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Curious what peoples thoughts are on this. One particular studio I have seen does extensive research into the idea, vets the candidate, and then gives 1-2M capi

Curious what peoples thoughts are on this. One particular studio I have seen does extensive research into the idea, vets the candidate, and then gives 1-2M capital. Issue is the cofounders (there are 2) only get 15-20%. Which does sound decent given you start right away with capital, but is terrible relative to raising that money yourself. What do people think about such a deal? As someone else said, this works for people that cant readily raise money, gotta wonder about the outcomes in such cases. But they take so much equity, hard for the fund to lose.

thruflo 4y ago
It’s very hard to align venture building with investability. The more equity the venture builder takes, the less attractive the business. If the venture builder may need to be washed out, it puts early investors at risk of being washed out with it. The less the people signing as exec founders on the investment agreement did to actually found the company, the less attractive the team. Evidencing the hustle to start the company is part of what sets a good founder apart. It’s not so much that 20% of something is worse than 80% of nothing. It’s that the vehicle is compromised from day one. You can mitigate this with traction but the model is a bit like trying to do a startup with one hand tied behind your back.
- fdgsdfogijq 4y ago
  There's a theory I have heard by the venture firm I am mentioning, which is that young smart and talented people are commonly locked inside some management consulting firm/elite career. They dont have the proper skill set (tech/startup) to start a company, but are highly capable. Funding those people (elite under grad, few years experience at McKinsey) can have a good outcome, and providing them a framework can lead to success. But what you're saying is the very act of hustling to get a business off the ground is a positive indicator, and without it, makes the idea/company non investable. Furthermore, the equity breakdowns make it less of an attractive investment in future rounds?? Appreciate your comment, trying to read between the lines of it
  - thruflo 4y ago
    Yes, exactly. There are no absolutes but normally fundraising is hard and you need to get 99 ticks out of 100. So starting with `x`s built in makes it tough. There’s definitely good people in academia and industry who could be great founders but need help cracking the “I can’t start a startup because I have money/life responsibilities” catch 22. But ultimately if the people who really hustled the company into existence are not the people in the founding team, what confidence do you have that the founding team will raise the next funding round and the one after that without needing their hands held? And if they have the personality to jump into other people’s vehicles then who’s to say they won’t jump out of this one when the going gets tough?
notfromhere 4y ago
So you do all the work of a founder, for way less equity, and the venture studio basically gets a huge stake for what amounts to a small seed investment. Why even bother when you as the fake founder can just...go out there and do this yourself? All the value is in execution, even an AI can spit out startup ideas
- saurik 4y ago
  Part of "execution" is having the right strategy, and presumably/hopefully (I doubt it) that is being provided as part of that vetting process; like, one could even imagine that vetting being sufficiently deep that the result is a nigh-unto turn-key product roadmap.
sergiotapia 4y ago
I've been approached by a company like that. They invest in "vertical SaaS". The deal was similar, they would have paired me (as CTO) and someone with business experience in the vertical as CEO. The starting equity of each cofounder would be about 20%. Salary, I'm not entirely sure but you're a founder right? Are you _supposed_ to worry about salary at this point? Anyway it didn't make much sense to me. I think I would be a bit unmotivated to get ready to rock as a "founder with 20%". Just feels weird you know?
- hyuuu 4y ago
  We may have conversations with the same studio and if you don't mind, can I reach out to you to get your opinions? I am actually rather tempted
  - sergiotapia 4y ago
    Yeah feel free to email me
gnicholas 4y ago
Does much of the $1-2M that is invested get paid back to the studio, in dev fees? I could see some founders falling for a trap like that, where it looks like you're getting a bunch of investment, but most of it is predestined to flow back into the studio's pocket.

thruflo 4y ago

It’s very hard to align venture building with investability. The more equity the venture builder takes, the less attractive the business. If the venture builder may need to be washed out, it puts early investors at risk of being washed out with it. The less the people signing as exec founders on the investment agreement did to actually found the company, the less attractive the team. Evidencing the hustle to start the company is part of what sets a good founder apart. It’s not so much that 20% of something is worse than 80% of nothing. It’s that the vehicle is compromised from day one. You can mitigate this with traction but the model is a bit like trying to do a startup with one hand tied behind your back.

fdgsdfogijq 4y ago
There's a theory I have heard by the venture firm I am mentioning, which is that young smart and talented people are commonly locked inside some management consulting firm/elite career. They dont have the proper skill set (tech/startup) to start a company, but are highly capable. Funding those people (elite under grad, few years experience at McKinsey) can have a good outcome, and providing them a framework can lead to success. But what you're saying is the very act of hustling to get a business off the ground is a positive indicator, and without it, makes the idea/company non investable. Furthermore, the equity breakdowns make it less of an attractive investment in future rounds?? Appreciate your comment, trying to read between the lines of it
- thruflo 4y ago
  Yes, exactly. There are no absolutes but normally fundraising is hard and you need to get 99 ticks out of 100. So starting with `x`s built in makes it tough. There’s definitely good people in academia and industry who could be great founders but need help cracking the “I can’t start a startup because I have money/life responsibilities” catch 22. But ultimately if the people who really hustled the company into existence are not the people in the founding team, what confidence do you have that the founding team will raise the next funding round and the one after that without needing their hands held? And if they have the personality to jump into other people’s vehicles then who’s to say they won’t jump out of this one when the going gets tough?

notfromhere 4y ago

So you do all the work of a founder, for way less equity, and the venture studio basically gets a huge stake for what amounts to a small seed investment. Why even bother when you as the fake founder can just...go out there and do this yourself? All the value is in execution, even an AI can spit out startup ideas

saurik 4y ago
Part of "execution" is having the right strategy, and presumably/hopefully (I doubt it) that is being provided as part of that vetting process; like, one could even imagine that vetting being sufficiently deep that the result is a nigh-unto turn-key product roadmap.

sergiotapia 4y ago

I've been approached by a company like that. They invest in "vertical SaaS". The deal was similar, they would have paired me (as CTO) and someone with business experience in the vertical as CEO. The starting equity of each cofounder would be about 20%. Salary, I'm not entirely sure but you're a founder right? Are you _supposed_ to worry about salary at this point? Anyway it didn't make much sense to me. I think I would be a bit unmotivated to get ready to rock as a "founder with 20%". Just feels weird you know?

hyuuu 4y ago
We may have conversations with the same studio and if you don't mind, can I reach out to you to get your opinions? I am actually rather tempted
- sergiotapia 4y ago
  Yeah feel free to email me

gnicholas 4y ago

Does much of the $1-2M that is invested get paid back to the studio, in dev fees? I could see some founders falling for a trap like that, where it looks like you're getting a bunch of investment, but most of it is predestined to flow back into the studio's pocket.