March 12, 2025
Over the past four weeks of Beyond the Core, we’ve been getting a ton of questions about how corporate venture studios actually operate—how to measure progress, structure governance, and avoid common pitfalls in venture building. In this episode, we’re tackling some of the toughest questions we’ve received from innovation leaders and venture studio teams.
Let’s dive in.
Marcus Daniels: This is a critical challenge in corporate venture building. The reality is that venture studios need speed, but they also need internal support.
The key is structuring balanced governance:
Too often, governance leans too far in one direction. Either the studio moves too fast and loses corporate alignment, or it gets bogged down by internal bureaucracy and loses momentum.
Ben Yoskovitz: Exactly. Governance is really about decision-making ownership. Who owns what, and at what stage? A business unit might want control early, but the more control they take, the slower the venture moves. The best way to avoid that is ensuring incentives are aligned.
If the studio is solving a business unit’s pain point, there’s a natural trade—resources in exchange for solutions. This way, governance emerges as a bottom-up process rather than being forced top-down.
Ben Yoskovitz: This is one of the biggest mistakes corporate innovation teams make. They track revenue too early, which doesn’t align with how early-stage startups work.
The most important KPI pre-revenue? Stickiness.
Engagement is a proxy for value creation. If people keep using your product, you’re onto something. If not, you need to rethink the problem you’re solving.
Marcus Daniels: I like to break it down into three categories: People, Product, and Progress.
If a corporate team doesn’t understand how venture KPIs work, they’ll shut down high-potential ideas too early.
Ben Yoskovitz: The best way to avoid tipping your hand is to test off-brand.
If you’re running early validation experiments, don’t slap a massive corporate logo on it. You don’t need to make it obvious that a Fortune 500 company is behind the test.
A lot of corporates overestimate how much competitors are watching. Most of the time, no one cares about your early-stage idea. The real challenge isn’t secrecy—it’s execution.
Marcus Daniels: Exactly. And I’d add that stealth doesn’t protect bad execution.
The better approach is to run controlled pilots and see what actually works. Competitors can copy your idea, but they can’t copy your execution speed.
Marcus Daniels: You have to balance startup upside with corporate constraints.
There are two things that top entrepreneurs want:
Corporate comp structures don’t support either. The key is getting creative:
Ben Yoskovitz: If the venture is being spun out, it’s easier—there’s actual equity. But if the venture stays inside the company, you have to be careful.
We’ve had executives say, “I can’t have a startup leader making more than our CEO.” That’s the tension. So you have to structure incentives relative to corporate salary bands while still making it attractive for founders.
Ben Yoskovitz: The first mistake? Assuming that a “successful venture” means the same thing to both the studio and the core business.
There are different ways to transition:
The big question is: What stage is the business unit comfortable acquiring the venture? If they only do late-stage acquisitions, they may not be ready to absorb an early-stage business.
Marcus Daniels: The best way to de-risk this transition is to test integration through partnerships first.
If a business unit is going to acquire a venture, they should have already tested selling or using it. If that hasn’t happened, the transition is probably premature.
Ben Yoskovitz: The biggest challenge in the first 90 days isn’t execution—it’s setting the right expectations.
Most corporate leaders expect immediate results. But the first 90 days in a venture studio should be about rapid experimentation and validation. The key is proving speed:
If you show speed, executives will see value, even before revenue.
Ben Yoskovitz: A lot of people avoid shutting down ventures because it feels like personal failure.
The best way to stay objective is to predefine kill criteria:
Marcus Daniels: And you need to decide what happens when something dies.
Do you recycle the talent into another venture? Do you repurpose the IP? If people know shutting something down doesn’t mean losing their job, they’ll be more honest about when it’s time to move on.
Corporate venture studios are fundamentally different from internal innovation teams. They require a different approach to governance, KPIs, acquisitions, and talent.
The best studios move fast, measure the right things, and aren’t afraid to shut things down. If more companies understood this, they’d avoid a lot of wasted time and money.
Have more questions? Reach out to us at ben@highlinebeta.com or marcus@highlinebeta.com.
