Ep#7: Legitimizing Venture Studios with Neal Ghosh

Welcome to Method, where we decode what it really takes to build and scale startups. I'm Andy Walsh, founder and strategist. Each week we'll bring you actionable insights and real stories. Let's dive in. Hello and welcome back to Startups Decoded. Today a special guest is Neil Ghosh. Neil is at 9.8, which is a venture studio here in the USA. First and foremost, Neil, welcome to the show.

Thanks, Andy, for having me. Glad to be here.

It's a treat and today it's one of my passions, which is venture studios, where you're the first guest I've had so far to jump into this space. And I'm particularly excited and I think over the last, what's been for me, 18 months with my time in studios, the things that I've learned and then the people that I've talked to in the industry, there's a lot of folks who are driving change, but it still feels like there's a bit of a way to go. So to sort of give people some context, I'd love to look at your background and I know that you started life as an economist and then went into the studio world. So I'd love to hear about that transition because for me, I think it's actually really important to have that breadth of skills in there. But I'll let you talk about that a little bit more.

Yeah, happy to. Yeah. So as you alluded, way back in my career, I was on the academic track. I received my PhD from the University of Texas for Economics and sort of had a mindset or a vision of, you know, doing research and doing studies and learning and identifying these insights that you can share in the world. And that took me to Amazon with a similar ish kind of mandate. Amazon is also a profitable company and so they like to put those ideas into action, which I had an opportunity to do for a number of years, but towards the end of my time at Amazon, I started to really get that itch per se, of not just coming up with an interesting idea and not just handing it over to somebody else to operate or execute, but to really fuse that all together. And that's where I helped co found an internal product studio at Amazon with a couple other people and we started. And that was my first attempt at really taking the studio construct of a singular entity that's building a portfolio of different concepts from zero to one and really fusing that strategic investment element. Right. Is this a good idea economically in terms of a growth opportunity, but then weaving that in and directly into into the product and the operational side as well, so that you can move fast, you can be highly agile, adaptable, pivot, and have those cycles be really, really fast and lead to a higher degree of success. I didn't know what Avenger Studio was at the time. A lot of people, I think, have that story when you, when you, you know, kind of survey the space and say, I, I was just kind of doing this right. I realized, you know, they might be an exited entrepreneur, they might be someone who came from investment banking or just some. Anybody. But they say, I was just starting to do this over and over again. I was building up a formula for how to take, you know, companies or products from 0 to 1. And I started to see some patterns, I started to see some similarities, some things that I. They could kind of dig deep in and start to build some efficiencies around. And that's what I kind of think of as the essence of the studio is consolidating some mass of talent of resources and organizing in a way that you're not just building one startup, but you're building several startups, and that's economically efficient. It's a better use of the capital to consolidate it first and leverage it across multiple startups and potentially multiple exits than it would be to sort of just tackle it one startup alone. And there's a number of reasons why, and I'm sure we'll get into it, but that was kind of my journey. And you mentioned, you know, my background as an economist, and that where that kind of gave me a particular perspective was as I'm going through these studio experiences both at Amazon and eventually attached to a venture capital firm, we have a current project now, and we're working with new partners and other studios all the time. I'm sort of always thinking of it through that slightly academic lens, which is like, what is the model of this? You know, what is the core sort of, sort of customer base, investor base, operator base? What are the decisions and the motions and the constructs here that make studios really unique and really compelling? Because if we can kind of crack that nut, then there's a lot we can lean into in terms of how we can better design them, how we can better operate them, and ultimately continue to extract that excess value that many, many studios have demonstrated to date in terms of building out a higher degree of return and better, better outcomes by sort of consolidating and organizing this way.

Yeah, great. That's a really interesting look back, and I'd love to briefly look at the Amazon Time. So our topic today is legitimizing venture studios. And obviously big tech is renowned for innovation at scale and when you have resources like that, I'd love to get a bit of a peek at the way that Amazon treated innovation at that point and where ideas came from. And a studio feels very complimentary to that experience to look at how to use, build prototypes, road test, et cetera. And like, I guess the question in that, comparing to what you do now, what were some of the key things that you saw within the Amazon version of that that were different or unique?

Yeah, so I'll talk a little bit about Amazon, but then I'll also weave in some generalizations to how sort of corporate venture studios sort of exist and are positioned against maybe a classic venture studio or startup studio because the themes kind of overlap and I think there's sort of some broader insights to pull out. But my particular time at Amazon, there was definitely kind of this duality of some conflicting themes. On one end, the resources were abundant. I mean, this was Covid time when you know, the stock price was very, very high. And you know, and so there was a lot of capital, internal capital, to take these big swings and go after new products, new technologies, new growth opportunities writ large. And so that is really what helped us get the entire studio off the ground and have a sustained success for a number of years was just knowing that there was appetite to be chasing, right, these opportunities. We were unique in the sense that up until that point at Amazon, innovation teams or studios or labs, that the taxonomy kind of was pretty, you know, blurry at that time. They were always organized by division, you know, and Amazon had, you know, the retail division, which was very separate from the AWS division, which was very separate from the way they did their consumer devices. And we were cross cutting across that. So at first there was consternation from some of our executives who were championing this, which is like, well, how can you really be so great at all these different things? They're so different. Right? That's why we organized in the first place. And so our response to that and what we eventually approved, proved out in our operations was you needed an outsider's mindset to really tackle the sort of cross cutting opportunities. Like almost by default, anyone working inside those vertically organized divisions are going to start developing blind spots because the day to day operations create those blind spots. It's just natural, right? It's not the fault of any individual, no matter how smart they are or talented or how many bold ideas they might have. The operational context frames the thinking and that we needed this separate structure to really have a completely different perspective to identify those opportunities that weren't coming up through the day to day operations of the teams that were embedded in those, in those unique divisions. So that was one of the biggest things we had to establish as almost a mental model of the studio was that this was not, you know, not having deep operational specialty in this one particular niche division wasn't a bug of the studio is actually a feature because we're getting fresh eyes at the problems.

