woman from Dallas who gained her business acumen through real-world experience, not a college degree.

It took her three years to get her first $25,000 check for Backstage Capital. For a period she was homeless, couch surfing and sometimes sleeping on the floor of San Francisco’s airport.

Since then, Backstage has raised nearly $20 million from investors such as Marc Andreessen, Ellen Pao, and Mark Cuban, and invested in nearly 200 companies.

Still, six years after Backstage’s 2015 launch, the process isn’t smooth sailing. In 2019, the firm faced a hitch in fundraising after two prospective LPs backed out. Even now, Hamilton told Insider, she encounters LPs that view Backstage as a risky gamble.

“I’ve had one recently that just surprised me,” she said. “It represented so many calls that I’ve had over the years, but I just couldn’t grasp how we are still considered such an experiment and such a ‘We’re doing you a favor by having this phone call’ sort of situation.”

That’s why it’s Hamilton’s goal to become Backstage’s biggest backer herself. She began investing in its funds after increasing her income through activities such as public speaking, podcasting, and securing two book deals. She was the second-largest LP in Backstage’s $2 million Accelerator Fund, which the firm raised in 2019.

Hamilton has also written checks, ranging from $10,000 to $100,000, to some 24 VC firms, including Collab Capital, Lightship Capital, and January Ventures.

Having strong returns from Backstage would go a long way toward bolstering Hamilton’s ambitions to revamp her industry. The firm is young, and it focuses on the earliest investment stages, so it hasn’t had a splashy unicorn exit yet. But in a sign of momentum, several of its portfolio companies — including Hello Alice, Maven, PromisePay, and BookClub — have raised rounds of $20 million or more this year.

Hamilton hopes to bring along a broader group of investors for those successes. In April, she raised $5 million for Backstage Capital’s operations through a crowdfunding campaign. Anyone with $100 could invest, and nearly 7,000 investors participated.

Unlike traditional LPs, the campaign’s backers are contributing to Backstage’s operational costs rather than the funds from which the firm writes checks to founders. But the backers are promised a portion of Backstage’s carried interest — the firm’s share of the profits from its investments — and management fees.

“You’ll see the real impact in a couple of ways,” Hamilton said of the campaign. “One way is when we finally — whether it’s 2022 or 2023 — get to have a stakeholder meeting in person, and when you look around the room at the thousand-plus people who are able to make it, the room looks very different than most rooms with money in Silicon Valley.”