Kavin Lam
kavinlam.com
Aug, 2024
I wanted to learn how to build startups--a lot of them quickly. Venture Studios were the perfect place to do that. Unlike traditional venture capital firms or accelerators, venture studios are hands-on partners in the creation, development, and scaling of startups. They invest at the earliest stage and try to build a lot of startups.
Unlike traditional venture capital firms or accelerators, venture studios are hands-on partners in the creation, development, and scaling of startups. Through my experience at two different studios, I’ve learned valuable lessons that can help founders navigate these waters more effectively. In this blog, I'll share insights on how to approach deals, what to look for in a studio partner, and how to position yourself for long-term success.
Venture studios promise a lot: resources, expertise, capital. But what does it really look like on the ground? Here's what I've learned from working at two different studios.
Topic 1: Deals are Standard… Kind of
While deal structures in venture studios might seem standard, there's often more flexibility than meets the eye. The terms you agree to can significantly impact your startup’s future, so it’s crucial to understand what’s negotiable and what’s not. The right deal should make you feel confident and aligned with your studio partner. Remember, the value a studio brings goes beyond funding—it's about strategic support, resources, and network.
1. This is not YC: Some studio brands are more useful than others.
- Brand Value: Unlike YC, where the brand itself can open doors, the brand strength of a venture studio varies. Some studios have strong industry connections and a track record of successful exits, while others might be newer or less established.
- Assessing Value: Evaluate the studio's brand value critically. How well are they connected in your target industry? Do their previous startups have a strong market presence?
- Strategic Fit: Choose a studio whose brand aligns with your startup’s goals. A strong studio brand can enhance credibility, but it must be relevant to your market and customer base.
2. Later-round investors are suspicious of founders who own a very small percentage of their own company.
- Equity Distribution: When negotiating with a studio, be mindful of how much equity you’re giving up. Owning too little of your company can raise red flags for future investors, who might see it as a lack of commitment or over-reliance on the studio.
- Long-Term Implications: A deal that seems favorable now might limit your ability to attract investors in later rounds. Ensure that the equity you retain allows you to remain an attractive investment opportunity down the line.
- Investor Perception: Investors look for founders who have enough skin in the game to stay motivated. An overly diluted ownership can suggest you’re not fully invested in the company’s success.
3. Negotiate a deal that makes you feel good.
- Understanding Leverage: The negotiation is not just about money—consider the strategic value, network access, and operational support the studio offers. You have more leverage than you might think, especially if the studio sees strong potential in your idea.
- Tailored Agreements: Don’t hesitate to ask for terms that are specific to your needs. Whether it's more equity, a specific type of support, or flexibility in timelines, ensure the deal reflects what’s important to you.
- Future Proofing: A good deal is one where you feel confident not just today, but in how it sets you up for future growth and funding rounds. Think about the long-term relationship and how this deal positions your startup for success.
Topic 2: Understanding Their Model