Yeah. And it's fascinating because you make the assumption outside looking in a big tech that it's just full of innovation and people sitting around thrashing out ideas, etc. But if you're so focused on growth, on revenue, on competing with the, the main people within your own vertical, then it's easy to lose sight of innovation. And innovation is a cultural thing. Right. Like innovation is used a lot, but it has to come from a perspective of someone that is prepared to test and learn and be proven wrong. Find outside point of views, as you said. And one of my favorite books is David Epstein Range and he talks a lot about that as far as comparative studies where you could have someone who's a specialist say on, on a heart and they go in and look at a problem and then you have someone who's a emergency doctor and they will look more holistically and look for other alternatives and quite often can be more successful in treating a cardiac problem than a heart specialist just because of their breadth of what they're looking at. And there's lots of great examples in that book and I think that it's, it's interesting, I think another pattern sort of stepping into another line of venture studios is what I would observe in big multinational corporations, the reduction in R and D and focusing more on acquisition of startups. So like innovation doesn't happen internally. It's identifying categories that are complementary to their suite of brands, acquiring them, et cetera. Would you say you've seen the same thing?

You definitely see that as a strategy inside large organizations. Even at Amazon it was a strategy. In fact, our product studio was organized very, very close to the corporate development function, which was always doing those acquisitions or seeking those acquisitions and strategic partnerships kind of across the board. And so what I, what how we positioned our particular product studio is that this is not, this is sort of a complement to that acquisition lever or that partnership lever to be let's build internally. And of course there's reasons to build internally and there's reasons not to. You can look at how well and an already existing startup has solved a particular problem, how advanced their tech is, to what degree you can acquire it at favorable terms, to what degree it can integrate well. It was actually that integration piece that we ended up finding our value add the most, which was because historically the integrations after the fact didn't go as well as people had imagined. Because Amazon's a very unique culture. There's all sorts of reasons why a team that's just been acquired may not be as, you know, prone. Right. To continue at that pace of innovation, that pace of development. What we were saying is, well, we're, we're, we're pulling from a group of individuals that are already been sort of dyed in the wool of the Amazon way and familiar with the processes. But to your earlier point, they still have some generalist traits. They are not being asked to go deep for years and years and years on a very, very particular niche. They're being asked to think broadly. They're being asked to pattern match in linear and nonlinear ways. They're being asked to absorb risk in their ideas and absorb failure when those ideas don't always work out. And so there was an incremental culture that we were teaching in the studio. But the reason why building internally had a particular effect was because sometimes those acquisitions didn't always yield the same return based on the particulars of that type of deal.

Yeah, that's fascinating. And I think that the way that you define that compared to a more independent venture studio, which we'll get into in a little bit, it's fascinating for me to be able to get a look at that and understand the process, the people, how it rolls out. I think having the resource like it may be a good idea, but then validation and everything that goes behind the venture studio model. So I'll pause for a second because I think it's actually a great place to sort of put a bit of a stake in the ground as far as what a venture studio is. I'd love to hear you. As far as big picture, what does a venture studio do?

Yeah, and I'll start right off the top and say that a lot of the definitional concepts I'm going to bring forward actually came from one of my partners, Matt Burris, who, you know, anyone listening on this podcast, please go check him out on LinkedIn, see his posts, see his write ups. I think he's doing some of the best work in the space in terms of coming up with some canon, for lack of a better term, some Core definitions, some core frameworks, some core categorization and taxonomy that's going to help both insiders and outsiders have a better understanding of the shape of the space. So the way we kind of posit it collectively, like Matt and I, when we have conversations, he always tells me, you have to have three roles that are happening simultaneously inside of a studio for it to be a studio. The entrepreneurial role, which is largely the ideator, and the person or the entity that can bring that idea into a business form. Right. The way that it can be developed into a business that has the right growth potential, profit potential, you know, exit potential. Then you need the operator role, which are the individuals and vendors and resources that actually go and build that business. They actually execute, they develop the product, they actually go to market, they drive the sales and they manage, they administer all those sorts of things. And then third, you need the investor role and an entity, the studio that's actually deploying capital and financing the activities of the entrepreneurial role and the operator role. And so that's pretty complex right there to think about all three of those having to lock in with each other and work sort of in harmony to yield the final result, which is not just one company, but a portfolio of companies that have, you know, that are meeting the thresholds of success as that particular studio defines it. But what I like about this definition is that it really separates what studios are doing versus sort of adjacent entities that also kind of fill the startup and venture capital sort of ecosystem. So as an example, you have accelerators, they're pretty classic model. They may or may not be providing capital as playing an investor role. Sometimes they take sweat equity, sometimes they just, they write a small check. So they're kind of in that role. They're definitely not in an operator role at all. Very few accelerators ever say, I'm going to have staff on hand, software or marketing or design. No, they rarely if ever do that. They're usually focused on mentoring and advisory or having events or having courses or learning. And they're definitely not the entrepreneurial role. They're relying on the founder to come with their idea and at best they might help hone the idea. But they're not in that co creation role to say, hey, I'm going to take, you know, participate in that process of actually defining what this business opportunity is going to be. So that's why I think of that studio element as almost a variant of private equity. Private equity came up in the 90s as a very popular model to consolidate capital but then acquire Companies and act as an owner and an operator. So the operations were supposed to be enhanced by the fact that the operators were financially incentivized by being owners. And the ownership stake was supposed to be enhanced by the idea that they are operators, they can control their destiny and growing and appreciating the value of their assets. I view the studios is no different with one key exception. Instead of looking at leveraged buyouts of very, very large organizations, this is just building companies. So it's, it's, it's private equity at a very, very micro scale. And as you might imagine, the talent and the skill set is highly, highly organized around those zero to one problems, around entrepreneurial problems, around finding product market fit and finding traction, around the ability to have high, high velocity of testing new ideas, failing fast and moving on to new ideas and iterating concepts until you arrive at one that you can really grow with. And so the mechanics financially look a lot like private equity. The mechanics operationally are sort of your classic startup problems. And the cool thing about studios is that you get to do it over and over again. Many exited entrepreneurs, they look back at their time and they say I had really fun at the beginning and then I spent the last 10 years just managing things until I could cash out with my exit. And a lot of them, it's not fun. Right. They actually enjoy the 0 to 1. They wish they could just do that as a full time job. Studios is actually a model which allows them to get closer to that reality.

