The Ideal Founder Profile for Venture Studios

A deep dive on what venture studios look for in founders. (#49)

The biggest challenge for venture studios is founder recruitment. Everyone always asks me, “How do you find the right founders?”

My response: “It’s a secret, I can’t tell you.” 🤣

I wish that were true. The actual answer is this, “There are no silver bullets, and there’s no secret sauce when it comes to founder recruitment.”

At Highline Beta we do a few things to recruit founders (and many venture studios do the same), including:

• Leverage our network: A lot of founders come to us through referrals from other founders, investors or ecosystem partners. This is the single biggest source of founders.

• Job postings: We post Founder-in-Residence jobs when we’re looking for people interested in, or with experience in, certain industries / verticals. For example, we recently posted a role for a CEO interested in building a B2B software startup in sustainability. Job postings get distribution through LinkedIn and elsewhere.

• Venture studio challenges: We launch challenges into the market, highlighting our interest in building startups in specific opportunity areas. These challenges are often tied to specific job postings, and/or are meant to encourage people to pitch us their ideas.

• Brand building: We’re regularly networking, going to or hosting events, writing content, sharing on social media, etc.

• Inbound recruiting: Our profile and venture capital fund attract founders. Most of the time founders come to us when they’ve already started a company, maybe even raised some money, in which case it’s too late, but the inbound flow is valuable. The more people we connect with the better.

• Outbound recruiting: We proactively reach out to people that we think fit the profile. I know some venture studios that rely heavily on this approach.

We haven’t used recruiters yet, but some venture studios use them (and rely on them) for candidates.

If your venture studio is industry-specific it makes recruiting easier in the sense that you have fewer pools to swim in, but also trickier because the size of the pool may be smaller. But being known as the “venture studio for X” isn’t a bad thing.

Without great founders you can’t build great businesses. I don’t care how much work a venture studio puts in (before bringing in a founder or after), the startup that emerges from the process will succeed or fail based on the capabilities of the founder. It’s as simple as that.

This means venture studios are perpetually recruiting through multiple strategies looking for great people.

And what precisely are studios looking for? Let’s dig in.

Previous Founder Experience

Statistically, second time founders are more successful than first timers. There’s a decent amount of research on the topic. Venture studios want to win, and so they gravitate towards experienced founders. The odds of succeeding a second time increase even if you didn’t win the first time. So venture studios are looking for people “with scars”—people who know how hard it is to build a startup, and can avoid many of the common first-timer mistakes.

People who have failed before often have a “chip on their shoulder” which venture studios (and other investors) find appealing. They’re looking for people that are ready for the intensity, stress and craziness of what’s ahead. People who are determined to win. I get it, but sometimes that chip is so big it’s overwhelming. Sometimes a founder is just angry at the world. That’s not healthy.

Being a second time founder isn’t a slam dunk. Most startups still fail, and there are downsides too.

James Currier from NFX wrote a great article: How Second Time Founders Can Win and Avoid Common Mistakes, and he shares a number of common disadvantages. Here are some examples I’ve witnessed:

• Overconfidence

• Underestimating the role of luck

• Misunderstanding “impact”

• Status anxiety

• Over-indexing on previous pain

• Not seeing your operational blindspots

Second time founders are by no means a guarantee, but it’s logical to skew in that direction.

Domain Expertise / Industry Experience

Venture studios are split on this topic. Do you recruit founders with specific domain expertise or industry experience, or bring in newbies that will approach the industry with fresh eyes?

Some studios will veer towards experience, others away from it. Some won’t care either way. It’s definitely a mixed bag.

Here’s how I think about it:

If you bring in a founder with domain expertise or industry experience they need to have minimal baggage. They can’t be “calcified” to the point of being completely set on “how things are done.” They understand the industry / vertical but are determined to change how it works and they have insights into how to do it. That last part is important—they can’t just “rage against the machine” and expect to win, they need an angle or wedge (ideally one that others aren’t aware of, which could equate to an unfair advantage).

