10 tips on how to attract investments to the Startup Studio
Chances are you're reading this because you're an early-stage studio are hugeee! Because when the machine starts rolling, you don't need to read this anymore. So here’s my top 10 in no particular order.
Btw: these tips are not just from my experience but from interacting with dozens, maybe even hundreds of studios over the years. I’ve also had the opportunity to visit studies like Idealab, Betaworks, PSL, Human Ventures, Enhance and many more. Contributed to the Morrow legal council to standardise studio structures and host sessions on studio organisational structures.
Btw: these tips are not just from my experience but from interacting with dozens, maybe even hundreds of studios over the years. I’ve also had the opportunity to visit studies like Idealab, Betaworks, PSL, Human Ventures, Enhance and many more. Contributed to the Morrow legal council to standardise studio structures and host sessions on studio organisational structures.
This article was written by Michael van Lier.
Prepared for publishing by Max Pog.
Prepared for publishing by Max Pog.
1
Your Structure Doesn’t Matter
Of course, it matters, but not to get the first few investors onboard. You're just boring them with your know-how of newly found legal knowledge. They don't care, really they don’t. They do care when you're scaling up, but the first set just needs simplicity and relatability. You're a builder, remember, not a financial structuring wizard. Stick to your story and have a structure that works for you today and is relatable to your investor audience.
It's okay to start with a holding of companies first and scale up with your own fund later. Remember that these might be totally different investors, so focus on what's on your plate for now and the next 2 years.
It's okay to start with a holding of companies first and scale up with your own fund later. Remember that these might be totally different investors, so focus on what's on your plate for now and the next 2 years.
2
Go Deep on Investor Persona
Not just thinking, "Hey, I need exit founders, unicorn brothers!" Sure, if you sold a company at a 100m valuation, that is your persona, otherwise, they’ll pass. By the way, you wouldn’t be here if you did. So, which animals do you hunt for? Of course, depending on your scope, but most of the early investors in studios are operator investors. Entrepreneurs who are still operating a company and have made great profits in the past or just sold a company.
Why? They understand the intricacies of building a company, and they still remember the early days of struggle and how a studio could have solved those. Most of the time, they’ve put their capital into lowish-risk PE or real estate. They miss the connection to the entrepreneurial journey but don't want to spend the time directly investing themselves.
Okay, that's the beginning of a persona. The main thing here? Their hopes, dreams, pains, and reliefs should fit your studio. Just reaching out to funds claiming that you know how to make deal flow for them is just plain bananas. Your deal flow will be nonexistent if you don’t get the right investor persona onboard.
To make life easier on yourselves, think of founders who sold to private equity and have also exited from the platform their company became part of. Most of the time, this is published in a nice PR article with some background story for you to start the convo with.
Why? They understand the intricacies of building a company, and they still remember the early days of struggle and how a studio could have solved those. Most of the time, they’ve put their capital into lowish-risk PE or real estate. They miss the connection to the entrepreneurial journey but don't want to spend the time directly investing themselves.
Okay, that's the beginning of a persona. The main thing here? Their hopes, dreams, pains, and reliefs should fit your studio. Just reaching out to funds claiming that you know how to make deal flow for them is just plain bananas. Your deal flow will be nonexistent if you don’t get the right investor persona onboard.
To make life easier on yourselves, think of founders who sold to private equity and have also exited from the platform their company became part of. Most of the time, this is published in a nice PR article with some background story for you to start the convo with.
3
Outreach Works, It Just Does
Yes, we all want warm introductions, but they don’t just happen. Till that time, outreach to the persona that works for you and start with your story, tweet (Xed?) sized. The form doesn't matter, text, mail, LinkedIn. Within your network, the persona is ready to receive your message and hear your story.
Are they asking if you're looking for investment? Yes, of course, but start with a convo on the companies you're creating and that their insights are valuable to you because it fits with this persona. And taking that story and telling them there's also an investment proposal which you're curious about learning why it doesn’t fit them, will get you in. At least enough times to sharpen the story ;)
Are they asking if you're looking for investment? Yes, of course, but start with a convo on the companies you're creating and that their insights are valuable to you because it fits with this persona. And taking that story and telling them there's also an investment proposal which you're curious about learning why it doesn’t fit them, will get you in. At least enough times to sharpen the story ;)
4
Storytelling works, It's the only thing that works
Early days of your studio, you have nothing to show for. Yeah yeah, you’ll grab those articles from amazing studios that went before you and the billion-dollar valuations their portfolio has. I know, I'm also impressed by what they’ve achieved.