Yeah, great insight. And I love those three buckets as far as an entrepreneur, an operator and an investor. And I think it gives us a good framework to sort of continue the conversation. So to get started in a venture studio, obviously you're at that entrepreneur stage. Right. But you're also fusing the, the investor there. So you need capital upfront to be able to have the right people to come up with the right ideas to get momentum in that space. Right. So straight out of the bat you're operating like a, like a VC firm would be ultimately in a way too. Right. You need a network, you need people of high net worth that will back your studio to then create businesses. So within that like what sort of things do you see as patterns and consistencies with the way that people approach that very first stage of fundraising for a studio?

Yeah, I think the parallels to how maybe a first time venture capital manager is going and raising that fund one like you really start to see what are the different patterns of success to get yourself off the ground. I think first and foremost, you start to like. One model you see is that the studio leaders have a very, very powerful track record as entrepreneurs in the particular vertical that they're organizing the studio around. And at that point they probably have a network of high net worth individuals, VC, LPs, perhaps that they got an opportunity to interact with during their time as an entrepreneur. And for them, the gap that they need to close is just educating this base of investors on what the studio model is to say, okay, you know me as a person, you know me and my track record, the ability to return capital once it's invested. Let me just explain to you the very particular nuances of how that capital is going to be invested through a studio model. So I think that's probably one model that we see most successful. Another model is where let's say you have a group that comes together, they might have been executives, senior executives in a particular industry, let's say healthcare or something like that. Then they can form a studio on the basis to say, I know I'm networked to all these like key players in my sector, I know how to identify the pain points, I know how to quickly identify early customers and I can go to market very, very effectively once I understand what the pain point is and I just have to go build a solution. So investors tend to like those types of studios because there's those studios are de risking that go to market process. Right. They're saying it's the studio leaders themselves that have access to the right buyers, the right customers that are going to be part of the process of forming these successful companies. And they've taken that risk factor off the table. For me, it makes it a better investment. Those are probably the two primary ones that I've seen work the most. And the reason is actually very are related to each other. An investor that's going to be putting money into a studio, they're looking at a daunting proposition. When you think of I have to pay for staff, I have to pay for multiple builds, many of them are going to fail. The ones that are success, I'm going to have to be allocating more capital so that those ones can continue to grow. And then someone at the end of the day has to turn that all into an exit and then that's going to flow through the studio and then that might flow back into the investors. So that's a lot of hoops to jump through. Right. So what's going to cut through the noise of all that? Well, it's primarily those who they fundamentally trust as individuals who can repeatedly figure out a way to build these companies up efficiently and ideally quickly and then get them on a path to returning capital. So exited entrepreneurs that have a lot of reps in a particular industry tend to do well. A studio leader, so used to be executives and have incredible networks into a particular vertical or industry tend to do well as well. What tends not to do well are like sort of the agnostic ones who say, well, we're just really good builders, you know, we're really good scientists. Like more like a lab model. We're going to bring a bunch of great talent together, we're going to come up with ideas and then we're going to spit them out as they come. That I think worked really well, maybe in a better financial climate where they could get lots and lots of funding and roll that out for a number of years. But I think nowadays the patterns of success are geared towards how quickly you can drive towards that traction and scale and how. And doing it relatively efficiently.

Yeah, and there's two things there that I want to focus on and one of those is the exit event. Right. So if you're investing into fund one of a VC firm, you're. You're locked in for that time period and your success is attached to the companies they invest in in that fund. But as soon as they hit fund too, you don't have a role at all as far as there's no returns. You've got your capital out if they've been successful and you get a multiplier on that. The difference within a venture studio is that you've got a seat at the table forever. Ultimately, if you retain your ownership share in that investment up front, every time there's an exit event, you're going to get your prorator share in the carry that gets distributed out to each of the shareholders. Right.

That's definitely one way and a pretty common way of organizing capital around a studio to say you invest in the studio and what that does is either on an evergreen basis or in some sort of fixed duration. Every single company that is originated through that studio, that investor is sort of implicitly captain right off the bat. And that's. I think there's two value propositions with that. One is that there's going to be multiple shots on goal and you're sort of already baked into that cap table, that opportunity. But the second one is because it's being originated inside the studio, you're getting capped in at pretty favorable valuations. Right. That the studio gets a relatively larger share of that company at a relatively lower valuation than coming at it from, let's say the VC angle, where they might be buying in at pre seed or seed or Series A where the valuations have already appreciated quite a bit. So that's, I think probably the best way for an investor to think about actually investing in a studio is that the studio has this opportunity, opportunity to actually create their own deals at favorable terms and potentially create quite a number of them and that the the investor has exposure and allocation into all of them. And then it's just a matter about how well the studio can convert those opportunity into successful exits. Both the conversion rate in terms of whether it exits or not, and then of course the total exit proceeds on the ones that actually make it there.

