Nikhil Krishnan’s Post

I agree on the venture studio! The ownership piece can be a challenge, and I’ve met more than one CEO who claimed the venture studio’s position made it difficult for them to raise.

Core memory unlocked. Did anyone else try to slice bread this way as a kid to see if it worked? Yes? No?

Agree! Many founders are not in a position to go without a salary to bootstrap - often they are from underrepresented groups and more experienced but haven't had a huge exit or trust fund (e.g., have families, mortgage, student loans, etc). Venture studios have capitalized on that gap in the market - but there are other models like EIR programs that are more equitable and thoughtful around long term value. But there's still a gap in early stage funding for healthcare companies with seasoned leaders that may not look like a 100x return (ie., most healthcare ideas).

Serious question: do venture studios work? I'm familiar with Redesign Health, 25m Health and a few others, but far less familiar with their track record (which may be telling in itself). I understand the concept of pooling some startup "essentials" to get an idea off the ground sounds good, but too many ideas (especially in healthcare) sound good but are wholly unproven. Anyone with first-hand knowledge or thoughts on this?

Part of the issue with most healthtech venture studios is graduation stage. Providing engineering, HR, legal, CMO, etc. backoffice requires a huge AUM which then drives the need to take the sorts of equity chunks you describe. Secondary downside is that providing those services means that graduation gets pushed back much later, inflating the CEO comp requirements and consequently making brittle vs. resilient companies. My working hypothesis is that designing for for graduation to be "viable seed" vs. "viable late A or early B" allows you to take smaller equity stakes and better aligns the initial team. I realize that the studio I operate is a special case because its within academia, but the venture math from the outcomes we've had over the past 2 years would absolutely work if we were funded by LPs rather than alumni donors.

I think it is studio-dependent and really reflects the historic range of "founder-friendly" (or not) approaches/policies across the startup landscape in general for decades. The word will get out, to founders, as to which partners are more "fair" or "founder friendly" and the market will either respond or not. The wise studios will have the discipline to understand how *not* to force founding teams into such thin slices of equity that they are essentially salaried employees with tiny upside, in a game that loads much higher risk and lower income than an "equivalent" corporate job. The studios that don't run the model out beyond the Series-B and beyond may see their founders leave (because they have no skin in the game and very little upside), and worse they may attract naive founders and end up with company collapses when the math is exposed. Carta and others do a very good job of helping investors and founders understand the nuances of equity grants, re-ups and dilution across the company journey. So do the best securities law firms including Cooley LLP and others. And it's not all capital dependent, though that is a super-important factor. Studios run by folks I know are very savvy to this. And fair.

Yeah then the later stage VC comes in and does the same thing to the venture studio ownership, and re-ups the management 🙃

most of the time even that slice is toast

Enjoyed this one!

Daniel Hinz Burak Adali