Heck, I’ll just stun the investor with our models, playbooks, and processes. That will impress them. You know what, we have the best founders, really. I know that all matters, but it's not what sells. What does? Your story.
Tell the person you're talking to your life story and how that ties into creating a studio. Do you have multiple partners in the studio? Shout out Sharon! Make sure to include them in that story as well. This will do wonders, and here’s the real magic. Ask for their story, doesn’t matter who goes first, but do set the scene for them to tie their pivotal moments to yours.
Bonus tip: Feels like the vibe is off? Great, this is not a storyteller or buyer and you should move on.
Heck, I’ll just stun the investor with our models, playbooks, and processes. That will impress them. You know what, we have the best founders, really. I know that all matters, but it's not what sells. What does? Your story.
Tell the person you're talking to your life story and how that ties into creating a studio. Do you have multiple partners in the studio? Shout out Sharon! Make sure to include them in that story as well. This will do wonders, and here’s the real magic. Ask for their story, doesn’t matter who goes first, but do set the scene for them to tie their pivotal moments to yours.
Bonus tip: Feels like the vibe is off? Great, this is not a storyteller or buyer and you should move on.
5
Talk to VCs as Much as You Can
Really? Yes, it's true that most VCs are looking at studios from a distance and won’t finance your studio to begin with. What? But they are a perfect match, well, you're not to them. They're not a fund in fund and they will wait till you pickup the phone for a startup to spin out. Yeah, but then I won’t call them! You will. So why talk to them as much as possible?
There are a few reasons. When talking to the GP, you’ll pick up on their tone of voice, use of words, type of questioning. The insights you gain there are the ones you should use as replies to your own investors. You think you figured out that investors want builders, they do, but they want you to speak banker to them. Observe and adapt.
The VC wants you to build great companies, and want the cap table to work. I haven’t run into a VC that says no to a great deal when they feel they could fix the cap table. All other reasons are polite no's, no matter how you cut it. Having the conversation about equity splits is going to be very important in your pitch to your own investors and believe me, also to the founders you partner with. It’s okay to say to the investors, this is how we structured the studio for the first few years and after that, we’ll set up a fund that takes a piece of the pie next to the studio. That would make more sense, doesn’t it? I even applaud you for trying to skip VC altogether, if that's your story, stick with it.
There are a few reasons. When talking to the GP, you’ll pick up on their tone of voice, use of words, type of questioning. The insights you gain there are the ones you should use as replies to your own investors. You think you figured out that investors want builders, they do, but they want you to speak banker to them. Observe and adapt.
The VC wants you to build great companies, and want the cap table to work. I haven’t run into a VC that says no to a great deal when they feel they could fix the cap table. All other reasons are polite no's, no matter how you cut it. Having the conversation about equity splits is going to be very important in your pitch to your own investors and believe me, also to the founders you partner with. It’s okay to say to the investors, this is how we structured the studio for the first few years and after that, we’ll set up a fund that takes a piece of the pie next to the studio. That would make more sense, doesn’t it? I even applaud you for trying to skip VC altogether, if that's your story, stick with it.
6
Studio Equity is Rare and Sexy
Yep, I said it. Equity in the studio operations company is sexy. But you do have to make sure that it's rare first. In all studio structures, the common shares are kept at the studio level, when a fund is involved they will own a piece of the studio and a piece of every startup created. When you’re starting off a studio without a fund, the investors are directly on the cap table of the studio.
That means that they are on the same level as the studio partners. Do you think that happens in a fund? No, they are limited partners in a fund. So, when kicking off, explain how rare this opportunity is and, when possible, create investment rounds with up-ticking valuations. Yes, there's not always an exit window for their investment, but that also means that they’ll enjoy returns for as long as you build, sexy eh?