Everyone wants to change the world

A lot of founders are focused on having a positive impact and changing the world for the better. Look at everyone jumping into sustainability and climate. I’m all for it. But you need to know what you’re getting yourself into.

What makes you the right person to solve a specific problem?

Your eagerness to disrupt an industry isn’t a good answer. The sustainability space (like many) is incredibly complex; if you have no domain experience you better dig deep before jumping in to “change the world for the better.”

I believe a meaningful, untapped founder pool sits within big companies.

Greg Larkin, CEO of Punks & Pinstripes, a vetted community of “badass executives in business” agrees. He’s coined the term, “Entrepreneur Exodus” which speaks to the volume of executives (often very senior) at large companies (including Big Tech and others) that are leaving to start companies.

The Entrepreneur Exodus

Here are a few interesting pieces from Greg:

• OPEN AI is Big Tech’s Entrepreneur Exodus

• The Entrepreneur Exodus: The Next Phase of the Great Resignation in 6 Charts

• Battle-Tested Optimism: Why Entrepreneurs Like Ian Cook Move Mountains After They Leave Corporate

Corporate employees / executives have deep experience within an industry. More importantly, they know where the bodies are buried. In some cases they’ll have identified boring problems that no one is paying attention to. That’s pure gold.

Often corporate executives are older too. And there’s strong data suggesting older founders are more successful.

…in fact, those who created the most successful companies were on average 45. And just approx. one percent of the elite 0.1% founders were 25 years or less when founding their companies. - Lars Tvede

Lars is a serial entrepreneur turned VC, and that’s a quote from an article he wrote in 2018: Successful company founders are often older than you think. Here’s a bit more data from his article:

The light blue line is the distribution of startups created by age. The dark blue line represents the age of founders of the fastest growing of these companies, and you can see this skews older.

So experience + age = a good combination.

One challenge with this is identifying people with experience that actually have what it takes to be founders. There’s a significant difference between a founder and an operator.

• An operator knows how to operate something that exists, with a plan and fewer unknowns. They’re comfortable with some ambiguity, but their job is to “execute the playbook” and keep things moving. They’re often great at hiring and managing people, creating the right policies, business development and motivating teams. Or they might be a specialist operator that’s great at “doing their job” but struggle when the variables change dramatically (which they always do in early stage startups).

• A founder knows (or realizes very quickly) that everything is a near-complete gong show, changing quickly and requires a level of grit and perseverance that’s completely off the charts. The rollercoaster analogy doesn’t do the founder experience justice. It’s worse.

The move from great founder to great operator is easier than the move from great operator to great founder.

Venture studios that spend a lot of time validating an opportunity before they recruit a founder will often end up hiring operators masquerading as founders. I don’t blame the operators, because they may be eager to stretch themselves, but the risk is high. When the shit hits the fan (and it always does), will an operator be able to navigate through it?

Combining Past Experience & Industry Know-How

Here’s a simple way to visualize startup experience and industry experience:

It’s fairly easy to eliminate founders in the bottom left quadrant. Never say never, but first time founders with no industry knowledge is a tough sell.

If being an experienced founder increases the likelihood of success, then a studio has to decide between one with industry knowledge or one without. In my experience there’s no hard and fast rule that works, although I know some studios that pick a quadrant and stick with it. You also have to recognize that the total pool of potential candidates in that top right quadrant is very small. The top left quadrant is also a relatively small pool, because there aren’t thousands of experienced founders sitting around looking for new gigs.

I wouldn’t sleep on first time founders in the venture studio model.

The whole premise of a venture studio is to provide the support and infrastructure to help a founder succeed faster. A good studio should be able to take a less experienced founder and level them up. Venture studios should not be education programs. Their purpose is to build great companies and generate returns. But if they’re truly value-add, and delivering as co-founders (presumably with experience, because you shouldn’t start a venture studio without startup founding & operating experience) then working with first time founders makes sense.

