189. The Venture Studio (Scott Dorsey)

189. The Venture Studio (Scott Dorsey)
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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. 

Transcribed with AI:

0:03
welcome to the podcast about investing in startups, where existing investors can learn how to get the best deal possible. And those that have never before invested in startups can learn the keys to success from the venture experts. Your host is Nick Moran, and this is the full ratchet

0:23
Welcome back to TFR today one of the biggest names in tech between the coasts joins us. Scott Dorsey, the leader of exact target prior to its $2.7 billion exit to Salesforce is here to discuss his efforts at venture firm high alpha. The long awaited topic of the venture studio is in focus today as Scott is the perfect guest to unpack the studio model. Studios, of course, are venture firms that often create, develop and or grow ideas in house versus the standard model of investing in external teams. The studio model started in 1996 by Idealab has grown significantly in popularity with now over 100 firms focused on the fund plus build model. Scott is here to discuss the benefits of studios and how they execute at high alpha. Here’s the interview with the incomparable Scott Dorsey.

Scott Dorsey joins us today from Indianapolis. Scott is the managing partner at high alpha, a Midwest based venture studio with investments in myeloma, woven and lessonly among others. high alpha is a traditional venture fund as well as a venture studio, a model that unites company building with venture capital. Previous to high alpha Scott was the co founder, chairman and CEO of exact target for 13 years, which was acquired in 2013 by Salesforce for $2.7 billion. Scott, welcome to the program.

1:56
Thanks, Nick, happy to be happy to be on the program. Yeah. So

1:59
you and I have talked a couple times, but for the listeners benefit, can you give us your backstory and sort of your path to tech?

2:05
Yeah, I’d be happy to, I’d be happy to so grew up in the Chicago area, as you know, hail from from Naperville, and then went down more of a business path and ultimately found my way to Kellogg business school at Northwestern being kind of the late 90s. And that was really my, my kind of entry point to technology. So I was at Kellogg from 96 to 99, studied entrepreneurship, internet business models, I’m really more business minded than then tech minded, and kind of fell in love with entrepreneurship and the, you know, the advent of the Internet and software’s the service models. So I was fortunate then 96 to 99 timeframe, to get a chance to go to Silicon Valley on a number of occasions. And in study, what what were the ingredients that led to a successful tech ecosystem. And it really, it was an exciting time in Chicago when when the Internet and the tech ecosystem was building. And we actually, our capstone course, was to go out to Silicon Valley and study the innovation economy and come back to Chicago and make recommendations on what what those ingredients needed to be to put Chicago on the map from a technology perspective. And it was, you know, it’s it’s, it’s everything we know, today, you know, it’s a mix of capital and entrepreneurs and mentors, and it’s fun for me, you know, nearly 20 years later that I’m I’m still in tech ecosystem kind of building mode, but but Kellogg really was my, my springboard to give me the the confidence and the excitement to get exact target started. So ended up taking that big jump in early 2001 with two talented co founders. And that’s what kind of led to moving my family to Indianapolis. My wife is from Indy. So that was, that was a logical connection point. And then one of my co founders, Chris was already here in Indianapolis. So that that was a springboard for me to get exact target off the ground and, and take that that big leap that entrepreneurs take, and we did so at a pretty challenging time in in late 2000, early 2001.

4:02
Yeah, yeah,

4:04
I bet. You know, it’s great to have a Naperville guy here on the show the the podcast Studios here in Naperville, and I think you might be the first Rick cloud. I love

4:13
it. I love it. I you know, Naperville is making big news right now with with James on Jeopardy. I don’t know if you saw that. James is from Naperville. And he’s he’s making this huge run. So I feel you know, I feel like there’s there’s a lot of intellectual horsepower coming out of Naperville.

4:28
Yeah, for sure. By the way, Northwestern has their venture cat competition tonight. Their accelerator progress. Outstanding. Yeah. So we’ve got a whole crew of news tech folks going to that so I’ll let you know if we see anything interesting. Please do please do love it. So tell us the story behind exact target. You know what led up to read the founding of that? We could spend the whole podcast talking about it, but if you had to kind of give us an overview of the path, you know, to to the eventual exit that would be great.

