Three successful startups including two exits, one won America’s Cup, and many more successes along the road - this is the track record of T.A. MacCann, Managing Director at Pioneer Square Labs (PSL). In our first summer webinar this year T.A. gave exclusive insights into the operations of the leading Venture Studio: its organizational structure, venture building process, and well-oiled machine.
What makes PSL a leading Venture Studio? Let the metrics speak for themselves: PSL’s Studio spun out 25 Startups, PSL’s Fund raised $180 Mn. in two funds. Convinced? Great! Keep on reading to receive the key insights of our incredibly insightful, actionable webinar. In addition, make sure to follow us on LinkedIn and join our LinkedIn group to not miss the next webinar sessions.
Our Key Takeaways
PSL’s Track Record
- PSL classifies itself as “Venture Studio” - a term coined by High Alpha. The Studio Model consists of a Venture Fund, a Startup Studio, and an Incubator.
- Being deeply rooted in Seattle, Washington, PSL’s Studio focuses on three verticals: (1) machine learning/ artificial intelligence and engineering innovations, (2) digital transformation of consumer habits, (3) and shifting legacy verticals to the cloud.
- PSL’s Venture Fund is run separately from the Startup Studio. The recently raised $100 Mn. Venture Fund II invests both in Studio Startups and external Startups. Having a separate Fund enables PSL to offer exceptional founders either co-building a Startup within the Studio or simply investing in their Startup.
- 25 of 27 created Ventures were spunout and raised external funding. The funding process is led by outside investors: An outside investor values the Studio Startup and leads the investment round - PSL’s Fund follows along.
Positioning and Fundraising for a Startup Studio
- Having a clear focus area is crucial, especially for smaller Studios. Picking a certain geography, investor group, customer segment, or background is a great start.
- Make sure to build a storyline for the investors on why your Studio is unique. If your Startup Studio doesn’t have a track record yet, make sure that you have other compelling arguments such as your geography or Studio Founders achievements. Don’t bother standing out by modifying the actual venture building process.
- There’s already great, generic advice out there on Studio Fundraising. For example, revisit your webinar on Startup Studios as Arising Asset Class or our blogpost on Pitching your Startup Studio to Investors. Also, think about downstream investors when raising a fund.
Building the Machine: The Magic 4 P’s
- Team: Make sure to build a diverse team and find great founders for your Startup Studios. For example, 35% of the founders at PSL are female. In addition, consider viewing stakeholders outside your Studio boundaries as part of your team: Talk to investors and strategic partners early to assess the attractiveness of your business idea.
- Process: Have a structured venture building process from ideation to scale in place. Ideally, the process should also include decision points and meeting formats. Referring to PSL’s example, deep dives on selected topics serve as crucial internal check in.
- Playbook: Distill your best practices in a structured guide that you can provide to Founders at the right time. Guides on validation and fundraising are most often used at PSL.
- “Product”: If you have the resources, start building your own internal tools that you can leverage across all your Studio Startup. For example, PSL and Stryber build their own tools for idea validation.
Founder Relationship and Ownership
- To make sure that economics still play out for your Studio, have a bottom line of the ownership you need. The equity stake should be in line with the value you deliver.
- For example, PSL seeks a partnership with a 50/50 equity split, not going below 40%. The founder is crucial for the created Venture - She/ he leads and shapes the business idea. Thus, the Seattle based Studio is willing to wait for the most suitable founder - and might do some basic validation of the hypothesis, market, and customer fit before the founder joins.
Making Investment Decisions
- Making decisions in a Venture Studio is a group decision. To make better partnership decisions, create a great decision framework and have a diverse team. Combining both, you are almost invincible: you leverage your partners’ broad experiences in a structured manner.
- How is it done at PSL? First, each Managing Director rates an investment on a scale from 1 to 10. Before doing that, calibrating the scale ensures more objective rating. Second, compare the ratings and ask for reasoning if the estimates diverge excessively. Third, come up with a final decision. Both the estimate of the Managing Director leading the investment and the average Managing Directors serve as crucial indicators.
That’s it, these were our five key takeaways! If you are a premium member and would like to dive deeper into the best practices of Startup Studios, make sure to revisit the webinar recording and presentation. Not a premium member yet but interested in becoming one? Just reach out to us.
About T.A. MacCann
T.A. McCann is a Serial Entrepreneur and Managing Director at Pioneer Square Labs. In addition, T.A. is an active angel investor, adjunct professor, and TechStars mentor.
Before joining PSL, T.A. was the founder and CEO of three startups: Senosis (acquired by Google), Gist (acquired by Blackberry) and Rival IQ, a leader in marketing analytics. In addition, T.A. served as entrepreneur in residence at Polaris Venture Partners and held several senior roles at Microsoft. Before pursuing an entrepreneurial path, he was a professional sailor competing in 2 America's Cups and the Whitbread Round the World race.