189. The Venture Studio (Scott Dorsey)

189. The Venture Studio (Scott Dorsey)
Nick Moran Angel List

Scott Dorsey of High Alpha joins Nick to discuss The Venture Studio. In this episode, we cover:

  • Backstory/ path to tech.
  • The story behind ExactTarget leading up to selling the company for $2.7B to Salesforce.
  • Why’d you launch HighAlpha?
  • Briefly touch on the thesis at High Alpha? 
  • I want to deep dive into the venture studio model as it’s a bit misunderstood… Can you start us off w/ an overview of the venture studio model?
  • What are the key differences between a studio model and a traditional venture fund?
  • Why are you doing both at High Alpha?
  • Different studios have different specialities and focus areas – what is your studio speciality at High Alpha?
  • What types of founders and/or businesses are a strong fit for partnership w/ a venture studio?
  • What do you say to critics of the studio model that say that studios take too much equity?
  • Do you think that a studio-based approach can drive higher alpha ; ) than the traditional fund model?
  • In what ways do your portfolio companies get more value out of a partnership w/ you than non-studio-based partners?
  • I was browsing the High Alpha website and came across a passage about one of the core components of your process called “Sprint Week” which states “During Sprint Week, we focus on building the Minimally Viable Business (MVB) including branding, prototyping, and go-to-market strategy” Can you dive into the details of Sprint Week and how it helps your portfolio companies?
  • How do you define product-market-fit?
  • In regards to your partnership program at the firm, I see that not only do you partner with top tech corporations but also leading universities and academic programs. Talk about the benefits of these partnerships for your founders in terms of talent, networks, and technology?

Guest Links:

Key Takeaways:

  1. When ExactTarget was founded, Scott and his partners were first time entrepreneurs with very little technical background. What contributed to their success in the beginning stages was maintaining a focus on sales/marketing, having high empathy for the problem they were solving, and also dialing in on building a strong team. 
  2. They ultimately decided that they had a brighter future being part of Salesforce rather than competing against them.
  3. Today ExactTarget represents well north of $1B of recurring revenue within Salesforce, making them the most successful acquisition in Salesforce’s history.
  4. Scott launched High Alpha because he is passionate about coaching and mentoring entrepreneurs and saw the opportunity to leverage the experience he’s gained, with the vast network he’s built, to ultimately make a big impact on Indianapolis.
  5. The studio model has allowed High Alpha to give entrepreneurs a unique opportunity to build breakout companies with a higher probability of success than if they were going at it alone.
  6. High Alpha is half startup studio and half venture fund, with a focus on B2B SaaS. 
  7. The startup studio side is oriented to produce new breakout cloud companies. They are averaging about 4-5 new companies per year within their 3-4 year run.
  8. High Alpha has 4 primary sources of ideas that get funneled into their startup studio – the team at high alpha, entrepreneurs that approach them with an idea or prototype, their venture partners, and big corporations that see disruptive opportunities within their industry. 
  9. They are a full service model that works to build all aspects of the company such as, recruitment of co-founders, building the team, formation capital and all back end office support. They’re goal is to eliminate any distractions and make it as easy as possible for entrepreneurs to focus on building a successful and meaningful product.
  10. The key difference between a studio model and a traditional venture fund is that they are truly operators first and investors second. 
  11. The perfect compliment to the studio model at High Alpha has been their venture fund, being that capital sources are thin and many entrepreneurs spend a lot of precious time trying to raise capital. Having the fund to back a company with early signs of success and product market fit allows them to make the funding round go a lot faster.
  12. A persona they’ve seen to be successful in entrepreneurs they work with are very strong leaders that have experience in high growth SaaS companies, but are first time CEO’s. 
  13. Although they take a meaningful equity position at the time of formation, Scott feels they provide an outsized value, not only through the capital  but also the services they provide, their network, and ongoing education/guidance for the entrepreneur. 
  14. There are typically hundreds of reasons why to not start a business – what makes sprint week at High Alpha most interesting is that it becomes a forcing function to literally force them into building the best version of the idea or concept regardless of any initial doubts, which unlocks a lot of hidden potential. 
  15. During sprint week they pack a months full of work into just 3-4 days of completely uninterrupted time. On day 1 they clarify the problem, day 2 they design solutions, day 3 they design the business and lastly on day 4 they present the outcome and ultimately pick the top ideas to move forward with.