The last article in this series looked at problems Family Offices and smaller investment funds experience with finding expertise for their studios. This article dives into the next how to build and coach invested deals.
Exit Stats
Studies show studios around the world are getting a 34% exit rate.[1] But, what about the other 66% of their deals? Many of the startups working with studios are still building their company -- but – what if the studio could really accelerate those companies to exit?
Studio Goals
Ability to build and coach, or generate higher Alpha are reasons Family Offices and other investment funds add the venture asset class. Many fund managers believe they can realize higher multiples on their startup investments if they help them grow using a studio model. Let’s start by looking at what funds intend when they create a studio to build and coach their invested deals.
Starting with studio expertise, invested deals often receive a designated studio employee to guide them from their pre-seed through Series A rounds. This person often has many years of experience running startups and often one or more exits. Ideally, they also have matching domain and industry experience. The coach works with the founder several hours a week to prepare the business for the next round of funding. The augmentation provided by the coach accelerates the startup to revenue, raising and exit.
Define Mentoring
Now that we understand the studio’s goals, let’s dig into what a startup needs from a coach if the model is going to work.
· Expand the Vision: Most startups have an initial product vision. Effective studio teams embrace the founding vision, then build on it by suggesting additional markets, revenue streams or partnerships. Unfortunately, some studios try to apply the same methodologies to all of their deals, causing a loss of momentum and opening the door for competitors. This happens because the studio team is stretched too thin and doesn’t have time to give deals individualized attention. Effective studios refine and build out visions – they don’t overwrite them with cookie cutter approaches.
· Team building: Good studio coaches help founders grow and build their teams – not only helping them find people – helping them create a cohesive, high performing team. Studios should assess founder team member skills and strengths, then help the founding team understand how to work together. High performing teams accelerate growth and delight customers but lack of bandwidth or expertise needed to execute all facets of their strategy, often often means studios skip this important piece of the puzzle.
· Go to Market (GTM) Strategy: How will the startup generate revenue? How will it attract customers? What channels are appropriate for the Initial Customer Profile and what should the product cost? These are all GTM questions that studios should help their invested deals answer through rigorous customer interviews, A/B testing and pre-ordering. This is another area where studios often cut corners by applying the same GTM strategy to all of their portfolio deals instead of customizing the approach for each product.
· Provide Introductions: studios should have large networks and provide their deals with introductions to potential partners, vendors and service providers. However, many studios stop with capital introductions because their team doesn’t have the right industry or domain networks. Successful studios improve multiples by ensuring their deals have the endorsement of strong partnerships and suppliers.
Studio Reality
Unfortunately, small studios are stretched very thin -- one person often works with multiple startups while also participating in deal evaluation and internal projects. So, momentum is lost as founders wait for the studio to find and schedule time with Limited Partners or outside consultants. Bad decisions, that result in extra capital raises, are common and dilute the value of eventual exits. Additionally, lack of studio bandwidth means the studio and startup don’t enjoy the benefits of accelerated time to revenue.
Conclusion
Switching to a blended model that includes outsourced venture services adds fractional executives to help with tasks and projects. The fractional people may work with a portfolio company to assess team skills, develop the GTM strategy or evaluate 3rd party vendors – they augment the in-house team and ensure the startup gets to revenue quickly.
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