the raise infographic of venture capital team
Entrepreneurs must tread the line between pragmatic preparation and bold experimentation.
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Ryan McMillan from Atlas Digital
Ryan McMillan

Read: Sebastian Cox - What's Special about Venture Studios

Seb unpacks for us what it’s like working with a venture studio, his rules of thumb for deciding if an idea is worth pursuing, plus some insider thoughts on creativity, team building, and capital raising.

Date Published:
Ryan McMillan from Atlas Digital
Ryan McMillan

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This week we caught up with Sebastian Cox, VP of Ventures at Paloma venture studio. Seb launched his career in the United Kingdom, holding various growth marketing and product roles in the venture studio scene. Seb went on to work as an advisor to some pre-launch & seed startups, plus enterprise scale digital transformation projects. It may strike a chord with some of our millennial readers, that Seb even developed a Shopify-based house plant delivery service. 

Seriously though, Seb has supported some incredible companies like Buddy, Authsignal,Chemcloud and Spinaway. At Paloma, Seb nurtures some of the most exciting startups in New Zealand and Australia, so he’s well attuned to turning the raw ingredients for a successful venture into an entity fit for growth. 

On venture studios

Venture studios are a first port of call for non-technical founders

Seb makes a clear bid to non-technical founders with deep subject matter expertise, that the time is now for moving out of your career vertical and into the helm of a startup.

“In 2013, I think it was something like 10% of founders from back then would be considered to be non-technical. And in 2023, that figure is close to 40%. So I think there's like some old VC adage of like, you've got to be a technical founder to be successful. And I think we're starting to see that that's just no longer really the case.”

Selflessly, Seb invites founders of all stages to put their ideas in front of him.

“We usually work with founders who are idea and pitch deck, sometimes even before pitch deck. We obviously want to add value and help out the ecosystem as a whole. So we’re always happy to talk to anyone.” 

Paloma aspires to be the first port of call for building a company in Australia and New Zealand. Their grander vision is encouraging entrepreneurship as an economic pathway for our two nations, getting us to a place of prosperity by evolving the knowledge economy. 

Only working with one to five companies per year, means Paloma has acutely identified what it takes to validate early stage ideas and prepare them for scale. This is in its DNA, with Paloma’s founders being entrepreneurs themselves. 

“When they first come to us, if they have capital, we can start building something straight away. If they don't, we help them structure the company, write a pitch deck, advise them as to how they might go out to VCs or investors and get that company capitalised. And at the same time, we're figuring out what the first slice is that we're going to take to market.” 

“Once we’ve got capital in the door, we've got 12 to 18 months of runway ahead of us, we assign a full-time team to that venture. So engineering, design, and product people. Then we just get to work building something. Trying to get something into market as fast as possible and start learning.” 

“We take it to market and hopefully by the time they're like a million of ARR they'll start to transition out of us. That transition point happens quite naturally. It's sort of like the team is hiring itself, you know, additional roles externally, and they're growing usually really fast.” 

Venture studios are a career springboard

Seb also pitches why the “rare” opportunities at Paloma can level up the career of product managers, engineers or developers seeking a challenge. 

“It’s very different to some more traditional startup type spaces, B2B SaaS, and productivity tools.”

“We’re giving people massive exposure to different types of subject matter. We build startups in lots of different industries, like chemicals, fertility and scrap metal - all these things that would be pretty difficult to get exposure to.”

“Usually one or more of our staff go over into permanent leadership or early founding type roles in those startups.”

On ideation and execution

There’s no such thing as a bad idea, but ideas must be handled diligently 

Sebastian credits thinking from innovators like Rowan Simpson, whose essay on nurturing ideas has influenced how he takes ideas to execution. 

“Don't be too harsh on ideas, initially, you have to kind of like, coddle them and let them come out and be discussed and talked about, and give them the time of day first. Before kind of flipping into a different mode, which then is being very Spartan with those ideas and treating them very harshly and deciding whether those ideas can stand alone by themselves.”

While making beautiful products is at the heart of a venture studio, it must be preempted by logical market insight, solid unit economics and a pathway to de-risking the business. He refutes the startup mantra that if you just listen to customers, build what customers want, then you'll succeed. 

Seb applies a risk-based view on whether or not a business has what it takes to scale. Stalwarts in the field of venture capital will be familiar with this language. Newcomers must be prepared to have modelled out and tested their business model from the get-go.

“The pre-product, pre-revenue startups, they've got a tonne of inherent risk. And if you categorise that risk into broad buckets. It's like product or market risk, can you build something that people actually want or more importantly, something that people want and will pay for.”

“And that kind of ties into the business model risk as well. But like, business model risk is around - is that business model actually profitable? If you're a great product, that doesn't hide a terrible business model underneath. And the way that you eliminate these types of risks is by this preparation, making sure that you're starting off on the correct playing field.” 

Put simply, you can’t wing the business model, it takes preparation. 

On creativity

Make every play an impact play 

Seb points out the need for conviction within fragile young startups. 

