As the number of Venture Studios offered by Family Offices and smaller VC grows, their quality and ability to deliver positive investment outcomes often fail to meet expectations. Studios established to get early deal flow, develop founder ideas into viable startups and mentor invested deals toward exits often underperform. Underperformance comes in many forms – too few deals in the pipeline, taking months to move from idea to revenue, and lower than expected exit values. This article explores alternatives to a full studio model for FAMOs and other venture investors. Why Small Studios Underperform Opening a traditional studio starts with hiring seasoned startup veterans and support teams. A properly staffed studio includes staff members with previous experience as CEOs, CTOs, or CFOs along with staff with domain experience in health care, fintech, AI, etc. Large fund studios employ 6 to 18 full-time people plus Entrepreneurs in Residence.  The average annual budget for a studio is $2.49M ( 1 ) . However, for funds with AUM under $100M, carry/ management fees don’t support the number of studio employees needed -- so they end up taking out loans or understaffing the studio.  To stay within their budgets, many funds cut the number of studio headcount and rely on Limited Partners to fill the gaps. They also generalize the Executive in Residence (XIR) role and assign multiple startups to each XIR. Under resourced XIRs struggle to pull in the LPs or perform critical due diligence steps. Since FAMOs average 17 direct investments ( 2 ), under resourced studios also lack time to help their invested companies grow or pivot to profitable exits. Improving the Model Studio 2.0 reimagines the studio as a core team of direct hires supplemented by a large team of outsourced fractional CXO services. This, retainer-based model provides funds with the breadth of experience and domain expertise they need at a fraction of the cost of hiring their own team.  The outsourced team helps with all stages of deal pipeline including preparing invested deals for their next round or exit. This model provides help from an experienced startup CEO, CFO, COO or CTO in increments that fit the specific situation. Each month the in-house studio team works with an engagement manager to schedule services needed, and set up calls/meetings with prospective and invested deals.  The outsourced services are paid by monthly retainer -- this allows the fund to change the roles and time commitment every month while keeping their expense line predictable.  Conclusion Traditional studio models with large in-house teams and budgets work well for large funds – but Family Offices and smaller funds need a new, more flexible model that controls outside service costs while providing ever changing domain and sector experience. Retainer based, outsourced studio services are a great solution. About the Author Deborah helps investors select and activate start-ups for investment by identifying, evaluating and growing startup ideas. Her previous experience includes executive and C-level roles at nine startups, four of which had exits. Deborah holds a BA in Economic Theory, and an MBA. Outside of work, she enjoys Dragon Boating and volunteering with an animal rescue organization.

The first article in this series looked at several problems Family Offices and smaller investment funds experience with the studio model. This article dives into the first problem – expertise – in depth and shows how Viaduct’s outsourced venture studio services augment in-house talent. What is “Expertise”? The venture studio thesis assumes assembling a team of seasoned startup experts adds value through: Improved deal flow and deal evaluation, and Improved ability to mentor and nurture invested deals to higher exit values. However, many studios fail to define what expertise means in their environment – they look for roles or skills instead. While roles and skills are important, focusing on expertise helps the studio drill into what they really need to succeed.  Let’s imagine you are creating a posting called “CFO experience at a FinTech industry startup”. The questions you should answer include: FinTech is a sector comprised of solutions for banks, allocators, consumers, financial markets and payments. The posting needs to represent the expertise needed by your portfolio companies. Are you looking for someone who knows how to do taxes, initial deal documents, manage a team of analysts, HR people and facilities, or do your startups need someone who can coach a junior person into a CFO role? Do you want someone who likes to go deep into projects or someone who likes to delegate? How do you figure this out? It starts with your portfolio of prospective and invested deals – what do those deals need to mature to successful exits? What skills does the team need to pick the best deals for initial and ongoing investment? What if you invest in more than one sector – can you afford to hire someone to cover each sector? Most studios quickly realize the varying needs of their deals won’t be met by one person – so who should be hired? The Expertise Matrix To help you effectively hire, in a blended model that combines in-house and outsourced venture services, we recommend charting the expertise needed by each portfolio company (or portfolio industry sub-segment). You should try to hire the skills that appear most often, and a person with strong team coordination skills --  then use outsourced venture services to fill in the gaps. How it Works Once you have your in-house person, your outsourced venture services provider assigns an engagement lead to work with your team. Your in-house person and engagement manager create and use expertise charts to identify fractional executive needs and areas where the same person can help multiple portfolio companies. Together they assign fractional executives to help with tasks and projects. The fractional people may work with a portfolio company to handle one call, or work part-time on a project for several weeks – they supply the specific expertise needed for the specific amount of time needed to help the startup thrive. Your in-house person then facilitates communication and meetings between fund management, startup leadership and the engagement manager or fractional executive. Conclusion The hub and spoke model of outsourced venture services helps family offices and smaller funds provide the right expertise, in the right amounts to accelerate investment and activate profitable exits. Working with an outsourced venture services provider like Viaduct is cost effective way to expand the expertise on your team and become a preferred investor for startups in your sector.

