How to Build the Right Venture Studio Team
New venture studios need to figure out the right number and combination of people to succeed. (#67)
Recently, I’ve been speaking with new and emerging venture studios about staffing. Here are the key questions:
How do I resource/staff my venture studio? How many people do I need? Who should I bring on board?
Great questions! Not surprisingly there’s no easy answer. The short answer is: it depends. The long answer? Let’s give it a whirl.
Here are 7 key criteria you need to decide on to figure out the right team.
1. Decide on the Type of Studio You’re Creating
For starters, you should build a vertical venture studio. It has numerous advantages, one of which is providing significant clarity on the people you need to hire.
If you’re building an ocean deep tech studio, you need very specific experts
If you’re building hardware startups, you need hardware engineers; and you might need more people than a software-focused studio
If you’re only focused on enterprise B2B, you need expertise on how to sell into the enterprise
Etc.
When thinking about a vertical studio, there are five key criteria:
Industry/space
Customer type (i.e. consumer, small biz, enterprise, etc.)
Business model / go-to-market (i.e. SaaS subscription, marketplace, PLG, etc.)
Technology (i.e. AI, hardware, etc.)
Geography
This is something I’ve written about before:
2. Decide How Much Work You’ll Do Upfront
Before you recruit a founder and incorporate a new startup, how much validation work will you do?
This is a critical question for every studio. It impacts everything, including how much equity you take, how much you invest, the criteria for pursuing an idea, the studio team, etc.
Once a startup is incorporated, you can invest capital, which can be used to hire people/bring on resources. This helps reduce your labor costs for that project/startup and/or provides you with a business model if you’re taking a chargeback. So the point of incorporation is a big deal, as is the amount of validation you do beforehand.
Some venture studios spend up to a year validating new opportunities. That’s a significant sunk cost. It may not require a big team, but even 3 people doing that work will cost ~$500k+ (I’m using North American costs). Pre-incorporation, it’s all burn. 🥵
3. Decide How Much Work You’ll Do After Incorporation
Once you’ve decided to move forward with an opportunity, you incorporate the startup. You probably bring the founder in at the same time, although that’s not always the case.
When should you recruit founders into your studio? It depends. 😀
Here are some thoughts on the topic, with walkthroughs of different scenarios.
Note: If you take more equity from the startups, you’re likely on the hook to do more of the work, which means having a bigger team.
You have to decide what work you’re doing / services you’re providing post-incorporation to the new startup (and founder).
Are you responsible for building the MVP?
Are you helping with marketing & customer acquisition?
Are you helping to recruit team members (and/or a co-founder)?
Etc.
Deciding on what you’re offering/doing will have a significant impact on the resources you need. For example, if you’re responsible for building the MVP you’ll need a technical team. This team doesn’t have to be big, but you’ll need to cover the basics, including front- and back-end development, possibly with a data / AI person (this assumes you’re building software companies). You’ll also need a designer (UI/UX) and potentially a product manager (or a project manager to coordinate everything).
If you’re taking on customer acquisition / marketing / growth, you’ll need at least one person in that role. This is a good example of where focusing on a vertical becomes so important. Tackling B2B and B2C growth (including marketing & sales) is extremely difficult. Finding one person with expertise in both is rare. Even in B2B, there’ll be a significant difference between selling to enterprise, small/medium businesses and prosumers. You don’t find a lot of expert growth people across all sizes and types of businesses.
You have to figure out what you’ll do and for how long. How long does a startup stay in the studio before it “graduates”? 6 months? 12? Longer? This has a big impact on the resources you need.
4. Decide How Much You’ll Invest
Invest a small amount and the founder won’t have the money to recruit the right team, in which case they’ll be dependent on the studio for resources. More work and cost for you.
Invest a bigger amount and you can put more of the responsibility on the founder’s shoulders to hire the people they want. Less work and cost for you.
If you invest too little and don’t provide enough resources, you’re putting the founder and new startup in an awkward position. They can scratch by for awhile, perpetually starving, but it’ll be an extremely tough grind.
5. Decide If You’ll Use a Chargeback Model
A chargeback model is quite common for venture studios:
A studio invests $100 into the new startup
But then takes $50 back for its services
Studios that use a chargeback model are generally looking for 25-50% back from the dollars they invest. Venture studios do this to pay for the resources they deploy against the startups they’re building. Ultimately, someone has to pay for those resources!
If you decide to use a chargeback model, you’ll have to decide if it’s mandatory or not.
A mandatory chargeback model means that founders have to automatically give you $X for your services (whatever those may be).
A non-mandatory chargeback model means the founder can choose to use your services or not.
Usually studios will use the chargeback model only for cost recovery, not for profit generation (they’re not adding a margin on top of what it costs them). That doesn’t mean these resources are inexpensive though. If your studio team is in North America, you and your portfolio are paying North American prices. Founders emerging from your studio may choose (given the option) to near-shore or offshore.
Things also get complicated if / when the studio doesn’t have the right resources for the startup.
Can the founder recruit outside of the studio for those resources or not?
Does the studio pay for resources/contractors that are recruited from outside the studio, because they don’t have the in-house talent?
