Firstly, thanks so much for writing this article. I was reading your 2019 article yesterday (https://blog.efounders.co/sidecar-funds-corporate-vehicles-club-deals-how-do-startup-studios-get-financed-c6763c826ac0) so this came at the perfect time and answered a lot of questions.
I run a YouTube channel where I explain the inner workings of the Startup Studio industry to entrepreneurs and investors looking to get involved.
The no. 1 question I get is about how to finance a Studio.
After reading your article, I have a way better understanding of the process but I have questions about the “holding company” model.
Do I have this right:
- LP’s invest in the Studio directly. They’re buying equity in the holding company- not in the startup ventures created.
- Studio’s are set up as C-corp holding companies. The startup ventures they create are legally structured as independent LLC’s.
- All of the startup ventures created are directly financed by the Studio. The Studio owns 100% equity in each startup venture they create.
If anything from above is not accurate, I would love to be corrected.
My questions for the “holding company” model are:
- Are the LP investors buying equity in the holding company (the Studio) or are they buying equity in the startups that will be created through the Studio- or both?
- If the answer to the above is that the LP’s are buying equity in the startups- how much equity do they typically own of each startup venture?
- How does the Studio team get paid through this model (because in The Fund Model you wrote that the Studio team’s salaries and some overhead are paid by management fees)?
On a general level, my questions are:
- How much money do investors put into new Studios on average
(200k? 1 million? 25 million?) - How long of a runway should the Studio team shoot for when raising funds?
- What is the most popular or in your opinion, the best/ easiest, model for financing a Studio?
Thank you so much for your diligence and time. If it’s easier to answer these questions in another format (phone/ zoom/ email) let me know, I’m happy to set something up or send them over in an email. Thanks again!
-Dianna Lesage