4:56
No, I’d be I’d be happy to so Chris Baggett is my brother in law. So we’ve got kind of a fun family meets business startup story here. But Chris really had the inspiration for exact target he came from he also spent time in Chicago but came from a database marketing background with RR Donnelley and kind of grew up in the industry, helping marketers really understand that the more you know about your customer, the better you can serve them, and the better you can communicate with them. And he was bright and savvy enough to see that the internet was going to enable any amplify that and in ways that they had not been imagined previously. So it was like this kind of perfect storm of, of me having to Kellogg experience, and really wanting to run my own company and wanting to be an entrepreneur, and you know, three years of just studying the mechanics of what what a winning business model might look like in the internet age. And then Chris coming from the database marketing background, and then just being this extraordinary evangelist and Chris, after running with exact target for four or five years, founded a company Compendium, he was a kind of a first mover in the corporate blogging space, and they got acquired by Oracle, and now he’s applying his creativity and innovation to AG tech and farming and, and food tech and food delivery. So he’s, he’s just your consummate serial entrepreneur, fearless entrepreneur, matched with me being more of the kind of practical company builder and more the general manager mindset. And then we brought a third co founder, a guy named Peter McCormick, who I’d worked with previously and Peter’s incredibly driven and bright and energetic and the three of us made a really good founding team. But but we were definitely in against all odds story. We were first time entrepreneurs. None of us had technical background, starting an internet company after the bubble had burst. And you know, good luck doing it from from Indianapolis. So I mean, there were many, many reasons why this wasn’t going to work. But but we also had some good things going for us. We were all kind of sales and marketing minded. We had high empathy for the problem we were solving out of necessity, because we were thinly capitalized. And we built an MVP before it was hipped, even call it MVP, it basically was a product that barely worked, but kind of worked enough that we could, we could make some early sales and drive and drive revenue. And we, we ended up solving a problem that marketers cared about, which was how do I connect with my customers in a more meaningful way, using digital technology like email? How do I start leveraging the movement of internet marketing, and I look back in hindsight, and now that we’re in the company building mode through the studio, you know, sometimes you don’t realize kind of how good you had you had it. But we definitely caught the wave of internet marketing, we caught the wave of software as a service. And we worked really, really hard. And we, we started by selling to small businesses. And then over time, when we built more capabilities, we moved up to the mid market, and then ultimately up to the enterprise. And then we took email, and we went into other modalities of internet marketing, we started in the US, and then we expanded geographically, and it was just wonderful, you know, it’s just a kind of a dream story. But you know, ride for us plenty of challenges, and plenty of things that broken and didn’t work along the way that we had to overcome. But, but ultimately, we built we built a leading marketing digital marketing software company, you know, on the planet, and did so by focusing on people and building an amazing culture and leveraging the, the uniqueness of Indianapolis and serving our customers. Well, we end up going public in March of 2012. And that was an incredible experience for first time CEO to go through the IPO process. And then we were public for five quarters. And we’re doing great actually, we, we were kind of, you know, beating guidance every quarter on top line and bottom line, we were north of a billion dollar market cap, we were growing still north of 40% year over year. And then Salesforce kind of came knocking and one thing led to another and we felt that we had a brighter future as a part of Salesforce versus competing with them and and subsequently, they’ve continued to invest in the community and grow the business really, really rapidly. ExactTarget represents well north of a billion dollars in recurring revenue within Salesforce and it was just just a win win for everybody. It was really fun. Nick, Marc Benioff was in town last week and at kind of an all hands townhall meeting. He said, Not only is the exact target been the most successful acquisition Salesforce has ever made, but he said it’s probably the most successful acquisition in enterprise software history, which was wow, that’s a big statement coming from him. So it feels good, you know, now five or six years later to see the success that exact targets had within Salesforce and the ongoing impact in Indianapolis and so many colleagues that are still at Salesforce growing the company. It’s, it’s, it’s tough not to feel pretty wonderful about it.

9:49
I imagine there were pressures to sell the business along the way, right. How did you decide to kind of hang on and keep growing Keep building and ultimately go public, you know, instead of taking sort of a an earlier exit? Yeah,

10:07
that’s a great question. And I’d say I would say two factors. One, we are very driven by, let’s make this the biggest success, we can, that we felt like this was working. And we had a chance to build a breakout company that, you know, would have lasting impact. So part of it was just, I think, internal drive to say, we’re in a position, a fortunate position, to be the market leader in a high growth space, let’s, let’s leave it all on the field, like, let’s take it as far as we can. So that was that was a big part of our mindset. And I’d say, part of the fuel for that was just the love and support we were getting from the city of Indianapolis in the state of Indiana, knowing that we had an opportunity to build a breakout company that could really, really define the tech ecosystem and make a lasting impact. So that strategically, I’d say that was a big motivation for us. Secondly, this is very tactical. But we were fortunate to raise secondary rounds of capital along the way, where founders, investors, and even employees had an opportunity to take a few chips off the table on the way. And that’s advice I commonly provide entrepreneurs that have their entire net worth locked up in one company, and might be tempted, frankly, to sell too soon, is look for opportunities for secondary capital where those that want to take a few chips off the table and diversify and lock down some financial security can do it. And then it just gives you the hunger and the ambition to keep growing the company and not play defense, but continue to think offensively and aggressively about growing the company. So So tactically, we were fortunate to have that opportunity. And I I kind of credit that with us not selling too soon and making sure we had a longer term horizon in mind.