Yeah, and flicking back to Matt Burris there, I remember reading some data and I can't remember the exact number, you may know it, but I ir on Venture Studios is much higher than a traditional VC fund. I feel like it was like 10% compared to 35%. Ballpark numbers from memory.

Yeah, I think it was a little higher on both ends. Like the Top third of VC was being marked at about 21% and the average of the studios they sampled in that study was actually closer to 50%. Now those numbers are a few years old and there's a few other numbers coming out lately that show a slightly different picture. Unfortunately, I won't be able to quote them because there's things I've reviewed privately, they haven't been, they haven't been published yet. But I think what, you know, if you didn't, if you're not going through all mining all the data and reading these studies, you know, day in, day out, the number one thing I would tell folks is that for the studios that are doing it well, and we can talk about what well means, there's a tremendous amount of efficiency in terms of how quickly they can originate an idea and getting it all the way to Series A. So in vc, you know, in VC sort of mental model, like understanding the life cycle of a startup from its inception, you know, through seed, Series A, BC, whatever, into ipo, all this sort of technical risk and product risk is happening in advance of Series A. At Series A, it's like you already got a few million arrows. Both of your problems are about growth and scale. They're about market expansion, maybe defensibility, hiring the right talent. They start to become big company problems. All the startup problems are being solved from inception all the way through Series A. And so the studios that are shining, that are really at the top of the distribution of the studio ecosystem. They're demonstrating an ability to get through those checkpoints, pre seed, seed and all the way to Series A both faster, which is important from a duration perspective, but with less capital, which is really important from an ROI perspective. And the reason is because they're kind of professionals at building new companies. When you're, when you're a new entrepreneur. I've never been a founder before. It's just natural. You're going to make mistakes, you're going to end up wandering around, taking some time, pivoting, spending resources where that didn't end up being a way to advance your company. And that's normal, right? We all expect it. When a studio's been doing it 3, 4, 5, 10, 20, 30, 40 times, it's like a factory, right? They have brought some efficiency into the process and that efficiency ultimately yields itself in some of those higher ROI numbers.

You've just perfectly articulated my second question within that part there, which is around the people and I think that it's if you wanted to compare the pair and sort of expanding on what you just touched on there. And I'm an advisor across four companies and I see common patterns all the time with first time founders as far as their lack of experience in just doing the most basic things from like legal templates to operational process, things that are standard every time and the way that we work on building those out is to have a sequence of events and there's things that will be the same in every startup that will guarantee are going to happen at some point and you can map those out on a timeline and understand those. So what a studio can do is actually have processes, templates and things to make that as effective as possible. To your point, getting to Series A as quickly as possible, where it's financially independent, cash positive and hopefully not reliant on external funding to minimize the dilution that happens at that point where if you're a first time founder independent, you've got a lot of things you're trying to do at once, which is already challenging enough in a startup. Whereas if you have zero experience then you know you're on your own to a certain degree.

Yeah, I think you nailed it. You know the ethos of a startup founder, right? Sort of like, you know, high IQ and high vision and sort of working 20 hours a day, you know, and sleeping on the, on the floor. It's not particularly productive when you think about what does creates value that can be returned to investors at the end of the day. Some, some would argue that all those inconveniences are required because they're bundled with a great amount of talent and a great amount of genius and all this kind of thing. And I don't, I don't really have a dog in that fight. But what you alluded to is that if you're building companies that actually have rhythms or patterns that can be modeled, templatized and then enhanced or expedited, as you're building more and more companies, you are going to create a lot, the same amount of value, but lower cost of capital and faster. Right. Less time. And to what degree every studio will be a little bit different. To what degree they're asking founders on a company to company basis to come in and provide certain inputs versus what inputs the studio will sort of hammer out and put into a playbook. But there's always going to be a mix of that, where the studio is going to be most comfortable and most effective in working in startups and companies that fit a particular mold, fit a particular pattern or approach, and where their templates, playbooks and special sauce can be applied with maximum effect. And you know, when I talk about this with others, there's kind of, it's an evolving opinion, right? I think there is a little bit of a romanticism of what a startup should be. It should be crazy, right? People should be like wild, wild west and like building the plane as it flies and all these idioms and that's what makes it great. And then there's some folks who are like, no, that's pretty stressful. And if so, if there are studios that can prove that they can take some of that stress and take some of that chaos out and turn it into better efficiency, then that's a win, win, win across the board. It's a win for the founder. They don't have to engage, spend all this time doing things they're not good at, that they might actually be bad at. They can just focus on building their products, selling product, doing the things that they're best suited to do. Heather Studio obviously wins because they can leverage all of their consolidated assets, templates and abilities. And then if the numbers shake out, the investor's winning too. Right? The investor can rest at ease knowing that the capital is being managed both directly and indirectly with an organization that is really well prepared to govern and guide these startups at scale.