Family Offices and Venture funds create studios to improve ROI. However, setting a fixed process for growing portfolio companies can slow growth or miss opportunities to improve exit multiples. This article looks at how to recognize a bad or mis-matched process, and use consultative relationships to improve our chances of a great exit. Defining “Exit” Today we’re talking about an early stage investor’s exit. Pre-Seed through Series A investors generally try to reduce or realize their investment when the startup hits Series B. They usually do that by selling their interest to a larger fund. The amount they earn from their investment, the carried interest, is generally expressed as a multiple of their initial investment. For example, an investor who invested $10,000 and is paid $30,000 for their shares had a 3X return. Whether or not that’s a good return depends on how long you had to wait to get the return. If you were able to cash out after two years – that‘s a good return, if you have to wait ten years, maybe not. So early investors have an incentive to accelerate their invested deals to the fund’s exit series. Obvious ≠  Easy Obviously  getting your invested deal to your exit point faster improves your returns and  obviously  an invested deal with better financials improves your returns – but how do you pull these levers? If you are a FAMO or VC you may staff a studio with experienced Executives in Residence (XIRs) then ask them to accelerate their assigned deals. You may also ask the XIRs to use a standard, milestone-based process to help you measure exit readiness. On paper this sounds great and in practice it sometimes works – but often it actually slows down deals. Let’s look at these fails in more detail: 1.  The studio mandates the same process for every deal in the studio . This gives you a sense of control but often results in growth delays as founders and XIRs perform tasks and complete reports that really don’t apply to their startup. Meanwhile, new steps or activities that would accelerate the deal are skipped because they aren’t part of the mandated process. 2.  The XIR applies a process from the wrong domain . Most XIRs spend their careers in one or two verticals, finance, healthcare, or consumer goods, for example. Unless you are very selective about your investments, the startups assigned to an XIR can quickly drift away from that person’s expertise. However, the XIR may continue to use the process that worked for their previous vertical – which either wastes time or skips steps. 3.  XIRs are responsible for too many deals.  When an XIR is stretched across several deals, the XIR will naturally try to standardize their process for getting their deals to exit. Even within the same industry vertical, deals may need very different approaches so “rinse and repeat” fails to achieve the expected exit multiple. 4.  XIRs rely on LPs for help . Not only does every LP try to apply their own process, there’s a power mis-match inherent in the relationship that ties the XIRs hands. The XIR may see the LP's process is slowing the startup down but be powerless to intervene since the fund is worried about losing future investments from the LP and his/her network, if the XIR is perceived as rude. The solution is professionalizing the XIR’s network – adding an outsourced studio service that easily blends into, augments, and influences the XIR’s process. There are several benefits to a retainer-based relationship with outsourced studio: 1.  Cohesive team  – agreeing upon and using the same processes. 2.  Speed  – drawing on a large talent pool with diversity of industry and experience to quickly provide talent while the engagement manager onboards each person into their role and the process the team is using with the deal. 3.  Ongoing relationship  – the outsourced provider helps the XIR look ahead to needs several weeks out and prepares support in advance, the engagement manager becomes a trusted advisor to the XIR. 4.  Best practices  –   when the in-house XIR knows the process needs adjustment, they can turn to their outsourced partner for help. 5.  The XIR controls the relationship  – because they have authority over the outsourced service provider (unlike the XIRs relationship with LPs.)  Conclusion  Every deal is different and should be taken to exit using a customized process for company growth and leadership development. XIRs trying to do this alone often lack the experience and resources they need to succeed. Using an outsourced studio service supports the XIR while leaving them in control.

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. [1]   https://polymathv.com/library/articles/6-reasons-venture-studio-mode