We talk to startups and investors, you get the value.
We talk to startups and investors, you get the value.
Over the past months, we have released a series of articles on venture capital studios, having analyzed them literally from A to Z. We studied the history, principles of work, sorted out the names and famous projects that came out of the studios. In today's final article, we will take a look at the work of a startup studio from the inside. Together with the CEO of Rocket DAO Gabil Tagiev we’ll take a sneak peek into Founders Club venture studio.
Startup studios are the solution to the age-old "pain" of startups. At the initial stage of working with a project, you have to deal with literally everything, but there is a desperate lack of money and time. Accelerators and incubators have been previous attempts to address this issue. Venture studio is a new model, which is perfectly tailored to help founders take care of their main task: testing hypotheses.
“Any startup is a hypothesis testing pipeline. But if it’s developing independently, the startup team is forced to do everything from management and networking to fundraising. All these additional tasks are often solved at the expense of the main one. Moving towards creating a product, founders miss out on the major things. They do not study competitors and the market they are entering. A startup studio helps to focus on the main thing — crystalizing your idea".
We’ve already had a long read about the IdeaLab of the Gross brothers, telling you how startup studios appeared. Today we’ll look into the story of a particular venture studio with Gabil Tagiev to see how it started.
According to Gabil, Founders Club startup studio naturally developed from several experienced entrepreneurs mentoring young projects that asked them for help.
“It all started a couple of years ago. Back then we had not yet identified ourselves as a startup studio. Projects turned to us for (mainly mentoring) help that is one of the most important startup requests. The second request is investments. We helped to raise money with the help of the investors we know. And, of course, networking. Eventually, these “three pillars” formed the basis of our startup studio when we decided to streamline and structure this work”.
Atilla Sighetti, the founder of the Hungarian startup studio Drukka and the author of the first book about venture capital studios, Startup Studio Playbook, tells a similar story of the "spontaneous emergence" of his startup studio. His co-founder Tamas Boehner, an experienced entrepreneur, invested in startups and looked for ways to do it most efficiently. Their own venture studio gradually developed from his personal advice and assistance to startups.
In a nutshell, we do this in accordance with the “mentoring-networking-investors” formula. Let’s have a look at how this works in more detail.
Mentoring. Each founder works on a pitch deck of their idea with a mentor — an experienced entrepreneur. Founders and the mentor have a lot to take care of: checking the market, analyzing users, looking for their competitive advantage, working on the weak points of the idea ... All this in order to create a strong vision that investors will believe in and which will be able to guide the team in difficult moments. After several pitch decks, when the idea of the product is well developed, the team moves to the next level, namely investment for their MVP fund.
“The most important thing is vision. A startup doesn't need money or people if they have a poor vision, because it will kill them. How long does it take to polish the vision? Here is a real case: the Streem project, aimed at combating increased anxiety among Gen Z representatives, was completed in 2 and a half months. During this time, we moved from the initial idea to a cool pitch deck that the investors liked, and received investments".
Networking. While improving the product, the team is engaged in boosting their competencies. Here Founders Club relies on peer-to-peer interaction between residents. Founders act as mentors and advisors for each other, but besides one-on-one meetings, there are also common meetings.
“The best helper for a founder is an active founder. Our project founders devote 10-15% of their time to communication: they share their knowledge, expertise and skills, and receive new insights, experience and ideas in return. The adage "Two heads are better than one" is more than applicable here".
Investment. After the team prepares the pitch deck together with the mentor, it receives funds from the MVP fund that uses the funds of investors cooperating with the studio. The decision on the distribution of funds from the fund is made by the mentors.
The Founders Club has a specific niche in which the studio operates: these are products aimed at building strong social connections with their users.
“We have chosen“ Social revolution ” as our slogan. We are very fond of startups with social connections, and in the studio we study these connections, structure them, and arrange them in a matrix. Startups that initially build strong social connections with their users also rank better in terms of retention, engagement, and other metrics. They can keep the audience and, therefore, grow in the future, increasing their capitalization. And this is what investors need”.
Now the Founders Club is striving to completely switch to "its own production": to collect projects and teams for their own ideas — in fact, this is how most venture capital studios work. After all, what is the difficulty of working with a ready-made team of founders? Often, the main mistake lies in the wrong selection of the team and the relationship in it. Working with such a team is difficult, and trying to change it is even harder.
"If an existing team has problems in relations, it is somewhat unlawful for us to solve them. Our task is to initially assemble the “right” team according to the “right” people, “right” market, “right” money principle. If in the first year we mostly received ready-made projects with their own ideas, now we are moving towards creating projects from scratch autonomously".