That means that they are on the same level as the studio partners. Do you think that happens in a fund? No, they are limited partners in a fund. So, when kicking off, explain how rare this opportunity is and, when possible, create investment rounds with up-ticking valuations. Yes, there's not always an exit window for their investment, but that also means that they’ll enjoy returns for as long as you build, sexy eh?
7
It Takes 2 Conversations, Maybe 3
We know fundraising is a numbers game, yes, you can better the odds with good first results, stories, or whatever. In the end, it's important to be scarce with your time and have a process in place to get to an answer. I’m not the best at this because it requires you to ask for the investment sooner than you might want.
The magic number is somewhere around the 2nd or 3rd conversation. This doesn’t mean the money is wired right away; it means you build further relationships based on the fact that if all good, an investment may follow. My go-to is not asking for a yes but to chase the no’s, hard. Why wouldn’t this be a great investment for you? Interesting, you might be right there, can’t fix that, but I can reply to your other points. Would that weigh heavily on your decision? What would make up for that? Just chase the no’s; it'
The magic number is somewhere around the 2nd or 3rd conversation. This doesn’t mean the money is wired right away; it means you build further relationships based on the fact that if all good, an investment may follow. My go-to is not asking for a yes but to chase the no’s, hard. Why wouldn’t this be a great investment for you? Interesting, you might be right there, can’t fix that, but I can reply to your other points. Would that weigh heavily on your decision? What would make up for that? Just chase the no’s; it'
8
This is a Startup Studio, Not a Startup
In all cases, emerging studio managers are still figuring things out, I know it's just like a startup, I know. The thing here is that a studio takes 4 years to show results that matter to the investor, so sell the 4 years! This is a longer runway than startups raise for, and you can raise it in a few rounds, but sell the years. Because every studio will hit a dead zone where there’s not enough to show for and there’s a lot of cash needed to fuel the beast.
Reward early investors and explain to later investors the cadence of studio building. Yes, some investors will dig and grill you on the early results, you need that. Zoom out when possible, show the improvements made to the studio, what have you de-risked in the last year, what will you de-risk and achieve next year. Remember, this thing has a longer maturity time, but it's worth it; it's sssexy.
Reward early investors and explain to later investors the cadence of studio building. Yes, some investors will dig and grill you on the early results, you need that. Zoom out when possible, show the improvements made to the studio, what have you de-risked in the last year, what will you de-risk and achieve next year. Remember, this thing has a longer maturity time, but it's worth it; it's sssexy.
9
Founder Positioning
Maybe I should have started with this one. We’re all consumers in some way or sorts. So when your studio founders are fundraising, they should have a voice and speak out loud on their beliefs. Getting touched by your content and the network around you. Claim your spot and make sure to openly communicate to the world.
This should not be your full-time job, but spending a day a month to create some killer content won’t kill you. In this day and age, we want to be relatable, and it's not just your investors. Your founders will definitely need you to be out there, else your funnel will dry up fast. So tell your story to the world and be sure to include your founders in it.
This should not be your full-time job, but spending a day a month to create some killer content won’t kill you. In this day and age, we want to be relatable, and it's not just your investors. Your founders will definitely need you to be out there, else your funnel will dry up fast. So tell your story to the world and be sure to include your founders in it.
10
Founders
This is a hard one. You're a startup studio, so basically, you're a startup or founder factory. It's easy to see the founders as raw materials that go into your factory and shiny startups come out the other way. I know you don't feel like that and mean well, but it's paramount that you choose a side with your founders.
You are their partner and are on the lookout for them. They are not raw materials; you empower each other to reach greatness. How do you use this when talking to investors? Humanize everything you do. For example: we’ve created these stage gates so that we can't work on the shiny object we don't need yet ;) I mean, we’ve all done that, right? Or.. the stage gate is there to make sure the founders stick to the program, nah..
Make sure to be a Builders, not a banker.
You are their partner and are on the lookout for them. They are not raw materials; you empower each other to reach greatness. How do you use this when talking to investors? Humanize everything you do. For example: we’ve created these stage gates so that we can't work on the shiny object we don't need yet ;) I mean, we’ve all done that, right? Or.. the stage gate is there to make sure the founders stick to the program, nah..
Make sure to be a Builders, not a banker.
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