Absolutely love the insight of Matthew Burris about #VentureStudios. I often get skeptic views from founders or potential LPs on a founder's committment to their start-ups when they are part of a studio. Matt explains masterfully why a founder would want to co-found with a venture studio. Iwona Kerr Rina Bansal Houda Benjelloun Slam Laqtib Ali Mouline Aboud Jardaneh Salim Hassad Hatim Chraibi Yahya Hakimi Abdallah Bari - Ph.D.
VC’s often object to the studio cap table. Not enough founder equity they say! But founders might have 20% more with studios. 👇 The studio is taking a massive cofounder level equity stake. That means there is no way that the founders have more equity in a studio portfolio company. Right? In absolute terms, Yes. The founders in studio companies have less collective equity than the founders in traditionally funded companies. Here's the catch. No founder makes their long term stay with the company decisions based on how much equity their cofounders have. They focus on their own. And you should too. Because here is the little secret. Studio portfolio companies have fewer founders. The studio takes the place of one or more cofounders. And that is the magic. They make ideal cofounders. Experienced, strong network, investor relationships, industry connections, they bring a team to build, and funding for the company and to give founders salaries from the beginning. Here’s specific scenario: Two cofounders vs Studio & Solo Founder All founders (studio included) take 50% common stakes. The two cofounders follow the traditional route, go through an accelerator (7% & $150k uncapped note with 20% discount), raise $300k with a 20% discount from angels, $1.25M on $8M valuation from pre-seed VCs (15.63%), $3M on $14M from Seed VCs (21.43%), and $8M at $40M valuation from Series A investors (20%). The first 5 employees take a 3.5% stake before a 15% options pool is established at the pre-seed. The next 5 employees take 1.15% from the established options pool. These values are based on data from Carta and typical target investment ownership targets from VCs. The Solo founder cofounds with a studio, immediately sets up a 15% options pool before taking $750K at $5M valuation with a no discount from the studio, skips the accelerator, angel, and pre-seed funding round, picking back up with the Seed and Series A on the same terms. The first 5 employees are largely filled in by the studio team, dropping the equity needed to 2% and maintaining the 1.15% for the next 5 employees, all of which comes from the options pool. Results? The two cofounders each have a 23.37% stake at the Seed and a 18.41% stake at the Series A. The founder with the studio has a 28.82% stake at the Seed and a 22.70% stake at the Series A. The founder that partnered with the studio has a 23.3% better equity stake. 23% better! Real life cap tables will be messy. And each studio takes a different approach to their deal and the support they provide. The fact is that studio founders can very well wind up with more equity working with a studio that not. It requires a deeper look. What do you think? Is it worth the look? P.S. Model available now. Link in the comments. ___________________________________ Connect or Follow @MrBurris Want to see all my posts? Ring that 🔔 and Follow #SavvyTinker #startupstudio #entrepreneurship #venturestudio #startups #vc