11:48
Got it? Got it. I think that’s really good advice for founders and employees alike. But yeah, it’s been it’s been some time since I talked to you, your your partner and exact target, Chris. But I remember chatting through his food tech opportunity. One of the more entertaining names I’ve heard in the startup space with cluster truck, I think is what he was, he was calling it How are things with Chris going in? Yeah, he’s new ventures remarkably

12:11
well. Actually, well, in the naming is funny, too. When we, we started ExactTarget, Chris actually had the name the domain, you know, clarity on the trademark. And me being kind of the freshly minted MBA, I was confident I could come up with a better name. And I was, I was actually concerned that exact target would feel good to the marketer, but not great to the subscriber. And we were clear that we’re going to take a path around permission based email marketing, and that virality like low power by ExactTarget logo is going to be an important element of, of all kind of inbound email. And Chris was like, you know, okay, knock your socks off, have you come up with a better, better name, or brand and exact target, we’ll consider it and I really couldn’t, you know, exact target turned out to be an excellent brand for us over the course of time. And then it started Compendium, and that was a very clever name that fit the business. And then he kind of came to me with with cluster truck and I’m and cluster truck actually means a collection of food trucks. So his early concept was to, to be a digital. Yeah. So truck, you know, to be a set of digital food trucks so that the name had add meaning, but it’s edgy, you know, you get one syllable wrong. It’s a real problem. So the more I caution, Chris about the name clustertech, the more he fell in love with it. And of course, he’s been right like he’s built like this kind of irreverent brand, this this food movement around, you know, high quality foods delivered within minutes, and how disruptive it is to the door dashes and grub hubs that are kind of a delivery model slapped on a brick and mortar restaurant that’s not really engineered for delivery. So anyway, long story short cluster trucks doing remarkably well. They’re running in Indianapolis, Columbus, Denver, and Kansas City. Those are the four markets and they’ve got their eye on, on expanding beyond those four kitchens. But this, this whole idea of an urban kitchen or a ghost kitchen with technology enabled delivery and kind of vertical integration. It’s it’s Chris once again, was kind of ahead of the curve. It’s a pretty hot market. Yeah.

14:15
Yeah, for sure. I remember chat with him about a variety of the reasons that a company like sprig failed, I think cluster trunk is positioned super well. So anyway, that’s probably a topic for another day and so fun one today, you know, we’re gonna go deep on the venture studio model.

14:30
Yeah, let’s do it.

14:31
I’m glad we have you here. Because, you know, for I think a couple of years now, we’ve been looking for the right person to kind of talk about this foundry model or the studio model, depending on what you call it. But before we kind of double click on that, can you can you talk about why you launched high alpha?

14:47
I’d be happy to so I stayed at Salesforce for a year and and loved it. And it was really important to me that I did everything in my power to make sure that the integration was seamless for our employees and our customers. And then also Salesforce made an enormous bet on us. And, and I wanted to do everything in my power to make sure that the integration was successful. And that exact target marketing cloud were set up for future success. And boy, that’s, that’s all happened in spades. And also I had a chance to work directly for Marc Benioff for a year. And that was, I was like my PhD and SAS, you know, it was it was incredible, incredible learning opportunity. So So you know, after, after doing so, and really reaching a point where it started make more sense for exact target to really evolve into Salesforce and in the Salesforce brand, and you know, really kind of getting vertically integrated, tightly integrated into Salesforce, it became less and less a fit for me. And after 13 years of every waking minute, being focused on digital marketing ExactTarget was a good chance for me personally to kind of step aside and take take a deep breath and figure out what was next on on my path. And what was important to me was I wanted to coach and mentor entrepreneurs, I wanted to leverage the experience I gained and the network I built. And then I wanted to do something that if successful, would make a big impact in Indianapolis. And you know, this community has embraced me and our company in such a profound way anything I can do to give back as is high on my priority list. And I was wanting to do something different. I wanted to do something that was hard and challenging where I could learn new skills. And and that’s really where the venture Studio, you know, such a perfect fit for me, my partner’s Christian, Eric and Mike, we’ve been friends, we’ve done a lot of coaching and mentoring and CO investing. We’ve helped start SAS companies with talented entrepreneurs, more like a hobby kind of more nights and weekends. And we, when we got together and said, Boy, what if we just did this full time? What if we built a company that started companies, we built a platform that served entrepreneurs extraordinarily well, and was really tuned to start a new Sass and cloud companies, that would be something we’d be really passionate about. So those were some of the kind of formative thoughts that gave us the conviction that there was potential here, we could pioneer a new model, and build a studio and a fund at the same time, and hopefully give entrepreneurs a chance to build breakout companies with a higher probability of success. And they they would have if they’re just going kind of going alone. Yeah,

17:15
and the thesis at high alpha, you stick into sort of your roots with b2b SaaS focus.

17:21
We really are. So we’re b2b SaaS focused. And this idea of one part startup studio, one part venture fund, we think is what brings kind of the unique positioning to bear. So for a relatively small fund, we have 35 people on the team, you know, we have three data scientists and four engineers, and four or five, six product designers. And then every function, one would need to launch and scale a SASS company we built. So marketing, HR and talent, finance, etc, etc. So we’re 3540 people strong and very good at identifying new opportunities and companies to start. But also because we have the empathy, and we have the startup motion going, we think we’re really differentiated as an investor as well. And finding ways to bring synergy across these two models has been really very fun and energizing. Awesome.

18:13
Awesome.

18:14
So to start off on on the venture studio side of high alpha, for the listeners benefit, can you give us an overview of what the venture studio model is?

