March 6, 2021
Hello and welcome to Pipeline! This week: the studio model matures, Indie.vc shuts down and valuations are up, but you should raise less capital.
Startup studios are having a moment. The startup studio premise is that venture investors, instead of finding founders with great startups, will come up with ideas and find founders to build them.
The conventional wisdom is that this doesn't work because investors may not have the best ideas, or they can't marry the best ideas with the best founders. And even if they can do that, this doesn't scale.
But studios are now behind some of the biggest startups. Snowflake, one of the biggest exits of 2020, was built in Sutter Hill Ventures — while not a formal studio, it used the model. And that's far from the only one.
"It's time to eliminate the myth that for a startup to be compelling, the founder or CEO must have come up with the idea," said Gottesman. "We now have numerous recent examples of billion-dollar companies started by VCs (Snowflake and Rover) or studios (Hims), and not by the person who ultimately scaled the business."
Startup studio Atomic, which just raised a new $260 million fund, has built out its startup studio, with companies such as Hims & Hers, which recently went public via a SPAC.
Atomic, founded in 2013, now has more than 35 people, including engineers, designers and marketers who work on vetting new ideas and helping build them out. Now it's starting a program for founders from anywhere to apply to Atomic; the firm used to reach out and select founders or use referrals.
"This thing is real now," said Chester Ng, general partner at Atomic. "It's working and it's scaling."
In Seattle, Pioneer Square Labs, which just raised a $100 million second fund, has developed a studio focusing on local talent. "The studio gives us months to work shoulder-to-shoulder with founders to co-create companies, a unique opportunity to discover the best ways to accelerate the company into the market," PSL's T.A. McCann said.
The model can scale, said PSL co-founder Geoff Entress. "The startup studio concept is not limited to specific geographies, just to specific talent pools."
Startup studios aren't new: Bill Gross' Idealab and others used them to spin up new startups. And more recently biotech firms like Arch and Flagship have successfully built companies this way. But the new firms have refined the company-building process.
It's not going to replace the traditional VC model, but it's another model that can work.
Greg Goldfarb, who is VP of Products and Commerce at GoDaddy, admires the resilience and ingenuity of small business owners. "It is amazing to see entrepreneurs figuring out the new context really quickly to adapt and survive." We sat down with Goldfarb to talk about the rise in ecommerce, the impact of COVID-19, the major trends emerging this year and more.
Ben Sun is a co-founder and general partner at Primary Venture Partners, which just raised a $150 million third seed fund and a $50 million growth fund focusing on New York startups. He was a co-founder of incubator LaunchTime and co-founder of early social networking startup Community Connect, which ran websites like Asian Avenue and Black Planet. He has invested in Coupang, Jet.com, MakeSpace, Ollie, Mirror, Slice, Bounce Exchange, SelfMade, Shoptalk and Penrose Hill.
What's a secret obsession of yours that most people don't know about?
I'm constantly looking for great talent. I spend more time on LinkedIn looking for it rather than reading tech articles or following founders/VCs on Twitter. I am obsessed with making sure I am connecting with the best people who will either start companies or potentially work at our portfolio companies.
What product or service are you totally, even irrationally, loyal to?
Streaming services; I'm subscribed to five right now. Pandemic binge watching is real.
What problem do you want to see a startup solve?
Climate change. If we don't solve this, everything else is moving the chairs around the Titanic.
What company or startup sector is the most underrated right now?
Businesses that are serving real-world, in-person experiences through travel, events, conferences, etc. Some people think these types of experiences won't come back to where they were before the pandemic, but I think the past year has made people realize just how much they miss in-person connections and relationships.
What's the biggest problem in venture, and what needs to be done to solve it?
Lack of diversity — especially within the Black and Latinx communities. This is not only in VC, but also at the underlying companies. The VC industry as a whole can work to solve this by committing to investing in more diverse founders. We just launched our NYC Founders Fellowship program with the goal of helping aspiring New York City founders meet mentors and engage in rigorous exploration of their business idea in order to get it off the ground. We're aiming to increase diversity in the NYC startup community with this program, and we know the diverse community here is one of New York's greatest assets.