Ben Yoskovitz 00:00
Are corporate venture studios considering its first acquisition? How do you structure diligence differently if you do compared to corporate development and how a corporate development group would do that? To me, a lot of corporate development groups at big companies are only acquiring stuff that is at a later stage. Right. It has revenue, it has traction, it has scale, and we see as a corporate development group, an opportunity to plug this into one of our business units and 10x it through just our sheer size. The difference for a venture studio is it's probably acquiring something at a super early stage before it's actually hit product market fit, because if it's much later, then a business unit should be acquiring it with a corporate development team. So if it's early acquisitions, it's really the talent, because you really want that talent to stick around, and it's really figuring out what value the venture studio is going to provide that acquisition. But it's not going to be huge sums of capital. It might not be access to the corporates customers and go to market, because it's not fully integrated yet. So to me, the due diligence is a little lighter weight. It should be a little bit faster for a venture studio to do it, because they're really saying, I like this team. I like what they're working on. Maybe they haven't even launched yet, but I need to bring this in to accelerate what we're doing in the venture studio. That's really the number one goal of early acquisitions inside of a venture studio,
Marcus Daniels 01:21
yeah. I mean, we've seen it a lot that also our friends in corporate venture capital play a massive role at this stage, also speed up diligence. I mean, leveraging, you know, an independent or associated group that's also investing in earlier, and so you're having a lot more of not just understanding how the venture can integrate, but doing a lot of the diligence before that investment.
Ben Yoskovitz 01:49
Hi everybody. Thanks for being here. We're about four weeks into our podcast. Beyond the core. It's been a great experience. So far, we've started to get a lot of questions from folks, DMing us, emailing us, messaging us. So we thought this episode would be a little bit different, where Marcus and I will read out some questions about a handful or so, maybe a couple more, that we'll get to we're going to answer those questions for folks, hopefully have a great conversation and share some of our insights that we have around venture studios and building new businesses. So with that, we're going to jump right in with the first question, Marcus, I'm going to throw this one over to you so I'm not the one doing all the talking. Here's the question, how do you structure governance when your venture studio operates independently but needs resources from business units? We're constantly caught between moving fast and getting buy in. I
Marcus Daniels 02:39
mean, that's such an important question. I think it starts with having to have a balanced approach with both groups in any sort of governance discussion, where we've seen often there's challenges where it's overly weighted in one area, and so the corporate venture studio and the business needed should have equal representation. I think the fundamental challenge is really where come what it comes down to is these operating decisions, and who really owns these decisions? So effectively, the venture studio, in our opinion, is really owning the negative one to zero phase and a lot of the zero to one phase. Ultimately, the business, the core business, the mothership, should own a lot of the things related to compliance, protecting the brand and and anything that really is trying to unlock corporate assets. And then there's always these joint elements as well. I know Ben, you have a lot of strong opinions on this as well, of because really messy who owns what at these particular stages, but I think you know, it's something that you know we've seen time and time again, is, how do you have a smaller board to start with in the beginning and then slowly grow that venture board?
Ben Yoskovitz 03:40
No, what a great answer. No, look, we could, we could spend all day just talking about governance alone. For me, I think, you know, there's, there's a governance question in here that that somebody asked, but also, how do I get resources from business units? And so for me, I think this is a key challenge for people, which is, how do I leverage assets and resources inside of the business unit effectively? So it depends on how your venture studio is set up. If it's set up where you're solving pain points with a business unit, then there's going to be a natural Exchange, which is, business unit has h1 let's say innovation stuff. It has to get to, it can't get to age two, h3 and that's where you, as a venture studio manager, can solve their pain points. In exchange for that, you need access to customers, you need access to data or other resources, and then the governance emerges out of that's more of a bottom up exercise of trying to just figure out the governance along the way.
Marcus Daniels 04:40
Yeah, just to add quickly, I think a lot of the time horizon also matters, to really try to align the incentives. And so if you're if the corporate venture studio is leveraging resources from the core, there needs to be alignment where the core will also benefit early, at least try to think about those discussions early in the government's formation process.
Ben Yoskovitz 04:58
Cool, okay, so. Next question, we've built three ventures in our studio over 18 months, but measuring progress feels arbitrary. What specific KPIs should we track pre revenue that actually indicate future success? So I'll take this one as the metrics person. So to me, the key to measuring success in a venture studio early on, is really about stickiness. So it's really about usage of a product as a proxy of value creation. And this is a very different metric from what a core will do, because the core business will launch products that might get immense amounts of attraction very quickly, revenue generated very, very quickly. We've had people on the podcast say, you know, things like, if something doesn't get to, you know, $50 million overnight, we were going to shut it down. I can't remember the exact number, so I remember that the key here is you have to measure engagement and stickiness, which is again, a proxy of value creation. That tells you we identified a problem. We built something. People are using it, and that's our measure of success. It's a very different KPI, and it takes time for the core business to understand that as a KPI, because it's not going to be early on revenue, and it's definitely not going to be profitability.
