Venture Studios - Equity Incentive Structure
Hi everyone, An1 leaving for a tech focused venture studio. It is a really great opportunity with founders who have led multiple unicorns with excellent track records, which we will be building from the ground up. It is also important to note that it will be a family office, investing roughly $1 million into each seed company and potentially investing up to $50 million in a later round.
My question is around equity incentive structures for venture studio associates, especially as a first hire. The carry model for VC and private equity doesn't seem to quite fit. Neither does splitting founder shares since we are investors.
What have you heard or seen for something like this?
The proposal I was given was as follows:
- 0.1% of net cash returns on companies that I worked on. This is also at the discretion of the fund (for instance if I only worked on it for 1 year and then it sold 5 years later I wouldn't get as much)
To be honest, this just feels incredibly light as an incentive structure. And neither of us really knew how to structure it. Anyone have any ideas?
I'm also curious if anyone has any general thoughts on the venture studio model. I think a lot of instances out there of times it doesn't work, but if you have the capital and world class talent in-house, I can see it working.
Responding to my own post but off the top of my head, I am thinking of a way to co-invest a part of my salary. Receive 0.5% in a startup that I help build during their Seed round (assuming $1,000,000).
Bump
I’ll speak to thoughts on venture studio model. I recently considered a very similar role—venture studio investing out of family office wealth; and both partners were ex H/S/W mba with strong networks and serial founder experience.
Dated them for 6 months to see what kind of businesses they ultimately decided to build, what their validation process was like, and the quality of talent AND downstream investors they had access to.
Ultimately, I decided to pass because the comp was discounted to where I was at in VC (which is already discounted in asset management), upside will take a long time, and venture studio model is largely unproven, and while I don’t disbelieve that it can work, I didn’t think this team would be the breakthrough.
That said, if you’re really excited about getting to build ideas, you trust and would enjoy spending years with the team, then why not? I think studio model is worth it if you’d eventually like to pivot into founder / early stage operator.
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