Senior Writer and Editor, Strategic Communications, U.S. Chamber of Commerce
May 05, 2021
When Brittany Davis, general partner of Backstage Capital, first got involved in venture capital she started to notice a striking discrepancy. Minority, women, and LGBTQ company founders—despite having great ideas and detailed business plans—often faced an uphill battle in securing capital to grow and expand their businesses.
“I began my career in a very traditional finance role, but I was always acutely aware of the funding gap for black entrepreneurs, in particular,” Davis says.
Statistics back up what Davis had noticed in meeting after meeting: the vast majority of funding was going to white male business founders. According to Davis, less than 10% of all venture capital, by dollar amount, goes to women, minority, and LGBTQ founders. A crunchbase study found that since 2015, $15 billion has been raised by Black and Latino founders, representing just 2.4% of the total venture capital raised over that time.
To Davis, this is a huge, missed opportunity–not just for the founders–but for job seekers, local communities, and the overall American economy.
“Morgan Stanley’s study showed that about $4 trillion in GDP is lost because of the lack of capital that’s going to business creation from diverse individuals,” Davis says. “By undercapitalizing huge groups of people, we’re effectively holding everyone back and we’re missing out personally from innovations from these groups.”
In 2015, when Arlan Hamilton founded Backstage Capital, she had a goal of helping fund 100 firms led by traditionally underrepresented founders. The company reached that goal in 2018 and now has invested in more than 180 companies. One of the companies they helped secure funding for is CurlMix, a subscription box service for curly hair delivered straight to customers’ homes. Backstage Capital were the first investors in the company. Today, CurlMix—which was featured on Shark Tank—has $1 million in sales, 10 full-time employees, and recently secured a second round of financing.
Backstage Capital has also helped many other companies find funding including Dollaride, which is developing the digital infrastructure to make public transit more accessible to those living in “transit deserts.” Carrot, which partners with companies to expand fertility coverage for employees, is another company Backstage Capital has invested in.
Christie Pitts, general partner at Backstage Capital, says that if a company wants to truly scale—and potentially go public with an IPO—it needs venture capital.
While Backstage Capital is mindful of its mission, the company is laser-focused on doing what every venture capital firms does: make money for its investors. Competition is fierce and prospective clients are carefully vetted based on their market opportunity, ROI potential, competitors, overall value proposition, and “grit.” The company meets with thousands of companies seeking venture dollars every year but ends up investing in less than 2% of them.
“We’re a venture fund and we are trying to return money to our investor base,” Davis says. “While there is huge social benefit, this is a strategy where we believe we can have outsize returns by exclusively focusing on these groups.”
For those looking to secure funding, Davis has some advice: start planning to raise capital now—earlier is better—because you will need it down the road.
“When you’re building a business, you might have a gap of capital where you don’t have cash flow yet, but you’re building this business that can be high-growth, eventually employ people, and build a product,” Davis says. “You want to be in a position where you’ve demonstrated enough before going to a venture capital firm. You’re in the best position for fundraising when you don’t need capital as much.”