18:24
I’d be happy to so the startup studio is oriented around starting new companies and our investors, emergence capital and Foundry Group, we feel like we absolutely Dream Team of investors. We had Gordon Ritter and Santee from emergence have been investors in both studios, Studio One and two. And then foundry came on board for studio two. And we’ve got Brad Feld and then Lindell, who are just, you know, wonderful mentors and guides and are very passionate about the venture studio model. So So those are two investors on the studio side, and our orientation is start new breakout cloud companies. And we’ve signed up to start four to five new cloud companies per year over about a three or four year run. And we’re matchmaking, we’re looking for new fresh ideas, pairing them with entrepreneurs and co founders that we believe in and we think and grow and scale these companies and kind of putting those pieces together. The way we do it. I think your listeners might find interesting, Nick, so we were always searching for ideas. And the ideas tend to come from four different sources, our own ideas, just opportunities we see in the market. But second would be entrepreneurs that approached us with an idea or prototype that they want our guidance and help in launching the company with them. Three would be venture lead, so are our venture partners, and merchants and Foundry and then others throughout our network will often bring us ideas where maybe they see an emerging trend or opportunity but they haven’t found a company that they want to back and then for and this is perhaps the most unexpected has been corporate innovation, big CCOs that are themselves going through digital transformation, see disruptive opportunities within their industry, but they’re not. They’re not oriented or engineered towards starting and scaling SAS companies, and they’ll come to us and look for help and vetting ideas. Taking a couple ideas, we think we have merit and and ultimately co founded companies with them. So So those are kind of the four ideas sources, we’re, we have a corporate innovation and business design team that’s vetting and researching and prioritizing ideas. And then we take our four or five top ideas. And we run them through what we call sprint week, and sprint week happens on a quarterly basis. And that really becomes the forcing function for us to get conviction around which businesses we want to start. Got

20:44
it. Got it. Yeah, so many of the venture studios that that I’ve interacted with here in Chicago, and a couple of New York, primarily, most of those folks are partnering with, with entrepreneurs, that have a great idea. But maybe they’re not the developer, maybe they’re not the engineer, and they can’t code it. Or maybe they are an engineer, and they’re developers, so they can build it. But they don’t know how to commercialize it, right. And so the studio is kind of wearing one of those hats, they’re coming in as a true co founder, either building the product or helping, you know, go to market with the product. But in this this latter example you gave with with the corporates, are you guys assembling the team itself, the sort of a tiger team to, to work on this product, build it out and and take it to market.

21:32
We are you know, arm and arm with that corporate partner, but we will run the idea through spirit week. And then if we, at the end of the week, both have conviction around starting the company, we started together. And we click in, you know, in our model is is a full service model. So we’ll help recruit co founders and build the CO founding team. Ideally, we’ve identified those co founders early in the process, and they’ve helped to shape the idea. And then when we go, we’ll drop in formation capital, we co locate, so the businesses start, you know, within our building, and then we provide all the back office support. So we’re providing payroll and medical benefits, we try to make it as easy as possible for the entrepreneurs to get started. And really focus on building a product that hits the mark and has product market fit. So these these kind of early entrepreneurial teams, we really work with them arm and arm to define the MVP, build that first version of the product, go find early customers in and get off the ground running and try to help them just focus on building an awesome team themselves and finding early customers and making sure the product hits the mark. Often we’ll kind of build the first prototype of the product. And then we’ll build engineering capacity right into the team. And then they take it they take it from there.

22:44
Got it? Which of the four different types or categories? Have you found, you know, maybe increasing focus on over time, you know, you’ve been doing the studio model for, I think, a few years now. And you’ve done multiple funds. So you know which of those four branches, if any, seems to be most in focus for high alpha? Yeah, that’s

23:05
a great question, Nick. I would say to date, our ideas that have turned into companies have been fairly balanced across the four branches. I would say the one where we’ve put the most new energy in is on the corporate innovation side. So we were fortunate to recruit dynamite leader Elliot Parker joined us a year ago moved here from Boston, Elliot had been working with with Clay Christensen at a consulting firm called Innosight. And really brought a lot of his thinking to high alpha around jobs to be done methodology and kind of all the early work Clay had done around innovators dilemma and all the amazing books that he had in teaching that he’s provided us with. So Elliot’s built a business design team, where we now run the same business, vetting and evaluation process across all four branches. So whether it’s a corporate innovation idea, or an entrepreneur led idea, or one of our own ideas, we run it through the same methodology. So it’s been really fun, the sprint weeks, have great diversity and flavor to them. And often, we have corporate innovation partners that are part of that sprint week experience. So I’d say that’s the one that we’re getting a tremendous amount of interest in that, you know, big CCOs are. They’re looking for, for new ways to innovate. And they have gone heavy on r&d, they’ve leaned heavily on m&a. But this whole idea of new co creation in starting new ventures is a muscle that most companies haven’t built. And they’re very fearful of others disrupting them, and they need to really think differently. And we’re a very good partner in that we’re, we’re company builders first consultants second, so when we engage with them, it’s the deliverable is whether we started a new company together. It’s not a research report or set of recommendations. Through the process. We’re infusing entrepreneurial thinking. We’re helping them build more of a culture of innovation, but the scorecard is have we started a company together. So we think it’s a fresh approach and we’re getting a lot of interest from big coaches that want to take us up on the exploration of starting companies together. Yeah. got

25:00
it got it makes a lot of sense. Yeah. And we’ve I think, so far, we’ve teased out a lot of the things that make the studio model unique. But if you were to highlight the key differences between a studio based venture fund model and a traditional venture fund, you know, what would those key areas of difference be?