There’s a famous quote attributed to entrepreneur, Leila Janah, “Talent is equally distributed, but opportunity is not.” This feels overly idealistic (here’s a study on the topic that’s very interesting), but the crux of the point is key. I believe there are many more great founders out there, but they lack access to the resources they need. Some will argue that founders should be able to figure this out and make it happen. I call bullshit. The mythological founder story is awesome (and it happens) but it’s not most people’s reality.

We need more founders.

We need more diverse founders.

We need to stop pointing to the few “founder heroes” and saying, “Why can’t you be more like that?”

I believe venture studios are a great structure for the “everyone else” founder—good, smart people that are willing to jump off the cliff and do something crazy, but who would benefit from jumping off with others.

Looking at Highline Beta’s Founders

At Highline Beta we’re open to where an idea/opportunity originates and the founder types we work with. We fall into the, “there’s no guaranteed formula for success” camp, and as a result we remain open, opportunistic and iterative in our approach.

Where ideas originate impacts the types of founders studios recruit. You can break this up into external and internal:

• Internal idea generation: The studio works on their own ideas that they’ve vetted. These studios typically spend a lot of time doing validation before recruiting a founder. In these cases, the founder will have considerably less equity (typically) and skews more to an operator.

• External idea generation: The studio recruits founders with ideas, or the studio sources ideas/opportunities from elsewhere such as corporate partners, or its investors/LPs. If a studio brings a founder in with an idea, the studio likely takes less equity and is relying more on the founder’s ability to execute.

Some venture studios only use one of these approaches (usually internal idea generation), some use both.

I will point out that these are broad generalizations, but it’s important for potential founders to understand how a venture studio works before jumping in.

Here’s a breakdown of Highline Beta’s founders:

You can see that we’re fairly evenly split amongst serial entrepreneurs with or without industry experience and first time founders with domain expertise. We haven’t worked with a first time founder that has no industry knowledge.

A Superpower That Can Be Complimented by the Studio

No one builds a successful startup on their own. They might be a solo founder, but they’ll still need a great team.

There’s a lot of discussion around Founder-Market Fit, which asks: Are you, as a founder, the right fit for building in a specific market?

If you’re looking to join a venture studio, you need to ask if there’s Founder-Studio Fit.

Venture studios offer similar, but different things. In the end, a combination of sales (+ biz dev), go-to-market, product (+ design), development and fundraising are needed. Studios will often help with product, development & fundraising, but less so on sales and go-to-market. If that’s the case, it’s logical to assume that you, the founder, will need to have those superpowers (along with the other requisite skills required of a CEO, including culture building, recruiting and operations).

Some studios will be more formulaic in their approach, and will look for specific profiles for their CEOs. Others will be more adaptable based on what the founder brings to the table.

If you believe that a venture studio will truly serve as a co-founder, then you have to ask yourself whether you really want to co-found a startup with them. Do they have the skillset and capabilities needed to compliment your superpower?

Fundraising for New Founders

One of the biggest challenges for new founders is fundraising. The whole idea that you’ll have to pitch 100 investors to get 1 investor seems crazy. The level of rejection is unprecedented compared to what you might have previously experienced.

If you’ve raised money before, you know. If you haven’t, you’ve probably read about it, but you don’t really know.

In today’s macro-environment, it’s worse. Fewer investors are doing deals, valuations are being challenged, etc. For first time founders this is one of the biggest “holy shit” moments.

Venture studios can help. They should guide you through the journey and make connections / introductions where you might not have a network. For first-time founders, the lack of an investor network is a huge gap. It’s absurd to assume that a founder needs to be great at building a product, sales, operations and have a deep network of eager investors.

In the end, a founder has to be fundable. Most studios cannot fund a founder the whole way to an outcome. First-time founders that don’t level up quickly on how to fundraise will fail.

A Balance of Ego, Decisiveness & Coachability

A founder without an ego is doomed to fail. Taken to an extreme and ego is bad. But the definition (at least in part), is “a person’s sense of self-esteem.” You will not survive as a founder without a belief in yourself and an ability to say, “I know I’m right, and you’re all wrong.”