Or can the founder hire contractors on their own and pay for them directly from the startup’s budget?
As you design your venture studio, you have to think through these components of the business model and resourcing.
6. Decide How Many Startups You’ll Build Per Year
Simply put, if you build 1 venture per year you’ll need fewer people than if you build 2, 3, 4 or more.
A lot of studios target 3-5 startups/year, which means they’re doing a few things in parallel. In that scenario, you have to decide if you’re going to share resources across projects/startups or dedicate resources to each thing you’re working on (or do both). This can have a huge impact on resourcing.
Next, imagine scaling. How do you go from building 3 startups per year to 5? From 5 to 10? The short answer: You need more people. More people = more money. 💸
Most venture studios need a business model beyond management fees (which is how VCs pay their bills) because:
They don’t have huge AUM (assets under management) where the management fees cover the resource costs; and,
They have bigger teams dedicated to doing more work in building the startups.
If you’re looking to build a venture studio, consider joining one as an employee first, or start a company with one (as a founder), so you can understand how they actually work.
7. Decide on the Types of Founders You’ll Recruit
The founders you bring in and their skillsets impact the other resources you’ll need. For example:
If you only recruit technical founders you may need a smaller technical team (or none at all).
First-time founders will need more handholding, which may mean having more resources.
The “business” founder is the trickiest, b/c honestly that doesn’t mean anything. What’s a “business” founder? Are they experts at operating a business? Sales? Marketing? Product? Most studios recruit non-technical, business-oriented founders first, but their skillsets vary a great deal, so complimenting them with the right studio team is tricky.
The founder’s level of expertise in your vertical is also important.
Are you looking for domain experts? Or are you OK recruiting industry noobs because you’ve got the domain expertise in-house?
Venture studios often position themselves as co-founders, which means they have to provide the right mix of complimentary skillsets and capabilities to the founder.
Read more about the ideal founder profile for venture studios
Design Your Venture Studio First, Then Figure Out the Resources
To determine the number and type of resources you need in your studio, design it first.
Below I walk through how to think through the process of designing a venture studio and provide a checklist, which you can use/copy for free. The checklist has 60+ criteria/questions you need to think through as you design your venture studio.
My Perspective on Venture Studio Teams
Salaries / resource costs will always be your biggest expense (excluding, potentially, the money you invest). You have to pay for those resources somehow, and venture studios have limited business models.
If I were designing a studio today (hint, hint), here’s the approach I’d take:
Start with a vertical and find a domain expert partner (this could be you). The partner should:
Be an expert in the vertical with a deep network (to customers, partners, investors, etc.)
Earn economics in the investments being made (potentially as a GP in a GP/LP Fund structure); and invest themselves.
Have a strong reputation/brand in the vertical (which will help with recruiting founders, acquiring customers, etc.)
Be willing to get their hands dirty supporting founders (i.e. have a skillset that’s valuable to each startup going through the studio: product, design, marketing/growth/biz dev, raising capital, etc.)
Aim to build 3-4 startups/year, but be OK with 1 or 2 in the first year (get your feet wet and ramp up from there).
Do 3 months of validation before incorporation (more than that is too much), and provide 6-9 months of hands-on support post-incorporation (once the founder is recruited).
Your whole team will need to be capable of doing validation work. It’s unlikely you’ll have budget for a research team. The partners and others you recruit will have to be comfortable doing customer discovery and validating opportunities, otherwise this work will be skipped or too shoddily done and the startups will suck.
Assume all resources are shared. It’s too expensive to dedicate resources to each startup you build, so venture studio employees will be shared across initiatives. The only caveat may be junior employees or co-op/interns (who you should pay!) It’s possible you can allocate 1-3 full-time junior resources to each startup in your studio (although 3 junior resources likely equals 1 senior resource from a cost perspective).
Recruit a CTO. This assumes you or the partner mentioned above aren’t technical. The CTO will manage the technical team (internal or contractors), and get their hands dirty with architecture, infrastructure, security, etc. They will need to jump in and code too (they represent the CTO co-founder of each startup built, and startup CTOs code/build!)
Decide how to cover the following capabilities: product, design & sales/marketing. These are all key components to building a startup (noting my focus on software companies) and someone has to provide these capabilities. This is why deciding on the founder types you recruit is so important—can you knock one or two of these off the list through the founder(s)? The most likely ones are product and sales/marketing. The partner you recruit (in #1 above) may also have expertise in one of these. In a perfect world you’d have product, design, sales/marketing all on-staff with senior people, but it’s cost prohibitive.
My bias: keep product in-house with someone senior (because it encompasses everything that has to be done), but outsource design. The founder/CEO you recruit should lead sales/marketing, and then bring in contractors to provide support (i.e. run automated sales campaigns, setup website SEO, etc.)
Contract out development. With a CTO in place, you can outsource most of the development work to freelancers or dev shops. You might decide to have 1 or 2 software developers/engineers on staff, but they’re expensive and they could be sitting on the bench for big periods of time. Depending on what you build, they may not have the right skillsets either (although focusing on a vertical should limit this risk). A strong internship/co-op program could work, if the timing is right (for their internships and when you’re building), because they can come in for a period of time, inexpensively, and be very productive.