Marcus Daniels 06:16
Yeah, no, I totally agree. I just think I'll take a slightly different angle, or maybe lens, maybe where the investor lends to that one. I think there's really three things. Comes down to people, product and progress. I mean those three elements, and you really hit it with, I think the product side of things and the stickiness. I think that's probably the most critical one. But often the people piece gets neglected. As an investor at this earliest stage, we're always looking at the talent. Is this the right team to kind of solve this problem? How do we tell that narrative that we're bringing in, not just other resources from the core, but how are we bringing the right people so that we can execute against this and naturally, as we know as GPS, it's always about traction. And so that last piece that the progress you're making, I think, in that Trifecta really, certainly can help manage those expectations at the corporate level.
Ben Yoskovitz 07:06
Okay, so, Marcus, you brought people up. So how do you what KPI Are you putting on the people? It was a KPI question. So how do you know if the people are the right people to do the
Marcus Daniels 07:14
job? Yeah, well, it starts with, Okay, what's the vision of what the complete team is and how far away we are from forming that team? So it's usually starts with one person. But as we know, but as we know, a lot of these corporate ventures, a lot of people start showing up on the scene quickly. But the question is, what is the team to be able to execute to that milestone? And is that, again, make it fairly binary? Is it a team of three? Can we keep small teams that are pretty tight and not over hire too early? Where, a lot of corporate ventures have struggled with, and then building in the speed of the learning cycles, and even building enough traction so that, I mean, I would say that's, that's, you can make that into a number. I don't
Ben Yoskovitz 07:49
know if there's a number in there. I don't know if I heard a number, but maybe other people will give, will send feedback in after. So let's go
Speaker 1 07:55
to the next class, the classic three people. You know, no, no, I get that.
Ben Yoskovitz 07:59
I think, I think we're aligned small teams over big teams working on specific ventures where they really control the work that gets done on that venture, to me, is the right structure for a studio and the right size team. I totally agree with that. Okay, so the next question, when validating new ventures, how do you balance getting signal from customers, versus keeping stealth from competitors. Our business units are paranoid about tipping our hand. So I'll answer this one first. I would say one of the tactics that you can use here, so very specifically, is you build things off brand. So when you launch something into the market, you don't go powered by gigantic company or powered by this, or even necessarily powered by the studio, which then might have a brand or real association to the core big business. So tactically speaking, I would say, build things prototypes, test things you're launching in market. You do it off brand. But I don't like stealth, and I don't worry too much about competition. We would say this to startups as well. You're not worried really about competition, sort of snooping what you're doing, but tactically, do it off brand, because you can get into other challenges there around, oh, a big company and doing something, and then the press picks it up. So that would be my advice, 100%
Marcus Daniels 09:20
agree. I mean, I think the shadow brand concept is probably the most important hack at that particular stage. I mean, the only thing else I would add is really have a lot more courage to not care about the competition. That's exactly your point.
Ben Yoskovitz 09:32
You made fantastic. Okay. Next question, my company wants to hire two to three external entrepreneurs to lead new ventures, but our standard compensation structure doesn't work for attracting talent. What specific compensation models have worked for recruiting entrepreneurs into corporate venture studios
Marcus Daniels 09:49
market? I can take that one. Yeah. I mean, this is this. This is my world. I mean, I can get a bit geeky, if we need to, I'll set a limit, just given the amount of time we have. But fundamentally, there's two things that you have to kind of align for to start with. Is there kind of startup upside and also some level of autonomy? Those two elements are probably the two key, key things to attract external talent, specifically top tier entrepreneurial talent. Now, now we can get a bit creative if we want to think about the actual models. You know from the equity side that equity upside is there some sort of phantom equity that can be structured that sometimes gets really dicey, depending on the industry and depending on the corporate structure of of the mothership. But there's a lot of proxies to create synthetic upside based on hitting milestones that unlock value related to growing the corporate venture to a certain size. Another idea too, that I think we've seen a lot is just the idea of unlocking cash bonuses by hitting certain targets right milestones. Again, it's not as attractive to somebody on the outside who's really driven by the equity and the autonomy often. So how do you mirror that a little bit? And so you probably have to align it again to long term objectives, maybe on a exit or an integration into a business unit. So those are two things. And now if we really want to think more the portfolio approach, I think the lens of again, like a VC, is there a model where we can kind of mirror what carried interest is almost a net profit of all of the different ventures, because we know that some of these things are going to fail and some of them are going to be basically the big winners that we're going to want to double down with, just like a normal VC. And so, like, those are a few ideas. I think context always matters. You know, the industry, there's a lot of factors into it, but we're seeing more of these sort of creative equity upside or synthetic upside models becoming more in vogue?