“With early stage startups, like every decision that you make, is potentially existential. And like, the squeeze has to be worth the juice, if it's a day of development time to do that thing, you know, just grow it and ship it. But if it's going to be three months to do it, you better have done your preparation, and you really have high conviction that the thing you're doing is going to have an impact.”

Yet with all the fast-paced, high energy pumping through a startup, it’s important to stay grounded. 

“It's very easy just to fall into those hype cycles and to get excited about all the money flowing around. But ultimately, it can almost be a problem having too much money as well, right? Like where there have been plenty of cases out there where companies are massively over funded, and they just don't know how to work. You need the capital constraints in order to have creativity and actually build a successful company.”

Founders need to back their own intuition alongside all their preparation and research. 

“In the early stage, you operate without data for a very long time. And so yeah, you just need to be kind of critical of the experiments themselves and the results you get from the market and from people.”

“If you're not setting guardrails, for those ideas or those experiments with that idea, then you're never going to learn anything from it. Was it that that particular thing didn't solve the problem? Or was it that you didn’t design the test properly?”

On team building

Make it fun and go further together

For venture studios, a lot of the bets or the risks that they take is on the founder themselves. They need people who are ultra-driven. For Seb, it’s about finding people who bring something to the table that they can’t source themselves. 

“We have a lot of experience building companies, scaling companies, building teams and building technology. But the reason why we work with external founders and people who come to us is that they need to bring a deep level of expertise in a particular industry, or particular vertical. So together, it's the ultimate partnership.” 

But mostly it needs to be fun for all involved. “We need to have a good time. We need to get along. Because if you don't get along, even in the good times, when you're going through all these challenges of building your company, then it's going to be much harder.”

Fall in love with grit 

In previous issues of The Raise, Chris Heaslip and Jo Blundell have talked about the need for having grit, whether being accountable to the rising demands of shareholders, or committing to a long term community building strategy. Seb adds as well, that founders must possess grit. 

“It's hard building companies, right? There will be so many headwinds, you run into so many challenges, if someone is gonna just fall over at the first hurdle that's like, a lot of time wasted, and a lot of effort and money and everything that goes into that. So we don't want to be in a position where people are giving up really early on” 

In the very early stages of building any company it can be quite a lonely journey for a founder. 

“There's definitely feedback we've received from founders within our portfolio companies, that they really like being part of a slightly bigger team early on. They enjoy all the touch points. The ability to hang out in the offices and see all the little bits of culture that comes through from us as Paloma. And just the idea that they're just not alone on their journey.”

On building a company 

Know your reason for being

We couldn’t help but ask about his experience with the “p” word. Seb retorted telling us that pivots are great for stories but ultimately, if you find yourself in a pivot situation, you don't want to be there. 

“That's bad news. I think everything kind of comes down to the capital. And like, capital is the thing which directly influences how much time you have, and how you prioritise how you do things. And pivots are sometimes unavoidable. But ultimately, you should be doing whatever you can to really minimise being in that situation to begin with.” 

Game plan for future funding rounds

Seb points out the need for being more focussed in the hunt for capital. Startups are subject to much higher scrutiny than five years ago.

“Now the markets have sort of changed and it's harder to find capital. There's more emphasis on being capital efficient.”

With a venture studio, founders get the benefit of having every element of their capital strategy scrutinised before going out into the market. 

“The things we might help with or call out is giving away too much equity on a cap table for advisors, or other people on the cap table who might be considered dead weight.” 

Another consideration founders often overlook, is planning for subsequent rounds in the future, or understanding what VCs might be looking for further down the track. 

“You've got to think about it in terms of who's diluted down at that next stage, what a VC is going to be looking for in terms of how their cap table was structured. There will be quite a few VCs who will say if the founder doesn't own 50% of this company, by the time it gets further down the track, then we're obviously not going to invest in it.” 

Most commonly though, founders aren’t giving themselves enough runway. 

“The classic one that we see is people who come to us and they're looking to raise money, but probably not enough money.”  

The timing of your raise is as important as the amount 

Companies that have a product in the market, but not enough traction, are often told by investors to come back and pitch to them in 6-12 months once they have more customers. Raising even earlier, without having a product in the market could be a way to avoid getting stuck in this “no man's land.” Instead, this means raising “on the vision” for the company and your team's ability to deliver that vision.  

“If you have just launched, and you don't have that traction yet, it's very difficult to tell that story of traction or tell that story of the dream because you're stuck in this sort of no man's land. It will always be like, cool - come back in six or 12 months or whatever, when you've got enough traction. And that's a very difficult position to be in. Because if you're raising at that point, you probably need the money for it. And you don't necessarily have that runway to keep going on and get that next milestone. So you need to sort of avoid being stuck between those two things.”

The theme throughout Seb’s experiences is the line entrepreneurs must tread between pragmatic preparation and bold experimentation. For those who have deep expertise in a specific vertical but don’t identify as a founder, there are people in the world like Seb who can help bring your vision to life. Success is a matter of doing your homework, examining opportunities with many different lenses, gritting your teeth, and going for it. Oh, and don’t forget to have fun along the way.

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