25:17
Yeah, I think so I think the largest area of differences that we’re operators first investor, second, you know, that we have, we bring lots of entrepreneurial empathy, because we built and scaled SAS and cloud companies ourselves. And then we’re still doing it, you know, we’re still in the process of doing it. And there’s a lot of synergy that can be built between the studio and the fund. And for us, what we’re really unlocking is kind of learning and growing opportunities. So we’re very kind of education and event oriented, we we hold for quarterly flight schools, we have a CEO off site, we have a monthly speaker series. So we’re kind of building chemistry in synergy across our studio founders, and our capital CEOs and founders, in finding ways for them to learn from one another, you know, and I think that’s the magic that we’re working hard to unlock is that combination, and it was been really fun is to be kind of an early pioneer in even defining what is a venture studio, what what’s a combination of a funding studio look like? We just formed a group called Venture studio collective, to organize early venture studios. So we can learn from one another. So we’ve, we’re working with human ventures in New York, and we do a lot of work with Pioneer Square labs out of Seattle, we’re doing a lot of work with Tech Stars as they’re getting the new studio off the ground. And there’s such a big opportunity. And it’s such a new flavor of how to start companies and make investments that everyone’s very open and learning from one another on this journey. So we’re, we’re still in the early days of bringing this model to life. But we liked the early results that we’re seeing. You

26:50
mentioned that there’s synergies between the studio and the venture fund model. Why did you decide to do both, and high alpha,

26:59
we were company builders first. So the studio really fits our ethos, and what we think we’re really good at and really leverages our background, the fund is wonderful complement, you know, so we can help these young companies get capitalized properly, which is a huge advantage. And you know, this to Nick, but in markets, like Indianapolis, in particular, your capital sources are thin, and many entrepreneurs spend way too much time and distraction, trying to raise capital. And we found by having the fund, when a company has early signals of success and product market fit, we can make that funding round go a whole lot faster, because we’re able to write a check and be a part of it, and also leverage all that wonderful investor relationships we have around the country. So that’s a huge benefit. And then I’d say the second benefit is our ability to invest in companies outside our studio keeps us sharp in in really ensures that we don’t get too insular into what is happening in Indy or what maybe worked for us in the past, but isn’t relevant today. So that’s been fantastic getting a chance to support amazing entrepreneurs, outside of our geography that are perhaps a little further along. So many of our venture investments tend to be kind of series A plus. And we’re able to complement the kind of early you know, seed and studio work we’re doing with the series A companies are starting to scale, and are building a network where these entrepreneurs can learn from one another in a pretty profound way. Scott,

28:22
which types of partners or or founders are a really strong fit for the studio model?

28:29
You know, it’s interesting, I think there’s a common belief that first time founders fit well in new studio. And that’s, that’s absolutely the case. Because there’s so there’s just kind of so much to learn around, you know, company formation and building an MVP, early customer development, how to raise capital, just everything that goes into getting a new company off the ground. You know, our mission is to accelerate learning, and help those kind of first time CEOs scale quickly. So a persona that we’re having a lot of success with is very strong leader that has been a part of a high growth SaaS company, perhaps they’ve led development and engineering or they’ve led go to market. But this is their first kind of foray into being a CEO. So that’s a very good persona for us. But we’re also having a lot of success with experienced CEOs. So Scott Burns, who lead GOV Delivery up in St. Paul is now leading one of our companies structural Scott McCorkle, my former kind of partner in crime, who is CTO and later President of exact target and actually took over for me when I left Salesforce, he was CEO of the Salesforce marketing cloud. We started a company together called meta CX. And Scott was really eager to leverage the expertise and the breadth of services that we could provide at high alpha. So those were a couple of good examples were super experienced CEOs that would have no difficulty raising capital and kind of starting a company from scratch. Still saw enough benefit to be want to be a part of the high alpha family and leverage the breadth of services and, and the breadth of team members that we’ve assembled. So those are some good examples. And I think we’re, we’re still tuning and learning, you know what that ideal co founder or CEO profile looks like. But we’re looking for passionate, you know, entrepreneurs and CEOs that care about solving the problem we’re working on, I’d say that’s been another big learning for us, Nick is you can’t really drop a leader into a business, if they don’t have really, really deep passion around solving the problem, or the category of software it’s being built. So the earlier we can work on an idea with an entrepreneur and a co founder, the better.

30:33
Got it. And you’ve spoken about a lot of the sort of hallmarks of the high alpha program and what makes you guys special. If I were to reframe that slightly, you know, how do you think about how you differentiate your studio model from the other studios out there in the country? You mentioned that, you know, you’re creating this collective of studios, so that you can share ideas and, and promote the model in general, but, you know, how do you think about differentiation of of high alpha versus some of these other entities?

