Over the last two years, it has become clear that startup studios are the best way to create innovative companies. Since deal flow is like water to venture capitalists, we thought we’d outline a few ways to dip your toes into this fertile lake.
Let’s begin, however, with the reasons you might not have already invested. If you are a fund manager, you likely have a strict thesis to follow; studios aren’t included in that contract. Also, the cap tables of studios and studio companies cast a strange shadow. Last, you might not know any of us! That’s easy to remedy if you just wander on over to the GSSN website.
Now, every studio has a slightly different model, but the following three methods are likely to be used by a given studio. Studios are sometimes separated into operating companies (that actually run the studio) and a fund that owns the equity in the newly formed startups.
Direct Investment in the Studio
A big conversation in the studio crowd is how to obtain operating capital. Companies like Verdant can make a lot of hay with a million dollars or so. That operating capital can be traded for equity in the studio directly or as an LP in the studio fund. This vehicle entitles you to returns on everything the studio creates and is a superb way to establish a larger portfolio.
Invest in Post Studio Companies
The goal of startup studios is to create companies. After a period of nurturing the companies, they get spit out like college freshmen to make their own path in life. Mom and dad (here, the studios; we don’t employ founders quite that young) will spend the first six months looking to bolster their support network. That means finding investment. If you’ve developed a relationship with a studio, you’ll get an early look. At the moment, we won’t pontificate on the virtues of investing in post-studio companies, but it should be apparent.
This is the preferred model for many studios; one example is Wolves Not Sheep.
Build Your Own Ideas
Studios love to ideate. They attract creative, disruptive people who are motivated by big challenges. Many investors have ideas, but can’t commit time to operating a new venture. Try meeting with a studio that knows your market; there’s a high likelihood they may have technology chops to match your need and/or a willingness to build it.
As mentioned, studios are a diverse and creative bunch. The Big Dogs include Human Ventures, Pioneer Square Labs and prehype. But let me encourage you to reach out to several and make sure you have the proper fit. We at Verdant specialize in Enterprise AI — if that’s your liking. We hope to hear from you.