Ben Yoskovitz 11:46
Yeah, I would say if you're spinning companies out, it's relatively easy, in the sense that there will be equity available to the founder or the founding team or the people that you bring on board. So in that model, it's pretty straightforward. Now how much equity you're going to give the founder, let's say or the CEO, is a whole separate discussion and debate, which you know, we'll be talking to guests about, and we can talk about separately as well. What I would say is, but, but if a venture is on the inside, it's really tough. And so, you know, Phantom equity upside. I always remember one executive saying to us, I can't have a venture get built that generates even $100 million in revenue and the founder walks away with more money than the CEO of the company, and that was a multi billion dollar company, right? So the problem is, you can't have a entrepreneur working inside of a small studio adjacent to the core making the most money in the whole business. So there's no way the upside of internal ventures can ever be the same as if you are a founder on the outside, a founder sells their business for $100 million as long as they own enough equity in that business that is massive return for them, right? That's life changing money. It's just never going to be the same if you're working inside of a corporate studio that's not spinning things
Marcus Daniels 13:03
out. Yeah, I remember that conversation quite vividly, and I think we went down the direction too, on how do we tie it to the public stock instead of giving a cash compensation so to kind of find a measure on the balance around it, but still really, really tricky, like you mentioned,
Ben Yoskovitz 13:18
yeah. And then I think also this is such a good topic. Again, you could, you could spend a lot of time on it, because a lot of big companies have very specific levels, you know, level one, level two, level three, whatever they call them, with specific salary bands and specific bonuses. So I think one of the hacks we've also seen is, you know, how do you define venture studio roles and what level they're at, and if you can put them at a higher level, where there's maybe more restricted stock units or a higher bonus, and now that bonus could be discretionary, right? So that could be based on the performance of the venture, but you can hack a little bit of the HR system potentially, because even the roles inside the venture studio are different than the classic roles inside of the big company. Yeah, excellent points. Okay. Next question, what's the playbook for transitioning a successful venture from the studio into the core business? We're about to do this for the first time and nervous about killing its momentum. Okay? I'm glad you know what. What's amazing, what I love about these questions. There's no There's no softballs. There's no nobody asks easy questions. So you go, you go first Marcus. I
Marcus Daniels 14:28
mean, that's one came up a couple times, I'm sure. I mean, we get this all the time. You know? I think it goes back to what I mentioned earlier, just on having first that lens, take the investor lens, if you work the work back, if you're going to integrate, you need runway, and so in 90 days, you have to have that investor lens to tell the narrative of look the people, the product, the progress. This is how we're going to integrate it into it, and then try to find a level of autonomy where maybe the PnL still stays independent, or the governance model will also have a longer. One way before it gets full integration. Because we've seen a lot where often it's a typical kind of process of, like an integration and, you know, quickly the P and L gets really mushed into the BU, and it's really difficult to actually, you know, loot really even track the incentives. A lot of momentum gets kind of squashed, and the synergies aren't really realized. And again, it goes back to the context, to the industry and the organization, and also, who are the other stakeholders internally that are going to be involved in this process, because now you're kind of meshing in New team members. It's a tough one, but I mean, it's, it's probably, you know, one of the most important, and kind of really showing that one plus one equals three value generation in driving these, these integrations of corporate ventures.
