What are the most common financing structures for Startup Studios? What are the advantages and disadvantages of each of them? How to raise money from investors? These mind-boggling questions were answered by our guest speaker, Farhad Alessandro Mohammadi, in our latest webinar session. As Co-founder and CEO of Mamazen, the first Startup Studio in Italy, Farhard shared his experience of structuring Mamazen’s fund with our participants.
Keep on reading if you missed the webinar or would like to consume the key insights again. In addition, make sure to follow us on LinkedIn and join our LinkedIn group not to miss the next webinar sessions. But now, let’s answer some questions though …
First off, Laying the Foundation
- Startup Studios are all about methods, validation, and data. The most successful Studios to have a structured process in place to validate business opportunities. Throughout the validation, various data points are collected, analyzed, and interpreted. So, having an investment committee with “expert knowledge” isn’t enough. Focus on data, not stories.
- Also, having a great team and a clear focus is crucial to gain traction early on and sustain momentum. Otherwise, you might get distracted by opportunities that don’t fully fit your core strengths.
Comparing Financing Structures
- The discussion on Startup Studio financing structures isn’t new. There’s already great resources out there – for example, have a look at John Carbrey’s Medium article.
- Up to this date, four structures are referred to most commonly: The Single Fund, Single Studio, Single Studio + Syndicate, and Dual Entity Model. A comparison of the models is shown in the table below.
- Despite its complexity, the Dual Entity Model is the most evolved financing structure today: Many experienced Studios such as Science, Atomic, and High Alpha adopted it. Why? Firstly, because of its clear structure. As the name indicates, there are two entities: one for the Startup Studio, one for the Studio Fund. Secondly, because of its great alignment between all parties: With the Fund receiving preferred shares, Startup Studios and Startup Founders are incentivized to build successful companies. If the company gets liquidated, investors with preferred shares receive their money back first – giving them a greater security.
- Talking about fund timelines: Similar to other private equity funds, a Venture Fund is usually liquidated after ten years. This gives Studios enough time to raise money, build great companies, and return a significant profit to investors.
Considering the Investor Perspective
- Regardless of the Studio maturity, having a shared focus and vision between investors and the Studio team is crucial. In addition, both parties should trust each other. If the Studio doesn’t have a sufficient track record yet, Studio Founders need to sell based on their personal track records.
- Considering different investor groups, family offices and business angels are a great fit for the Startup Studio Model. In addition, corporates and institutional investors focusing on the same vertical might be interested. For example, FoundersFactory is partnering with well-recognized incumbents in selected focus areas.
- There’s no significant difference in raising money from local or international investors. Yet, you need to ask yourself: What do you have to offer that investors can’t find in their home country? What is your unique value proposition?
That’s it, these were our key insights to each question! 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 the Speaker
Farhad Alessandro Mohammadi, Co-founder and CEO at Mamazen, has 12 years of experience in the digital field. He founded Mamazen Startup Studio in 2017, making it the first Startup Studio in Italy. Previously, Farhad managed sales teams at Bakeca.it and Glamoo.com. Former Co-Founder of Pony Zero, he took the company from zero to 6 million revenues in 5 years (Exit in 2018).