Yeah, and there's a couple of things in that for me, that I think are important to focus on too. So within that, the people, right? The experience, if you've done it. Say you've had an exit or multiple exits, or even not just being part of the growth. To get 0 to 1 and get cash positive in a business, your ability to understand the things that will happen and be prepared for that versus the other side. And in episode number five, we had Rachel Hamlin on and she's an executive coach and her strength is around mental health and being able to separate work and personal life. Make sure that you're not doing that stereotype of 20 hour days, sleeping in the office and burning yourself out, because that doesn't help anyone. It declines your own mental health. But that impact on your team, on team culture, et cetera, is really important. And I think for me using that to sort of go into the next question as far as bringing people on board is one of the most important things I think we should really cover today. Obviously the fundraising is key in that and getting the right idea. But if you're a studio and you've built a prototype, you get into a point where you may be launching, bringing on the right operator and you touched on a little bit earlier as far as that subject matter, expertise, finding that right person to take the reins and transition that ownership from the studio out to an independent company. How do you see that process typically working in a studio?

Yeah, I think there's a couple of models that have been successful and I think can be successful as long as the studio organizes around them. And I think they just kind of organize themselves on a spectrum of how much experience as a CEO and an entrepreneurial CEO are you sort of buying into and at what stage of that startup's development. So I think one model is you bring, you can bring in relatively inexperienced founders and you know, oftentimes will be founder in residence program, entrepreneur in residence program. And the studio is sort of incubating them in a way, and they're incubating them while attaching them to, to these early concepts and putting them in a position where by the time they are assuming the reins of the CEO or a senior leadership position, they're comfortable, they've been repped, they're really familiar with the business model and they can sort of take it away. So I think there's a pro and con with that. The pro naturally, is that you can pull from a wider pool of applicants, I guess, and candidates because you don't necessarily need them to be experienced and have all the capabilities from day one, they can grow into many of them. You're giving them time, you know, to really grow in and to really get mature and refine themselves in the context of what you're asking them to go do. But then the downside is that these are longer bakes, right? This is a little bit of assuming some of that career development risk or talent development risk on behalf of the studio and making sure that that is successfully mitigated and enhanced in order for the whole company to succeed. The other end of the spectrum is do the other way to say, okay, what we're really going to do is we're going to own this company as if we're the CEO for a long time and then when it's ready to be handed over, it's going to be like top of the line. Someone who has been a CEO of multiple times. We're going to pay an arm and a leg but when they come in it's going to be on rails like we're never going to have to think about doing anything. This person is just going to take care of it. And as you imagine, the pros and cons are flipped. The cons are that these people are very hard to find. They're even harder to recruit. They're often, they'll often have to give up a very high salary or compensation package and exchange it for equity in this new company and the upside that that equity affords them. But on the, on the operational side for the studio, once those people are in seat, they can really be independent and they can really guide the spin out and free up the studio both in their time and their reserve capital to go focus on that next next wave of companies.

Yeah, that makes sense and it's interesting like you touched on it before as far as the thesis of the studio and how tight their speciality is. And I think having a entrepreneur in residence within the studio who can run a startup idea and launch it and carry it right through into the point where they then transition it over. Obviously there's a higher investment within the studio from a headcount perspective, but then you have that, the ability to have probably a higher confidence I would imagine on that business. Staying to strategic plan of what it had carved out for growth and then also building a team around that people getting to a point, as you just said, where you then employ a CEO to come in and transition and that's at the scale phase, probably post series A or B where you're starting to go into okay, like what does our exit event look like as well? And they sort of double down on what you've done where the other side is less headcount internally without an Entrepreneur in residence, but finding the right operator who could get in and get their hands dirty with that person. Are you seeing that there's an opportunity there or maybe an alternative path for someone who's thinking about getting into startups may not have the personal capital, may not have the right skillsets, but their ability to join a business where they've got subject matter expertise and are able to lead a team, almost like a general manager, to be able to learn the craft of startup and then use that as a stepping stone to go and do their own thing afterwards.

I think that's definitely a model that we've seen and one that I think, I think there's an ideal or a mindset that we should be trying to stretch that to the max. And so I'll kind of give my two cents about where I think it's worth and where it hasn't in terms of like just putting it all on a piece of paper and saying, hey, there's some. Exactly as you laid out. There might be some highly skilled, maybe they're mid level career, right? They've been promoted, they're successful, they've proven their GM chops and this is sort of an on ramp for them to not maybe take as much risk as completely going out on their own, founding a new company, but some partial amount of risk, but also being buttressed by the studio, not just in support and guidance, but oftentimes studios will offer those folks a salary while they're working their way to convert over to being that CEO or that leader. So in many ways that's very attractive for somebody who's in that position looking to make their way into becoming an entrepreneur by them on their own. Where I think that fails is that when you look at a lot of the studies and you look at the success stories of what makes a good entrepreneur, what makes a good CEO of an early stage company, a lot of times it's not just skills, but it's traits. It's traits of problem solving, being able to tolerate risk, being able to tolerate failure, dealing with ambiguity, being comfortable with ambiguity. It's about, you know, not only finding the right people but, but being able to build cultures and harmony with those people in ways that's not going to create sort of automatons, you know, because like I think about the contrast when you're a GM in a large company, oftentimes the division you own, it's already been defined or you just need certain people that look a certain way and do a certain thing and you just plug them in and the machine works. But when you're building a startup, you're creating that machine and then you're finding the people that have to fit in the machine. And that's not always. Sometimes the, the order of that goes the other way too. You have to find people and then figure out the operating model that makes them, that allows them to be their best. So my sort of, I can't go all the way to say hey, that, that's a universally applied model of bringing in EIR talent and expanding the pool of founders only to the, only to the degree that we're really screening for traits and the key traits of what are going to allow people to succeed in that early risk oriented environment and make sure that they have all the mindset and the aptitude and the gumption and all that other thing to get through. Because what I've seen in the past too is that studios that have leaned too hard and so I can just hire my founder, I can just hire and train my CEO, they try to widen out their portfolio but then their talent gets diluted and the studio finds them or they're overwhelmed with actually covering and supporting those CEOs because those CEOs aren't quite able to handle it all themselves, even after the training, even after the incubation period. And that's where studios can really get themselves in a bind because that's the worst place you want to be. Is overextended against too many projects that are not able to operate self sufficiently either in terms of the talent that's been embedded or the financial model that allows it to remain default alive without the studio pouring more capital into it.