31:05
Yeah, no, absolutely. And it’s, it is such a big market opportunity that, you know, we really don’t worry about competition at this stage. It’s it’s very, very collaborative. But if I would think about our differentiation, or how we how we perhaps position ourselves, it’s operator First, we’ve started and scaled SAS companies, I think at the, at the highest order, or let’s say, you know, kind of the peaks of the industry and our experience and networking relationships we can bring are substantial. The Midwest is a big orientation for us. So our venture investments are everywhere, but the companies we’re starting, are largely Midwest centric. And and we have a talent advantage here in Indy, with university relationships we have and then, you know, the digital marketing hub that’s been built here. Those are some real strong suits. I think we’re backed by the best in the industry. You know, having a Gordon Santee from emergence and Brandon Lindell from Foundry and amazing lps on the fun side, we feel like we’ve got every chance for success. And we’ve aligned ourselves with really the best minds in the industry that are helping us become great investors and helping us learn and grow as we kind of pioneer this new venture studio model. And then I think, just humility, you know, we’re, we’re still very down to earth people, we’re focused on, you know, being entrepreneur first, you know, in coaching and mentoring and helping entrepreneurs any way we can and rolling up our sleeves every day, we’re hard working, we’re a long way from being able to claim success, you know, so we’re, we’re hungry, we’re learning, we’re, we’re adapting, we’re doing everything we can to support entrepreneurs in a really innovative and unique way. You know, hopefully, 510 15 years from now we can look back and feel like we really built some breakout companies and work a set of resources that really helped entrepreneurs kind of reach their full potential. Scott,

32:50
what would you say to the critics of the studio model

32:54
that say studios take too much equity?

32:56
Yeah, that’s a good question, Nick, I think that I think that is a common challenge. And, you know, I think, I think to answer that question, you have to really talk to the entrepreneurs that we’re building companies with, you know, for them to give us a scorecard on whether the equity split was fair, and they they felt, you know, that we provided an amazing amount of value, and that they would go do it again. And I think, you know, I think if he was entrepreneurs, they say, I do it again, kind of all day long. And that’s, you know, that’s where we got to kind of earn our stripes. But there are a lot of different ways to start a company. And I think every entrepreneur and co founder has to pick kind of their best path with the services that we provide, you know, we are taking a meaningful equity position at at the time of formation. But we feel that we deliver, we deliver outsized value, not only the formation capital, we put in the services, we wrap around the entrepreneurs, the kind of the network, that we provide the ongoing learning that we provide, and the ongoing guidance, that we’re a great business partner. And in this only works if co founders have meaningful equity. And they’re incredibly passionate and driven to build a big meaningful company and that they have good financial outcomes. So we work hard to try to really optimize that, that balance and make sure that if we’re successful, everybody has big upside, and everybody feels well rewarded for the time and effort they put into building the company. Scott,

34:15
you You talked earlier about your sprint week at high alpha. And I came across some some content on your site that said that, you know, during the sprint, we process you focus on minimally viable business, an E versus an MVP, which I love. I’ve actually talked on the show many times about more of a minimum viable concept as opposed to a product and testing that out. But can you talk more about the MVP, and then also kind of detail out what’s going on in this sprint week? I’d

34:47
be happy to so so sprint weeks, we tend to run four to six ideas through sprint week. We run them quarterly, they tend to include 60 to 70 people and it’s a mix of every high Alpha Team Ever participates, Nick, but then we bring a lot of outside experts in that might be a subject matter expert on that idea that we’re exploring, or potential co founder that wants to work with us and in one form or another. And it becomes like an amazing trial run of the entrepreneur getting to know us, high alpha, getting to know the entrepreneur, and seeing if we can shape an idea in a direction that we both have conviction around, we try to pack months worth of work into three or four days. And it’s very energizing and exhausting. But it’s very, very intense. And we’ll have done a lot of pre work on the idea, we’ll assemble these teams that tend to be 810 12, people mix of high, often kind of outside guests. And then we go super deep. Using our sprint week methodology, kind of over the course of that week, I would say day one is about getting clarity on the problem that we’re solving. Day two, tends to be designing solutions. And then day three is really designing the business. And then day four, we present to one another, and then ultimately pick one, two, or three of the new businesses that we want to put forward to the next stage and really start. But the idea is, we clear our schedules, we have found that the power of uninterrupted time is really substantial. So you’re not allowed to schedule any meetings, phone calls, anything non sprint week oriented, you’ve got a clear schedule, and we go super deep in really getting deep and understanding, is this a problem we’re solving, we do a lot of customer validation work. And we really design the business. So a minimal viable business, we have to be solving meaningful product, we have to believe we can we can build a software solution that is SAS and cloud oriented, we can pick a wedge where we can we can add value immediately, but then know that we can build on that over the course of time. And then we have to look for how can we build unique competitive advantage? What What about this business? What about a co founder we might start it with or the high alpha resources give us a unique advantage in the market? Is it a unique business model? Is it unique partnership we can bring to the table is it the talent we can assemble is that our customer network they can get us off to a quick start is the corporate innovation partner that can build the product with us and perhaps even be an equity investor early early. So all those kinds of pieces go into the mix to hopefully build that minimal viable business and, and one that we have conviction that’s worth starting in what’s really interesting, you know, this so well, Nick is, you know, there are hundreds of reasons why to not start a business, we can’t build the tech, there’s too much competition, you know, on and on and on. So sprint week becomes a forcing function that literally forces us to start new businesses, and you’re not able to get to the end of Sprint week and say this idea won’t work, you have to come up with the best version of the idea, the best version of of the concept that you want to put forward that we can believe we really can believe and get conviction, it can be a viable business, how

