Maintaining more Equity
Startup studios maintain more equity for what they provide
Startup studios — companies that birth startups — are able to maintain greater equity because of the risk and the investment that they take on.
Comparing the equity investment that startup studios are commanding, it varies greatly, but the slice is large (normally 45–50%). The studio is providing what most in-person accelerators provide, but in addition are working with founders/hackers earlier (before they even begin), over a longer period of time, and a discounted salary/stipend to founders. For the addition resources provided they command a larger stake.
Accelerators normally take 5–7% equity and provide a short training program, 3–6 months, with access to mentors, a network, funding, and in some cases physical space.
In some startup studios, they gather a cohort of hackers/founders that get the same 3–6 months to build and prototype (but it can extend to 9–12 months), but are provided a reduced salary and additional supporting services including accounting, legal, financial modeling, and strategic guidance for the hackers to focus on one thing ‘building and testing’.
The wide range of equity that the startup studios receive shows the model is still maturing and the market has gravitated toward a norm. The benefits are that the studio owes a larger portion of equity and can capture that value later. In addition, you attract a new set of potential founders have the skills but cannot forgo a full salary to start a new venture. The drawback is that uniquely high caliber entrepreneurs that have started a venture previously will find the equity stake high and may not join the studio. Either way, startup studios represent a model for investors to capture a greater ownership share for providing more support to early entrepreneurs.
In the end, the researched showed me the space is ripe for creativity and while select models have become popular, the opaque nature of the space means there is room to set standards and innovate.
If you know a startup studio or foundry you would like included in our ongoing research, please list in the comments.
Best,
Co-Founder & CEO, Caila