Nevertheless, a side project has a chance to get into the studio. There are 2 conditions to do so — the CEO and the pitch deck. It is not even necessary to have a proven MVP and first sales (which is an entry requirement in many accelerators) if there is a good pitch. But for many teams, this is also a difficult task.
"90% of startups that we have seen are either a repetition of existing projects, or they simply fail to clearly convey what they are doing and why. Therefore, the main thing for us is to understand who you are and what you want to do. It's a simple question that the majority unfortunately cannot answer. The pitch deck is the quintessence of the founders' vision. And we continue to work with it until it suits us".
What happens to projects that are not yet ready to work with a mentor or are not in line with the direction of the studio? We welcome them in the Founders Club community — they can come, listen and gain experience. Finders — those who do not yet have their own idea for the product, but want to look for it — also come here, listening to experienced founders and asking them questions.
This way we create the ecosystem based on working with founders from your 1st pitch to investment. And it’s spiced up by events, networking and community, where future entrepreneurs and ideas will come from.
"Some teams don't have to try to immediately raise money for an idea: they just need to sit and listen to other guys. They need to understand why their pitch didn’t work out and why investors did not believe in their idea. It may have to do with the lack of some personal qualities and experience. Unfortunately, many people treat a startup according to the principle of “survivor's mistake”: here is Vasya, he made a startup and became a billionaire - I want to do the same ... In our startup studio, we give a good dose of reality straight away, but we also give the opportunity to learn and grow".
Working with founders. In fact, start-up studios are a guarantee that the investor will get access to interesting projects that will have a high percentage of survival. Therefore,we take this part of the work in the studio very seriously. A pitch deck is an indicator of how ready a product is to move to the next stage.
“Incorrect pitch deck or false conclusions will lead to losing six months or a year of life for the project, which is deadly for many. We see that our studio's pitch decks are fundraising simply because investors are asking the same questions we are. One can say that we are very boring when it comes to working on a pitch deck: as a rule, it goes through three pitches. The first is the weakest, the second one is a little better, and if we like everything the third time, we make a decision to allocate money from the MVP fund”.
Working with investors. An important advantage of a startup studio is the availability of investor partners who trust its experience and are ready to invest in the “products” of the startup factory. It is important to constantly expand this circle of investors.
How do investors benefit from such cooperation?
Saving time. Investors don’t need to spend time working with early stage startups but join a ready MVP whose founders already have connections and experience.
Boosting chances to succeed: in a risky industry that venture investment is, the chance to get access to “adult” projects is a major advantage.
Getting access to new ideas and trends that appear in the founders community.
Educational ecosystem. All projects directly or indirectly related to the Founders Club have one thing in common — they work with people. According to Gabil Tagiyev, the studio's task is to unite founders, finders and experienced entrepreneurs in this area and give them general rules of regulation. This requires a developed system in which there is a place for everyone, and the community is supported by constant events.
Popularizing their activities. In the modern world, it is important to not just act, but also to show what you are doing. After all, if a venture studio operates in a closed system, over time it will begin to lack new ideas, competencies, people, and exchange of opinions. For this, the Rocket DAO ecosystem has its own Startup Jedi media, which helps startup world newcomers learn and highlights new trends and ideas.
A startup studio is a tricky business. Working with startups is like a very long race: global statistics show that startups need 7-10 years to reach the IPO / merger stage. However, with the development of technology this period is reduced to 5-7 years. The best example here is TikTok, which took 5 years to become a "unicorn". Therefore, creating a "full cycle" startup studio and waiting for the return on the first projects is really a long-term undertaking.
“Our goal is to become a kind of system that unites niche market players. This way a startup that decides to make a product based on social connections knows there is a studio where they can get help and share their experience. The strength of start-up studios lies in the aggregate capitalization and competencies of its participants”.
This resonates with what the founders of other venture capital studios say. Typically, start-up studios are opened by experienced serial entrepreneurs who have long ago covered their basic financial needs. It's not the potential for profit that inspires them, but the ability to create — and make great cutting edge products.
“When the project moves to the next level, we celebrate together, and we also worry together when the project cannot get out of the dead end. This is the path of the Jedi, and I do not prioritize money here. When investors after the pitch deck tell the project that they are ready to invest $100,000- $150,000, this is probably the very magic I’m talking about. When you can convince investors with a word to finance the creation of something new. All of us, mentors and participants, are motivated by what our projects can grow to”.