And we had Crystal Destnoyer as a previous guest and she talked about the three different mind. Three, three different mindsets across different phases. And stage is that ambiguity that you talked about. You've got people that come in and they're, they're growth hackers, right? They're testing and learning every second of every day. They lack probably skills in process and project management. It's very much sort of on the fly and they're happy to work in that, in that space. And they're quite extrovert typically as personalities with what they're doing and become quite champions of that business. And then the second phase, you've got the people that are then building the process. So how do you build the machine that you touched on before? So how do you define that? How do you get some structure and organization? And then the third stage, probably post series A, is when you're going into the people who can follow the process and can double down and use experience data, all the things that you do to help scale a business at that phase. And I think that probably fits neatly alongside the type of personality that you would need to be a good operator, depending on how early they join the company.

Yeah, yeah. And I think what you'll find a lot is that the studio is trying to proxy for those later stages so that the founder can excel in those behaviors and those operations of the early stages. And so that's sort of the ideal sort of, you know, combination is not, hey, the founder come in, test, prototype, iterate, learn from your customers, evolve and will make sure like legal processes are under control and HR processes are under control and we're paying our taxes on time and we're closing our books and things like that. And from there, you know what? I've, I've seen cases where sometimes those early stage founders can actually develop their skill set and continue on and keep riding it through that second and that third phases. But I've also seen plenty of success, successful models where once you're reaching those second phases, where it's all about process and then doubling down on that process that you see that natural switch. And when you think about the, the people who are studio employees, the people who work for the studio and they're most active in those early stages, the folks who are really, really good at those operations, but then also good at sort of not having an ego or attaching themselves to any individual project, those tend to be really, really effective for studios. Because then when maybe you're changing the guard or passing the baton to someone who's going to take that company to its next wave, it's not personal. It's not like the earlier leaders get fired or getting ousted. It's like, no, there's a chapter one, a chapter two, a chapter three. And the people who are working within the studio in those early processes typically understand that, hey, I'm really great at chapter one. Like, I don't want to be in charge of these chapter two and chapter three things.

And my personal experience in my startup that I had was it becomes like a member of your family. You're so engaged and you're so attached to everything. You live and breathe and sort of die by the sword as far as what you're doing. And you sort of, it's an emotional roller coaster. So being able to separate yourself from the ups and downs that inevitably happen on every startup journey in that sort of zero to one phase within a studio, sort of removes that emotional attachment. And I think you can probably be more focused and maybe even more effective.

I think so. And certainly operationally and definitely from a capital perspective, you know, when you study why the returns are sort of getting amplified in studios, they're just more objective and maybe ruthless about killing, right? Killing ideas. If they don't meet a certain level of validation in a certain amount of time, they tranch their funding. You know, nowadays a pre seed round is half a million to a million seed rounds. I mean, think about seed. The word seed was meant to be like the first one, right? But now it's like very mid stage. It's like 2, 3, 4, $5 million, sometimes more. And I've seen studios where they tranched their capital $10,000 for the first wave and maybe $25,000 after that. They are being ruthless. They're like, no, we want to see validation that can be demonstrated with $30,000 of capital, maybe six weeks or eight weeks of time. And it's that objectivity, the ability to separate the emotion, as you said, that I think allows a studio to reach its maximum effectiveness. Because the reality is it's an early stage game, it's a high failure rate. Even if you're doing it great, it should be a high failure rate because the more you're exploring and the more you're considering art of the possible, the more you're going to find dead ends. Like, that's fine, right? You don't want a studio that's like, I've got a 90% success rate on my early ideas. I'd be like, where are you looking? Right? Like you're obviously not stretching, you know, your thesis to the broadest extent to explore and conceptualize and iterate on, on all the possibilities to find the most impactful ones. But when you do that, the discipline to be able to kill them or to stop the funding or say, hey, this one's failed, it didn't work. That's not a failure of the team. That's actually a success of the team to drive it to its appropriate outcome and then move on to the next one. Those, I think are the studio operations and cultures that tend to do the best.

Fascinating. Yeah. And I was chatting to a CTO yesterday and we had this conversation, almost still shock around the fact that how many startups spend so much time and money building this perfect product without any early validation or any sort of customer feedback? And it's like so very much a Hail Mary that you assume that what you're building is needed and you don't have that sort of luxury, I don't think in a studio, to your point, like you have to have quick validation, spend a little amount of money as possible and be really confident in the ideas that you're building.