37:57
many of these different teams are running in parallel during that week,

38:02
instead, the most we’ve run is six, the fewest is four, wow. And the artifact that gets created the end, the week is also fascinating. We build brands, we build a digital presence, we’ve identified the brand for the business, we do high fidelity product prototypes. So we’ve really, we built what that MVP looks like. And we’ve done a tremendous amount of customer validation. If we’re really successful, we even have early customer commits to be a part of our alpha program. We’ve identified potential co founders, we built the the hiring plan, we built the finance plan, we’ve identified, you know, early partnerships that will give us competitive edge. And we were able to do all that very, very efficiently. And the fact that we’re so time constrained, it really forces you to be really decisive to take imperfect information and make those early decisions that are important and going fast. Is

38:52
there a competition aspect between the teams? I mean, at the at the end of the week, is it sort of selection process and which of these concepts are going to be further developed?

39:03
Yes, highly competitive. And, and I’ll for all four partners, we, we run our own teams, we compete against one another, you know, at the end, we we put team leader aside, we make the best decisions for high alpha and what business we think truly has the most potential, but during the week and presentation day, it’s highly competitive. We all want to win. And we’re searching for the best version of the idea and some of the kind of, you know, magical discoveries or unique approaches to the business, we think that are gonna give us an edge

39:31
and are their customer touch points during that sprint week as well. Tons.

39:36
We’re doing constant customer validation in advance, but also throughout the week of bringing potential customers in doing a lot of video conferencing, a lot of phone calls and expanding the network to the greatest of our ability to really get conviction that this is a customer tested idea and hopefully get early customers that want to be a part of the journey with us.

39:56
I remember very early in my career going through something called quality functions. limit which it sounds like your sprint week is a much more evolved and much better version of that, but great to get smart folks, you know, all together clearing their schedule, deep diving on a problem having these touchpoints with customers to get that iterative feedback and design a solution that that really compels love it, it sounds like a great program.

40:22
Thank you. So it’s very invigorating, it’s hard, it’s challenging, but you come out at the end of the week, feeling really energized and satisfied with the work that’s been done. And it’s been really fun to bring our corporate partners along with us on this journey, you know, we’re bringing executives of very large companies into startup mode, you know, really getting their hands dirty, you know, and it’s been really fun to see not uncommon that we have executives of very large companies that are, you know, working with us until 1011 12, at night, you know, digging in, you know, doing their own research, jumping in and doing their own validation, it’s kind of all hands on deck. And it’s actually it’s kind of a great equalizer to that we, we really have everyone kind of check their job title at the door when you come into sprint week. So if you’re an EA at high alpha, or senior VP of innovation for a large corporate, you know, everybody jumps in, rolls up their sleeves, and has a big role in the spring league team.

41:16
Love it. So Scott, I wanted to circle back in touch on the partnership program again. So I noticed that you don’t just work with tech corporations, but you also partner with universities and academic programs. Can you talk a bit about this structure in the benefits of a partnership for the founders in in the startups that are being developed? You know, within the studio?

41:41
I’d be happy to so you know, we are motivated to build as many meaningful partnerships as we can. So we we do we have strong university relationships for talent and idea pipeline, we work with many of the big SAS and cloud providers also, you know, working to understand where do they have gaps in their platform? where might they see an opportunity for innovation and work we integrate into their platforms to deliver more value back to them, you know, and amplify the ecosystem. So that’s a partner motion that’s really important to us. And then and then big corporates that are just going through this digital transformation and see us as a potential partner and their digital first and non digital first companies and we’re really evaluating, are they operating in a category that we think we can produce winning businesses? is a really an opportunity for innovation? And did they have the right mindset around success being whether we start a company or not? So you know, partnerships and building those relationships are really paramount to what we do.

42:37
Have you ever worked with really young folks coming out of university? Or most? Oh, absolutely, absolutely. Great, great. What did we miss on the venture studio model at at high alpha, that that we didn’t touch on that we that we should?

42:53
I think I think we covered a lot of ground, Nick, I think what I would maybe just kind of say in conclusion is the venture studio model holds amazing promise. And you know, what, I think there will be separation, I think there’ll be a lot of small venture studios, and I think there’ll be a few that break out and have more size and scale. It’s why we’ve been so excited to put this venture studio collected together to really get, you know, handful, these kind of early pioneers that are well resourced together, you know, to kind of learn from one another. So there’s still a lot to figure out. But I do think this is going to be a form of venture investment and new co creation, that is quite successful for years to come and has a lot of potential.

