Innovating the Standard Venture-Fund Structure
Venture capitalists count more on being spectacularly right occasionally than being frequently right, and the investment model aligns to this objective. The standard venture capital fund is set up as a limited partnership, with the VC firm as the General Partner, or fund manager, and the investors as Limited Partners. The venture capital firm is responsible for allocating investors’ capital into discrete investments, and is held accountable for the results. When it works well, returns flow back to both Limited Partners and General Partners.
We have adapted the standard venture-fund structure to work for 1) building of new companies (not just investment), and 2) in a corporate setting, providing a structure for balance sheet investment into transformative innovation. In addition, each venture will have the following characteristics:
- A corporate partner at inception who has committed resources (e.g., in kind, investment) and/or has committed to being a customer.
- A dedicated and experienced management team.
In this model, we act as the General Partner, and the VC and/or corporation acts as the sole Limited Partner in a fund structure. We also take significantly larger equity stakes in the startups we create than the average early stage investment fund does. This advantage, combined with our ability to provide support for go-to-market and growth through our in-house services and partnerships, enables us to accelerate and enhance liquidity events, providing significant benefits to our investors.
There are no management fees, as is traditional in a venture fund.
Rather, the capital invested into the partnership funds both the studio operations (a team of full time Venture Builders & Associated Costs of the studio) and pre-seed investment into new companies.
Our company and the corporate partner share in the equity ownership the joint studio fund earns in the new companies it launches, according to a predetermined ratio. This structure enables corporations & venture capital firms to rapidly build strategic ventures with a professional venture builder and possibly other investors who have skin in the game.
