Working with a venture studio as a climate startup

As an early stage founder, you don’t have to go down the typical route of growing your company yourself – you can build it in partnership with a venture studio. Here, the studio will essentially come in as a co-founder, bringing expertise and resources in exchange for equity. So, what do you need to know before choosing this path, and how can you set yourself up for a successful partnership?

Suma Reddy is co-founder and CEO of agricultural robotics company Gather and co-founder of the incubator/studio Riffle Ventures. We sat down with her to chat about the pros and cons of partnering with a venture studio, negotiating fair deal terms, and tips for navigating these unique relationships.

Venture studios vs accelerators

Venture studios offer something completely different to most accelerators. The check you’ll receive is much more substantial – ranging between $250-$500k – and the program lasts a year or two compared to 12-16 weeks. This is because the level of support at a venture studio is far more intensive – rather than simply handing you a check and hosting some workshops, they will actively build your business alongside you and get you from 0 to 1, with their experts acting as a plug-in operational team. 

Pros of the venture studio model

Moving forward with a venture studio will dramatically accelerate your growth due to the capabilities and expertise of the people supporting you, and you’ll avoid making the costly mistakes that first time founders tend to make. 

It’ll also alleviate the pressure and personal risk that comes with being very early stage by providing you with financial security – you won’t have to go without compensation and benefits for the six, nine, or twelve months it takes you to raise. 

Cons of venture studios

The primary con of a venture studio is the large equity stake that studios take in exchange for their investment (cash and in-kind).  Ownership targets will range from 15-90% depending on the studio, the capital invested, and the role that the studio takes in co-creating the business concept.

With good studios, the tradeoff is worth it. But not all studios are good studios. One common outcome is that the studio team doesn’t take the long-term growth of your company into account, and you end up with a cap table that isn’t palatable for future investors. If the studio doesn’t have sufficient follow-on funding to get you to the next major round, you could end up in an untenable funding position. Additionally, if you depend on the studio team for too long, investors might be put off by the fact that the majority of your team is working on a fractional basis, which can further hamper fundraising efforts.

Another con is that relationships with the venture studio can sometimes become fraught, due to differences of opinion around how the business might be built.  Many studio managers have the false notion that “if you’ve built one company, you can build any company”.

Finding the right venture studio 

1. Start with the big hitters
Climate is everywhere, so a lot of the bigger venture studios will include climate companies.  A few examples are Betaworks, Atomic, Founders Factory and High Alpha. These studios are large and established, and while not exclusively focused on climate, have launched companies that focus or touch on climate (sustainability, energy, workforce, etc).

2. Dig into your networks
Just like with finding VCs, your best recommendations for venture studios will come from other founders, so talk to as many people as possible. Social networks and Slack Workspaces (like Work on Climate, My Climate Journey, or Airbuilders) will be very useful here. 

3. Do your homework
Working with a venture studio is the most impactful decision you’ll ever make for your company, whether it turns out to be the right one or not. No one else will ever have the same ownership percentage or influence over your business – not even a lead investor in a round. So, it’s incredibly important to do in-depth research. Talk to the founders of every other company the studio has spun out to find out how the studio’s process works, what the studio’s strengths/weaknesses are, what the founder’s subsequent experience with investors was like, and how their relationship with the studio has unfolded over time. 

4. Look for complementary strengths
Venture studios will typically provide a broad range of services, but there will be certain areas they excel in more than others, whether that’s having a top-tier CFO to build your initial models, a strong product perspective, or the ability to help you expand into global markets. Make sure you understand where your gaps are first so you know what to look for in a studio, and can avoid doubling up on the things you’re already doing well.

5. Find a style that suits you
Beyond their technical and operational capabilities, the venture studios’ way of working should align with yours, so look into their cultures, values, and communication styles.  

6. Listen to your gut
A lot of venture studios are still in the process of building out their first few companies, so there’ll be a lack of history to judge them on. So, part of this process will come down to intuition. Build the relationship slowly and gut-check whether it feels right at every step.

Key points to note when negotiating deal terms

1. Do you truly have ownership over the idea?
As a founder, you’ll want to be able to take the company in whatever direction you choose. 

2. Is there pay involved?
Not all studios have the capacity to pay off the bat – can you afford to work without compensation?

3. How much equity are they taking? 
If they’re taking a huge chunk of equity – say, 70% or 80% – the venture studio will need to be a total powerhouse for this to be a fair trade. 

4. How defined is their strategy? 
Venture Studios should have a well-defined and documented strategy that lays out how they move companies from idea to MVP to raise.

5. What covenants are there around control?
Under some venture studio agreements, you’re a CEO in title only, but don’t have any decision-making power in practice because the studio has the majority of the board. Be very careful about how you structure governance – in a perfect situation, the venture studio has just one seat on the board.

Getting the most out of working with a venture studio

1. Set strong intentions
To make sure everyone’s on the same page, you’ll need to get really clear on what you want to achieve over the course of your relationship with the Venture Studio. Sit down with the team, bounce around ideas, and map out your goals, including revenue targets and funding milestones.

2. Remember your company is not their first priority
Your studio partners are often startups themselves, and have their own visions to focus on – they aren’t going to be 100%, 24/7 focused on your company in the same way you’ll be. This difference in emotional stakes can be tricky to navigate, so manage your expectations, and be prepared to exercise patience.

3. Have ways of holding them accountable
That being said, you need to account for the possibility that your venture studio doesn’t perform well or deliver on their promises. This can be an uncomfortable dynamic to face with your capital provider, and implementing good processes via your initial negotiating and contracting will make it a lot easier to deal with. 

Without some type of performance encouragement, there’s no real incentives for the studio to execute. So, maybe their equity isn't just granted, but has a vesting component, or warrants that vest over time. Whatever specifics you decide, the agreement should have teeth – and as CEO, it’s your job to hold them to it once you’re working together.

4. Don’t be afraid to ask for help
Treat your venture studio as your team, not your investors. If you’re struggling with a problem, they should be your first port of call.  

5. Shape the strategy
New Venture Studios – particularly climate studios that are building their first 5-10 companies – are still figuring things out, and might be willing to be flexible. If there’s something you need that they aren’t offering, ask for it.

6. Take advantage of the community 
A good venture studio is in your corner, and can share both the challenge of making strategic decisions and the emotional toll of running your business. Immerse yourself in the community around you and make use of their wider network – the studio might introduce you to your future employees, partners, or champions. 

Suma Reddy is an entrepreneur, organizer and educator focused on catalyzing and building climate technology solutions. She is the co-founder of Riffle Ventures, which aims to unlock early stage climate innovation through an ecosystem and equity-driven approach. Riffle designs climate programs, builds companies and invests globally in emergent innovation ecosystems, including in the Central Valley of California, Louisiana, Senegal, Mexico, and the UAE. Through Riffle, Suma is also a co-founder/CEO of Gather, a startup focused on increasing food resilience by building simplified AI-powered robotics tools to increase on-farm harvest efficiency and improve farmworker safety. Gather is backed by premier partners and investors, including Elemental Impact.