43:32
Scott, if we could cover any topic here on the program, What topic do you think we should address? And who would you like to hear speak about it?

43:39
I think what’s fascinating are these product lead growth stories, and I’d say that’s the area we’ve been studying and leaning in the most are looking at the new age of SaaS companies that are going public, and how they built their companies. Zoom is amazing example. Like we have really, really enjoyed being a zoom customer, and also having kind of a inside look at how zoom has built their business through our relationship with emergence. And now Eric, and the leadership team at zoom, and I think, following and studying the Zoom story, and then others like it, I think are the best indicator for where SAS and cloud is going in the future. And it started what I love so much about zoom. Eric, is all about delivering happiness to the customer and building a better product experience, and also Delivering Happiness to his team. And that’s really all that matters is building an environment where you’re attracting incredible people that love the company. And as a result, they love serving their customers, and building a product that is just so good. It’s just so authentically good that users love it. They get value out of it, and then it spreads virally. And in the growth kind of takes care of itself. Like those are the businesses. We need to hold up on a pedestal and I think Eric’s the type of leader who is customer first and team member first. You know that I think You’re setting the right trend and are setting the right roadmap for the kind of companies that we want to build. Scott,

45:05
what investor has influenced you most?

45:09
I think it’s, it’s the two we have seated at our table, you know, high alpha, Brad Feld. And then Gordon Ritter. Those are the two that are shaping our thinking. And we’re learning from the most. And then I was so fortunate to have an extraordinary group of investors on our journey, exact target, we had inside ventures, Scott Maxwell and akitas letter Series A, I’ve learned a lot from Scott as he’s moved on to OpenView and is built an amazing practice that open view and open view labs where they’re not only growth and expansion investors, but they’re a value add model, you know, there are good parallel to us where they’re adding a lot of services and, and a lot of support to these entrepreneurs, they tend to be more growth states and startup stage. So I’ve learned so much from Scott. And then battery TCV, and scale were other investors that were big influences of mine and continue to help me to this day. And I think that’s an important lesson that, you know, no matter what level of success or traction you’ve had, it’s super important that you’re still growing, and that you have your mentors. And that’s what’s so fun for me on this journey of starting a venture studio and learning the world of venture capital is I had so much more to learn. And that’s what’s stretching me. And I’m trying to be as thoughtful as I can also to make sure that I have mentors that I can lean on, ask for advice, get constructive feedback from and continue to learn and stretch myself. And it’s really funny as you as you kind of move from entrepreneur to investor, it’s common that you go from, you know, being the mentee to being the mentor. But I think it’s really important that you continue to develop yourself, and you never stop learning in any find your own network of mentors that can stretch you in new directions. And I, I tried to be really thoughtful about that.

46:51
You know, in light of that, if a new founder showed up, you know, that is interested in raising capital for their business. Is there one piece of advice, I’m sure there’s a lot of advice, but is there there one thing that that you would communicate to them or advise them on, you know, new entrepreneurs that are embarking on their venture building process,

47:13
relative to how to go about raising venture capital?

47:15
Well, it could be, you know, starting a new business and planning to raise some capital around it. So it could be on the capital side, or it could be on the building side.

47:23
I think on the build on the building side, I think it’s all about picking the right problem to solve. And solving a problem that people really care about is worth solving. And knowing that you have unique capabilities to understand the market and bring a solution to the market that’s differentiated. That’s always the starting point for we have for starting a company. And then I think it’s always about surrounding yourself with great people and select co founders that are going to make you better and challenge you and complement you. And then those early investors are super important also, to make sure that you’re just surrounding yourself with people that have a similar set of values, similar vision for where you want to take the company, and they’re just going to make you better, and they’re going to challenge you in all the right ways. If I look back on our itI journey for me, you know, how did I grow as an individual? How did I grow as a professional as a leader, it was all about the people I was able to attract to the business and surround myself with. So I think that is that’s like Part One, two, and three is is building the right team and surrounding yourself with the right people that are committed to you are committed to what you’re building and are going to help you get better. Love

48:30
it. And finally, Scott, what’s the best way for listeners to connect with you?

48:34
That’s a great question. I would say probably LinkedIn, I pay attention to, to LinkedIn invites and messages. And I’d say that’s a good place to start. And I try to be as accessible and helpful as I can to all entrepreneurs or investors.

48:46
Well, Scott, you are truly one of the great people in all of startups in all of venture. You’re a great ambassador for the Midwest. And we look forward to just great things watching, you know, high alpha develop and cultivating great companies. So thanks so much for spending the time with us today. Really enjoyed

49:03
it, Nick, thank you. Thanks for all that you’re doing and appreciate you having me on the program.

49:12
That we’ll wrap up today’s episode. Thanks for joining us here on the show. And if you’d like to get involved further, you can join our investment group for free on AngelList. Head over to angel.co and search for new stack ventures. There you can back the syndicate to see our deal flow. See how we choose startups to invest in and read our thesis on investment in each startup we choose. As always show notes and links for the interview are at full ratchet dotnet and until next time, remember to over prepare, choose carefully and invest confidently thanks for joining us