Yeah, I think that's if, if I could, you know, send that one piece of advice to any innovator or entrepreneur or early stage investor, it would be exactly what you just said, that, that thinking of I have to go build the perfect product and then launch it in the world and that's the only way to realize this vision is just completely wrong. Especially in 2025 and where we're going. Right. Technology, technologically and just the way the economy is kind of shaped around that. So it's like with the combination of AI automated tools, a global talent pool and the ability to quickly frame prototypes and concepts of prototypes and get them in front of customers to say would you buy this if I built it? If so, how much would you pay? Are you willing to maybe write a letter of intent or an MOU against that? So when I deliver this to you in two months, you'll pay me? You know, you'll, you'll deliver revenue to me? Maybe you can deliver me upfront revenue if you're that enthusiastic and, and then allow us to capitalize this build. There are so many ways to not endure that go to market risk in the way that we conceptualize might be necessary. And the way startups were organized up to, let's say, you know, 10 years ago, the evolution in go to market technology and AI and the ability to seek and confirm validation of new businesses without significant amounts of capital is as great as it's ever been and it's only getting greater. So you don't have to be in a studio for this advice. If you're an entrepreneur and you're thinking should I do this? Should I don't just test it out, you know, I'll give you an example. I won't tell you what the company is, but there's a recent one in one of our studios where the combination of their LinkedIn presence and a simple DM that put them to a commitment form based on a slide and a demo of what the product was yielded $60,000 in committed ARR over a weekend.

Wow, right?

Didn't have to spend anything. Maybe a FIGMA license or something, you know, like that was it. And, and this is what, that's that, that's the tactics, right, that are being driven into the studio process day by day because they have the mindset to optimize the venture building process. And when you're in that mindset day in, day out, you're always going to be looking for those opportunities to squeeze capital out of the equation, to accelerate the timelines, but really just focus on what validation and confirmation of your idea really means and how conclusive it is. When I see founders get lost along the way, it's because they're reading signals that they think are positive, but they're actually just noise. Oh, that investor was really excited. They want to keep talking to me or like, oh no, that, that customer, that B2B customer wants to have us meet their boss and we're going to do another view, you know, or something like that. And you're like, when the answer is not a clear yes, it's actually a no. And you have to go through that game a few times before you really let that lesson sink in.

Some great advice in there. I love that around the product as well as I totally agree in the sense of now like defending with a moat is getting harder in a lot of categories as well. So it would be remiss to me today and a very hot topic, particularly in the world of VC is the ownership splits. And I've been part of some conversations from studios with founders. Also VC is very much around the equity splits of someone that comes in as an operator or co founder of the studio and some of the pros and cons that exist in that. And for me I'd love to hear from yourself, what are some of the things that you've seen negative and, or positive?

Yeah, so I'd love to start with the negative. A studio who takes too much equity without understanding the incentives of the founder and the incentives of the follow on investors that will come in after, you know, at a, at a, at a later round like a series A or series B by and large just fail. And the reason they fail is because again I'm quoting our great friend Matt Burris here. A studio's job is to harmonize the incentives and resources of four key customers. The investors of the studio themselves. They get a significant chunk of the cap table, the studio team and the employees, right? They are your key operational leverage and they have to be motivated, incentivized to do all those entrepreneurial tasks and that we just discussed. Then you have the founders who attach to the companies and they are taking that leadership role, that co founder role alongside the studio and then the follow on investors who are going to enter the cap table, take a position and be part of the journey on the way to exit. And if any one of those is out of sync with the other, the companies that are coming out are just, they're not on good standing. You're going to have some entity on the cap table who's not happy, who says I'm not getting a fair deal, Somebody else has got too high a percentage for whatever their value is versus what my value add is. And so the studios that get it right are the ones who are very clear and intentional and pragmatic about what those equity stakes look like across those four classes of customers. And they're very honest about it and they're letting people know this is how we operate and this is how we plan to create value in a way that even though we're all taking different splits than we're used to in a traditional startup, the net result, the pie has grown in a way that we all get a better return. And that doesn't necessarily mean one fixed number for every studio in the world. So I mean a great contrast. Two examples that contrast each other. One is biotech and pharma. It's like years of capital intensive lab testing, FDA trials, all these things. It's very common for those studios to take 70, 80% of the cap table. They're also paying the founders and those founders are largely PIs or researchers who just want to engage in the research and make sure that the the end result is technology technologically de risked and they can see it on its way to make the proper impact in the world. So it's a very different value proposition of a founder in that kind of context than let's say a founder in a B2B SaaS context. Maybe that founder can actually do a lot of this themselves. Maybe they're just partnering with the studio for a particular reason to go to market reason. Maybe this, the studio has a product shop inside that's going to accelerate the build. You would expect those, the cap table to show a dramatically lower equity stake for that kind of studio because the economic proposition of what's brought them to those forces together and how the excess surplus and the pie is going to grow as a result of that partnership is just very different. So if a studio isn't actually breaking it down by their sort of stakeholder base and how they view the composition of the cap table, enhancing the pie and creating a better outcome for all four, they're probably going to run themselves into some kind of pathology or perverse incentive. Whether it's at the co founder level, the follow on investor or the studio investor.

Yeah, and for me that what I've heard in the marketplace is the same thing. And you covered it a little bit before as far as culture. And if you're someone who's a founder and you've done it yourself independently, like you're all in, there's no sort of pulling out of that. Right. Whereas if you come in at a later stage on a venture studio startup and you've got minority equity in that, then you're going to probably act as an employee rather than as a founder. Right. There's a very different mindset that comes with it as far as accountability, responsibility, etc. And that's what I've heard in market from VCs. And you talked about the follow on as far as they want founders who are dedicated, this is their life's mission, to make this a success rather than have come in get minority equity and the motivation of the studio who carries the majority of equity to then support or maybe even get in the way. And we've all heard of stories about boardroom antics based upon who has a seat, based upon the cap table, et cetera. And that situation can be toxic for companies and sometimes for founders completely out of their control. So I think both sides to your point in certain categories I think have merit based upon what's involved in the investment up front versus timeline versus the return and potential return at the end of that journey. But it's a fascinating debate. I think it's very important that it's talked about a lot more.