A founder without an ability to make decisions (at a high frequency and quickly) will fail. Being a founder (and then a CEO of a growing company) is basically all decision making. Everything that happens within your company is on you. It’s a massive responsibility. Your ability to triage and digest information and make decisions (along with empower others—which is a decision itself) is critical. Taking to an extreme and decision making can be autocratic, where you ignore everything and everyone around you. That’s bad.

A founder that’s not coachable will fail. I’ll bucket “an ability to learn” under this as well. Founders with giant egos that want all the power and believe everything they do is right, aren’t interested in learning or being coached. I’ve heard the refrain, “If I have to help a founder a lot, they’re a bad founder,” and there’s some truth to that statement. No venture studio, investor, advisor, mentor or coach can do the work for you. Founders have to run the show. But a founder that’s unwilling to listen to others, take advice, look at things from other perspectives, is blind.

Venture studios are looking for founders with a healthy balance of ego, decisiveness and coachability. It’s easy for studios to skew more towards coachability. It feels good when someone says to you, “I really need YOUR help, please work with me!” But a venture studio has to ask itself if the founder has what it takes to win once they leave the studio. Again, venture studios are not education programs. It’s not always easy to suss out how much help a founder will really need. You can use past experience as a proxy (i.e. it’s assumed someone that’s started a company before “has what it takes”) but I think that alone is shortsighted.

I look for founders that are self-aware. They know what they’re good at (they’ve got an identified superpower) and what they’re not good at. What they’re not good at is, at least in part, what’s attracted them to the venture studio model. They know they need help. That’s a good thing. And they’re willing to learn & get better. But they’re also confident in themselves and completely aware of what’s ahead of them (i.e. the emotional rollercoaster grind that is building a company).

A Willingness to Take the Deal

In the end, after all the evaluation and analysis, venture studios need founders to take the deal they’re offering. Most studios have a fairly standard deal structure in terms of the capital they invest, the equity they take and the services they provide. Each studio is different, so founders have to compare them, which isn’t easy.

I’m often asked, “What type of person is willing to take a venture studio deal?”

I think there are a lot.

But it’s not for everyone. Here are examples where a venture studio is probably not a great fit:

• You have a co-founder (i.e. you feel like you need less help). In this case a venture studio may still work, but the cap table becomes the sticking point. It depends on how much equity the studio takes and what’s available for the 2+ founders.

• You’ve already built a product (i.e. you’re too far along)

• You’re ~20 years old and think you’re immortal (I remember that feeling) (i.e. you’re going to change the world on your own terms!)

• You’re going to Y Combinator or are singularly focused on that path (i.e. you believe the only way to win is through YC or a similar program; btw, this is not a diss on YC!)

• You’re based in Silicon Valley (or perhaps New York) and you’re already “connected” (i.e. you have a strong belief on ‘how it’s done’ and the network to raise capital)

For everyone else, venture studios are a legitimate option worth exploring.

Two other points I’d like to make:

1. Most people that have already done a few startups won’t look at the venture studio model. I realize this is counter to the point made earlier that most venture studios look for experienced founders, and herein lies the problem with recruitment and why it’s critical for a studio’s success! I also think it’s a mistake for experienced founders to ignore the studio model if they can find the right one to work with that genuinely accelerates the super messy and tough 0 to 1 phase.

2. Most people that have won big (i.e. had a big exit) will dismiss the studio model. I think that’s a mistake. You can re-read the points earlier by James Currier. While winning big gives you access to more things (i.e. investors will want to fund you again) it by no means guarantees success. Don’t let your ego or your belief in ‘how things are done’ get in the way of a potentially great opportunity. If a studio can help and the deal is reasonable, take a look.

As the venture studio model evolves and the industry shakes out, I expect we’ll see a higher bar on founder quality. The best venture studios will attract the best talent. Founders will seek out the right venture studio for them based on industry, domain experience, their own superpower, deal terms, etc. Studios will benefit from more inbound founder lead generation, which will enable them to build better startups (assuming the studio has the team + capital to do so), and the flywheel will continue. The venture studios that figure this out will win. Those that don’t will lose.