Ben Yoskovitz 15:46
Yeah, I think part of and again, we receive this question. So I don't know when, when the person sent it in and said successful venture. I don't know what the definition of successful venture really means. So we've seen a whole host of things. So I'll give you an example. We've seen a venture studio build a piece of technology, maybe they got a little bit of traction, and then the technology was taken and integrated back into the core. And that's that you could argue, that was a successful venture, and the technology was brought in, not the team, not the revenue, even the P L was not really the focus of it. It was just it was just tech. Sometimes it is not the what was built, but it is the team, right that gets integrated. And it's like, hey, that thing wasn't quite doing what we want, but we love the people, and the people would be better suited to win inside the core. And then sometimes it actually is a full and complete business that a venture studio created. I think in that scenario, it's really about figuring out the stage at which your core business is comfortable consuming the startup or the venture. So are they comfortable taking in early stage businesses like pre seed or seed or does this thing really need to be series A or Series B or later stage, almost like what a big company would do when it's acquiring a startup from the outside. We see a lot of times they'll do Acqui hires, right? That's just taking talent, and if your company has done that, they should be able to take something from a venture studio at that stage. If your company only acquires 100 million dollar or billion dollar businesses, and they do that successfully. Guess what? That's probably what the studio is going to have to do before it even looks at getting acquired, if you will, by the core business.
Marcus Daniels 17:30
Yeah. I mean, just to add to that, I think it goes back to the point of taking that investor lens and having more runway into that integration process. I mean, I think again this the faster it switches into the regular PNL, probably a lot of momentum gets kind of slowed down in that integration. And so can we find a way where we can preserve, maybe even thinking from the perspective of, how do we get funded, like you mentioned, like Series A, Series B, a more mature kind of venture? Okay, I need two years of runway and kind of work my way back before all of the other, I think, really important ingredients that made this venture successful, be it, be it still, the governance, the incentives, you know, the ability to speed and have the autonomy to basically still build the post it, having to leverage everything. Because one of the, one of the roadblocks we've always seen it goes back to the integration with tech, right, with the core, the core tech, versus on the outside. And so, you know, owning the product maps, product roadmap, still is pretty critical. But then the integration with tech is usually where there's a lot of speed bumps,
Ben Yoskovitz 18:32
yeah. And the other thing I'll say here, when we think about transitioning venture studio, businesses, startups, ventures, into the core, ideally, and again, I don't know if it's the case here, ideally, you've tested it. You've done something with the business unit that is going to acquire, you know, the venture you've you've run some kind of experiment with them, whether it's to acquire customers, or taken the venture Studio business and the core business and jointly sold to a new customer that that collective joint offering. So if there's some tests of integration, first, partnerships first, let's partner before we buy. I think that will help you, as a venture studio person, understand, you know, a business unit's capabilities and appetite for, you know, quote, unquote, acquiring the business. Yeah. And to
Marcus Daniels 19:20
your point, Ben, it also helps stakehold, stakeholder management just on how the strategic value is being integrated, right? Those pilots, I think, are really great just to be able to manage those people's expectations on speed and integration. Because if it takes, if it takes six months to really integrate the pilot, how can you, how can you really get the venture integrated in 100 100%
Ben Yoskovitz 19:41
like you have to be aware of what, what it's going to take from, from a time perspective, and and also what the, let's call it, the negative impact might be on the venture that's being, you know, acquired by the core business. So if it takes all the energy just to integrate those businesses and this little vent, you know, relatively speaking. Making this little venture, can't sell, can't execute, can't develop more. You're actually hurting the growth of that little venture right when it might be taking off, because you're trying to, you know, consume it through the mothership,
Marcus Daniels 20:14
yeah. And as we mentioned, too, the talent piece, the people piece, like now are they, what level are they integrating into the mothership? Now, how does that change? Not just the incentives, but just how they work, how they operate, I think are really critical elements. So I really love the pilot approach. First, I think we've seen a lot of success with that, you know, with corporate startup, you know, collaborations to help make the case and have more of a smoother integration.
