Our Take on Studio Models

This post is deep in the weeds on Venture Studios. If you're less familiar with venture and/or studio models, our friends at Vault put this great reference together.

Before we launched Ironbird we spoke with dozens of VCs and founders, and many of the best studios & studio investors. It is clear that the profusion of Studios and Studio models have both confused and in many cases soured VCs. We sympathize. It seems like every government, consultant, and would-be entrepreneur has launched some flavor of accelerator, incubator, or studio. Even traditional VCs and Corproate Venture Capital have launched many of their own internal innovation or studio platforms. Needless to say, these do not all come equal. In fact, many such platforms are simply rebranded consulting arrangements or dev shops looking to improve their economics, and some are downright predatory. However, we also spoke with phenom studios that are bringing solutions to market faster and at lower risk, and driving returns for their investors and the founders who work with them.  We want to share some of the common traps we see across the studio landscape, and make clear how Ironbird has structured our model to do right by founders & downstream capital partners. We do not claim to have the only model that works, but we sure as hell have put a lot of thought into making sure that we are adding genuine value to anyone who engages with us.

Trap #1: Not Adding Enough Value to Portcos

A Studio's basic value prop is that they will accelerate venture development faster & cheaper and/or at lower risk than if the founder had to assemble all the necessary resources on their own.  This is hard to guarantee, especially if the principal value offered by the studio is commodity SW development that the founder could theoretically contract or hire.   This veers into predation if the studio knowingly takes a large enough chunk of the firm to sour downstream investors.

Lesson for Ironbird Studio:  Studios should either offer non-commodity talent on the platform (i.e. the type of technical capabilities that are not easy to hire or contract), and/or offer demonstrably unfair advantages in terms of customer access, downstream capital partner relationships, and talent network for early hires. At Ironbird Studio we think #robotics lends itself to this model;  you need multi-disciplinary engineering teams,  prototypes are expensive to build and test, and customers are likely large industrials who prefer to work with established operators.

Trap #2: Owning Too Much, Too Early

Let's say a Studio adds tons of value early on and takes a correspondingly large slice of a pre-seed company. When that venture tries to raise a seed round, downstream capital will perceive the Studio as dead weight on the cap table at a point when the company has not been sufficiently de-risked.

Lesson for Ironbird Studio:  The only way we can make the business case close for all parties is to take our newcos all the way from powerpoint to revenue.  If upstream capital owns 1/3 and the founding team owns 1/3 of a revenue-producing venture with obvious product-market-fit, then it will look like a normal company to downstream partners. This level of effort demands low throughout for the Studio -- we are launching ~1-1.5 companies per year, and pouring a ton of time and money into their success. We have spoken with dozens of VCs over the last few weeks, and preemptively naming these traps has gone a long way to disarming capital partners.  We are positive that we have a model that incentivizes founding teams, rewards investors, and brings solutions to market faster.

Our Principles

At Ironbird we don't simply want to avoid traps, but put forward a transferable set of principles that are common across Studios we admire. And here they are:

1. Differentiation: Be 100% sure you are offering talent or access that the founder could not simply acquire/pay for as part of a pre-seed raise. This should be articulable in two sentences or less that don't sound like a marketing brochure.
2. Focus: We think doing anything well is brutally hard. A studio model should not demand the type of volume that creates incentives to offer canned advice & products.
3. Founders Make The Business -- Not the Studio: Founding teams should not reluctantly join a studio, as they are the reason it will succeed or fail. They should be delighted to work with you, and if your economics / value prop don't generate that feeling then there is something wrong.
4. Right-size Ownership to Effort: If a studio wants to own a big slice, they better get the team way down the road. Somewhere north of paid deployments and south of several million in ARR.
5. Don't be an Asshole:  Founders and partners want to work with people they like and trust, and the best of them often have other avenues for capital. Time is the most precious thing we all have and no one has enough of it to spend on jerks.