Yeah, and I think it helps to actually have the debate because it is very uncomfortable at the beginning. Quite honestly. You're like, founders are trying to understand and feel their way out. What is the fair amount of equity, what am I doing? What am I expected to do? Studios are doing the same thing, talking to the follow on investors. But despite it being uncomfortable and maybe tough to navigate at first, I always find that when those discussions actually happen and reach a conclusion where people understand each other a lot more, the outcomes are a lot better because again, everybody's aligned conceptually. Like we want to grow the enterprise value of this entity, which we all own in some proportion. And how can we do that to its maximum effect? And how can we move these equity pieces around in a way that's going to maximize that outcome, so we all understand that conceptually. And then getting down to the brass tacks of who's doing what, both past, present, future, what do we expect, what are, what are ways we can navigate a situation of what what we expect to happen doesn't actually happen and we need to pivot. It doesn't say we have a crystal ball. It says we can prevent every single potential outcome that could be negative. But at least people are getting in the habit of understanding the thought process about what this equity is supposed to be doing for them and for others and how to organize the mission accordingly.

Yeah, great. Again, good advice. So, Neil, this has been so insightful for me. I'm in this space and I've learned a lot myself today. So really appreciate you joining me today. As far as 9.8 people reaching out to you, what are the. Who are the types of people that you'd love to speak to?

Yeah, so 9.8 really organized around the belief that studios are an emerging model, much like you believe and many of the folks in our ecosystem believe, and that there's lots of work to do to continue to refine it, evolve it, and eventually perfect it and continue to seek perfection on how we can build lots and lots of great companies that the world needs and how we can do it in a better and better way. So we're really interested in talking to other studios that are around the world that are involved in similar type of work. We really love talking to investors that want to invest in those studios we're finding. Nowadays we talk to a lot of corporate partners, university partners, even government partners like economic development agencies, because they're starting to hear about studios and they're thinking, how does that apply to me? Maybe, maybe I'm not. I'm never going to have a venture studio. Maybe it has nothing to do with venture capital, but how can I take that mindset and that model of company building and creation and apply it to my mission? Right. Whether it's innovation, strategy, growth, development, whatever you name it. And so we love to talk to all those types of individuals and it really helps us because we really get to learn about what other people are doing. On occasion, when we have expertise or resources or technology or other assets that we can leverage to help them do better at whatever they're trying to do. That's always a win win. But also just at the end of the day, it's about moving the conversation forward and continuing to take these concepts out of the ether, out of the rooms of sort of like tacit understanding and pattern matching and things like that. Apply a proper model to them in a way that we can continue to grow it and scale it and make it more effective for the world around us.

What a great way to end. Neil, thank you so much for joining us today. Appreciate your time.

Yeah, thanks so much, Andy. It's been a blast.

You're on Startups Decoded. Please share, follow and give me a nice 5 star rating. Always appreciated. We'll be back next week and look forward to joining you then. Out of their control. So I think both sides to your point in certain categories I think have merit based upon what's involved in the investment up front versus timeline versus the return and potential return at the end of that journey. But it's a fascinating debate. I think it's very important that it's talked about a lot more.

Yeah. And I think it helps to actually have the debate because it is very uncomfortable at the beginning, quite honestly. You're like founders are trying to understand and feel their way out. What is the fair amount of equity? What am I doing? What am I expected to do? Studios are doing the same thing, talking to the follow on investors. But despite it being uncomfortable and maybe tough to navigate at first, I always find that when those discussions actually happen and reach a conclusion where people understand each other a lot more, the outcomes are a lot better. Because again, everybody's aligned conceptually. Like we want to grow the enterprise value of this entity, which we all own in some proportion. And how can we do that to its maximum effect? And how can we move these equity pieces around in a way that's going to maximize that outcome so we all understand that conceptually and then getting down to the brass tacks of who's doing what both past, present, future, what do we expect? What are ways we can navigate a situation of what we expect to happen doesn't actually happen and we need to pivot. It doesn't say we have a crystal ball. It says we can prevent every single potential outcome that could be negative. But at least people are getting in the habit of understanding the thought process about what this equity is supposed to be doing for them and for others, and how to organize the mission accordingly.

Yeah, great. Again, good advice. So, Neil, this has been so insightful for me. I'm in this space and I've learned a lot myself today. So really appreciate you joining me today. As far as 9.8 people reaching out to you, what are the types of people that you'd love to speak to?

Yeah. So 9.8 really organized around the belief that studios are an emerging model, much like you believe and many of the folks in our ecosystem believe and that there's lots of work to do to continue to refine it, evolve it, and eventually perfect it and continue to seek perfection on how we can build lots and lots of great companies that the world needs and how we can do it in a better and better way. So we're really interested in talking to other studios that are around the world that are involved in similar type of work. We really love talking to investors that want to invest in those studios we're finding nowadays we talk to a lot of corporate partners, university partners, even government partners, like economic development agencies, because they're starting to hear about studios and they're thinking, how does that apply to me? Maybe, maybe I'm not. I'm never going to have a venture studio. Maybe it has nothing to do with venture capital. But how can I take that mindset and that model of company building and creation and apply it to my mission, Right? Whether it's innovation, strategy, growth, development, whatever, you name it. And so we love to talk to all those types of individuals and it really helps us because we really get to learn about what other people are doing. On occasion, when we have expertise or resources or technology or other assets that we can leverage to help them do better at whatever they're trying to do. That's always a win win. But also, just at the end of the day, it's about moving the conversation forward and continuing to take these concepts out of the ether, out of the rooms of sort of like tacit understanding.