Background Capital Fund 2

Last year, I launched Background Capital and debuted Fund 1: an $8.75m “angel fund” where every limited partner (LP) is a world class founder, executive, or super connector.

Amplified by this impactful set of LPs, I’ve been able to introduce portfolio companies to customers, advisors, funding sources, board members, employees, interns, and more. This approach has uniquely positioned me to serve the teams I back at any early stage: Friends & Family, Seed, Series A, and anything in between. Put another way, I am oriented around supporting the very best founders and opportunities.

Now I’m happy to announce Fund 2, a $9.2m “angel fund” with the same exact approach. Fund 2 also introduces some new LPs that were early investors in companies like Airbnb, LinkedIn, Pinterest, Slack, Snap, and Stripe; some of these new LPs have been individual LPs in top venture capital firms like Sequoia, Founder Collective, and Lowercase Capital Fund I (arguably the best performing early stage fund of all time).

Before I go any further, I want to say thank you so very much to every single founder I’ve worked with throughout my career. You are incredible.

And to the existing and new LPs who are here to help Background Capital’s founders: let’s do this!

Below I’ll cover how Background Capital works, the past year’s results at Background and my prior investing roles, what has happened in the broader market, what it takes to make this work well, and why I’m aiming to be the most founder-aligned individual investor.

The Past Year’s Results

Since the blog post announcing Fund 1 last year, a few things have happened:

• There have been 6 follow-ons in the first 5 quarters of Background Capital, led/co-led by top firms like Felicis, Founders Fund, Haystack, Initialized, Redpoint and Sequoia
• PillPack, sourced while I was at CRV for George Zachary, was acquired for "a reported $1 billion in cash" by Amazon
• Airtable, sourced at my prior firm for Max Gazor, was valued at $1.1 billion by Benchmark
• Zeit, which I led as founding investor (idea stage) at my prior firm, raised a $16 million Series B from Accel
• Instacart, advisor since before YC, raised $871m at a $7.87 billion valuation
• The previous angel investments I’ve made - Blockchain, Clearbit, and Webflow - continued their great momentum

What’s Happened In The Market

Nearly 10 years ago, venture capital firms responded to competitive pressure, accelerated by firms like Andreessen Horowitz, by starting to become value-add; each firm responded to the startup investment competition at different speeds and by choosing different strategies.

Now, due to the competition to invest in top funds, limited partners are similarly having to add value in order to access the very best funds. My fund’s approach is at the forefront of proving this out. And proving this out is important: if I can help cause the acceleration of value-add at another layer of capital, even more positive consequences should cascade throughout the startup ecosystem. It goes without saying that I disagree with the old saying that “all money is green.”

Like what happened with general partners at VC firms, so many more people will win when limited partners have to contribute more than a check and instead have to work harder and smarter.

Professionalizing Angel Investing

To make the most impact for founders, it helps to have the following on the investor side: founder experience, venture capital experience, a track record, the right incentives, independence, a long term approach, and a reputation built over time. More on why these traits matter:

• Founder experience: it helps to have been a venture and angel backed founder CEO. My company had its major ups and downs before pivoting and getting acquired by WordPress. I have literally “been there” and I made every founder mistake in the book.
• Venture capital experience: I was a principal and then a partner at CRV, a traditional, Boston-founded firm - this helps in understanding esoteric principles like fund construction, raising additional capital for founders, reserves planning, and so forth.
• Track record: in nearly 6 years overall of investing I’ve been quite lucky (already mentioned above).
• Be willing to do this full time: unlike fund scouts who work for an individual firm or angels who do this for fun and/or part time, this fund is how I pay the bills. I only succeed when founders succeed. This is my only professional focus and that matters deeply.
• Be independent: I don’t work for anyone and as a result, I am able to give dedicated support and independent advice that is truly aligned with a founder’s best interests.
• Have the desire to leave short term money/opportunities on the table: I’m exactly like the founders I’ve backed throughout my career. We could all make way more money doing something else, but we’re all going for the epic journey and the big win, not the easy and boring paycheck. Life is already way too short.
• Working behind the scenes: I am always “on call” and working for the founders I back - and I do that because I enjoy the work, not because I am looking to take a curtain call.

Goal: The Most Founder-Aligned Individual Investor

By making this is my full time profession and taking the same dilution as the teams I back, I am striving to be the most aligned early stage individual investor for the founders I support.

My goal is to be the best individual investor on any portfolio founder’s cap table. And my overall approach is delivering early results: great markups led by the best firms, strong reviews and referrals from founders, and increasingly proprietary and preferential access.

I am able to be “all in” because I have a wonderful, all-encompassing calling.

With that, I’m back to supporting those doing the real work: founders and their teams.

-Rafael

P.S. If you’d like to learn more, Background Capital’s new website is now live - there you can see and hear for yourself what the founders I’ve supported have to say about working with me in their own words.