Consider hiring a recruiter. Finding great founders is tough. There’s no secret formula. It’s a ton of work. And as startups emerge from your studio they’ll need to hire their own teams as well. It’ll be tough for the CEO to do this with limited time/resources.
You may be able to contract this out to a recruiting firm. Find one that truly understands startups and provides the right cost model. You may need several recruiting firms, because they often specialize in certain areas.
Consider hiring 1 ops person. Venture studios always have a ton of things going on at the same time. It gets chaotic. I would recruit one operations / project management person that can coordinate everything. They become the glue between everyone and everything, including founders, internal & external resources, partners, investors, etc.
Find contractors/vendors to take care of legal, accounting, HR, etc. Some studios do this in-house, which I’m sure their founders appreciate. But it’s expensive to keep these people on-staff, and the work they do (for the most part) is fairly standard. Instead, invest more capital into the startups so they can hire the right contractors/vendors to do this work. Have a rolodex of partners with discounted rates and standardized offerings to reduce the effort required by the CEO/founder as much as possible.
Build an expert contractor network. New studios with limited budgets won’t be able to hire big teams, but they can still cover everything a founder needs through a great network. Venture studios need a roster of quality, trusted contractors (filling in the gaps they don’t provide in-house, which may be substantial), ideally with preferred rates. Founders can decide which contractors they want to use (or hire their own), but this should accelerate the process.
Every venture studio is a bit different, so it’s difficult to structure this perfectly for everyone, but I’ve put together a visualization below. Note: “Partner” could be different people, most studios are co-founded by 2-3 people at least, so they would divvy up the responsibilities.
A few points about this structure:
I’m not suggesting the team is only 1 or 2 Partners, a CTO and an Ops Manager. You’ll definitely need more resources than that, the question is whether they’re full-time or contractors.
I’ve assumed the founders you recruit are non-technical. That’s not necessarily the case. Heck, your entire studio might be focused on technical founders.
I hesitate to put Product Manager(s) in there at all. If one of the Partners or the Founder is not capable of managing the product building process, you’re in trouble. You can’t “outsource product” and you don’t want to hire product managers and treat them like project managers (which a lot of startups do). (Incidentally, product management is something I care deeply about, and here’s my writing on the topic.)
I love the idea of having user researchers on staff. Rigorous validation of new opportunities is a key value proposition of venture studios, and that’s what user researchers do best. The skillset for doing user research needs to go across the whole team (this can’t be the purview of 1 person or a small team!) but having the expertise in-house is powerful.
It looks like I’m devaluing Design, but that’s not the case. If you’re building new consumer products (physical goods) where brand is critical, then you need a Partner with that expertise. Consumer software often relies heavily on design as well. But in a lot of cases, a product-focused Partner or the Founder can at least hire and manage designers to execute the initial brand, launch a website and design the product. The challenge with design is that it’s very broad, encompassing UI, UX, brand and more. In my experience a lot of the initial design work is fairly straightforward (i.e. building landing pages + ads to test value propositions), so I don’t want to over-resource.
For Design & Sales/Marketing I put in the possibility of senior / lead members. I’ve always liked the idea of senior “partner-level” talent in each of these areas, because they can drive so much value. But it’s expensive. So you may consider bringing in junior resources in both roles, who would then report to the Product-focused Partner or the CTO.
For Product, I put the Partner “ahead of” the Founder, but the opposite is true for Sales / Marketing. I’m not a fan of founders without product building/shipping experience, but if I have to prioritize a founder with expertise in product or sales & marketing, I’m picking the latter. A founder without an ability to sell/market is doomed.
So what does the ideal venture studio structure look like?
Honestly, it’s tough to answer. But if I was building a new studio, here’s the minimum viable version: (I just coined the term Minimum Viable Studio! 🤣)
It’s possible you can have two partners (not three) cover the big bucket expertise areas needed, but you’re still looking at 7-8 people. And if you cut the user researcher, junior/mid-level designer and junior/mid-level growth person, you’re down to 4-5 (and then relying quite heavily on contractors/part-timers/vendors). You can see how this budget (at least in North America) could be ~$1.5M+ per year easily and that’s without having invested a dollar into any startup.
Most of my focus so far has been on what it takes to build startups in a venture studio. But a successful venture studio has to do a lot more than build companies. It also has to help those startups raise capital and exit. Building & launching stuff is just the first step. Studio’s are only successful if they generate returns.
That means you need at least one Partner dedicated to building investor and acquirer networks. All VC firms have partners that network with other investors (to generate co-investment, share deals, etc.); venture studios are no different. And many VC firms spend a lot of time building relationships with corp dev teams that can help facilitate exits/transactions. Again, studios have to do the same thing.
While venture studios live at the earliest, inception phase of a startup’s existence, their success or failure is predicated on what happens much later (~5-10+ years later!) and if they don’t build up those relationships and networks it’s a huge miss. As you design your venture studio you can’t focus exclusively on the “building startups” part, you have to think about everything else as well (including helping startups fundraise / exit, fundraising for your own studio/fund/efforts and more).
Do you by any chance have a course?