Ben Yoskovitz 20:38
Yeah, cool. Okay. Next question, how do you structure the first 90 days of a new venture to maximize learning while maintaining credibility with corporate stakeholders who want to see progress? Yeah, okay, I'm glad. I'll take this one first. So Marcus, you can think of your answer. So I actually the answer to this question is really about executive level support that you have for the venture studio. So the question is kind of worded where there's a bit of an assumption that I might not quite have the level of executive support that I want. I'm launching this new venture, and I really, really need to show a level of progress that's going to keep stakeholders engaged. If stakeholders don't realize that the first 90 days are all rapid experiments and rapid learning, where there's not necessarily a product being built, there's no traction, there's no revenue. If there's a disconnect on that and expectations, you don't you don't solve this problem. So I think this comes down to executive level understanding and support for what those first 90 days are going to look like, not of a new venture studio. It says of a new venture, right? A venture studio would be setting up governance and all of those things. But a new venture is arguably it's we're trying to validate in those first 90 days, if we even have a problem worth solving. That's typically how at Highline beta we start things. It might not take 90 days, but that's typically how we start. So really the answer is, hey, we've actually found a problem we're solving, or we didn't find a problem we're solving, and we're going back to the drawing board. So you need executive stakeholders that really understand the methodology of the venture studio is different from how they do incremental or internal corporate innovation. And if you don't have that, it's going to be hard to prove anything within 90 days. The last thing I'll say, this won't be the last thing, but the other thing I'll say about this is a venture studio should move way, way, way faster than corporate innovation on the inside. That's just the nature of how these things are designed. So in the first 90 days, if you can demonstrate speed of execution, we ran this number of experiments, we did this number of tests, we killed this number of ideas, we came up with five more things. If you can demonstrate that level of speed and motion, presumably, that's what the executive folks at the company bought when they said, Let's go do a venture studio. Was the speed of doing stuff. And so if you can prove that in the first 90 days, stakeholders should be excited about that as a result.
Marcus Daniels 23:13
Yeah, no, I totally agree with all those points. I think being a bit bolder maybe in managing those corporate expectations, those stakeholder expectations. You know, again, where are the kill switches? How do you show the confidence that we can implement kill switches in reasonable intervals, maybe not 90 days, like in six months, in six months, if I don't make X progress, or can show you there's enough momentum? And I go back to my investor lens framework of just, you know, the people, the product, and also the traction, you know, the progress that's being made. And that's kind of my my dashboard and showing, you know, again, it's you have bits of the qualitative but also the quantitative kind of approach to things. It shows enough foresight, but also shows a good kind of risk profile approach. You're not saying, look like a normal internal innovation project might get funded for a year. You're taking that down to maybe six months, and you're saying, Every 90 days, I'm going to bring this to maybe the venture board, and allow to you to kind of also see how the progress is being made on this dashboard. And I know we talked a bit about governance earlier too. And I mean another thing too, how you evolve these venture boards is also trying to find some level of independence and maybe bringing in a third party, you know, as an independent board member, to give a perspective, in some ways, being a bit of that kind of corporate translator between the mothership and also how the startup corporate venture studio operates, I think has also been quite useful. I know we've played that role in quite a few corporate venture you know, developments we've done over the years. And I think certainly that is also another way to manage those expectations, like set the stage of how governance is going to be in place, and it'll be also third party validation that progress is being
Ben Yoskovitz 24:53
made, right? Yeah. And what's interesting is, I think the first 90 days, in my experience, are not the hardest part of this. Process, actually it's the 90 days after and the 90 days after and the 90 days after, it's actually when you get into the realm of six months to a year of a venture studio, or a year and a half that your venture studio has been in operations, and now the corporate wants to see what ventures have materialized out of this, and what traction do those ventures actually have? And then the appetite for nurturing these very tiny businesses, you'll see whether the appetite is truly there or not there. And so the first 90 days, to me, lots of things get spun up. People are running all kinds of experiments. It's actually relatively easy to demonstrate activity, and at least say that that activity is driving progress. It's when you're a year, a year and a half or two years in, how many ventures have you built to your point? Marcus, how many have you shut down? What does the idea pipeline look like? The talent, you know, is this thing actually humming along now and running effectively, where I as an executive, could imagine two years from now, three years from now, five years from now, we've actually built material businesses.
Marcus Daniels 26:08
No, absolutely. I mean, I think the only thing I would add to that is it does come back to those intervals. As you said, it gets a bit harder when you get later into the process, as after you get a couple quarters down. But I'll go back to even the people piece right? And back to the idea, do we have the right people working on this? You could, could have started with Jack and Jill, and they seem to be the best kind of team in that first six months. But then maybe the skill sets have changed. Maybe, you know, Jill should really be the leader now, not Jack. And how do you deal with that dynamic in the inside of how normally these decisions are made in a corporate context, versus kind of a startup co founding relationship, so all these sort of things and getting ahead of it, and I think the venture board construct itself, if you can fast forward and set that up properly and educate how that's going to operate, I think really sets you up, or at least has stronger winning conditions as the process gets harder.
Ben Yoskovitz 27:01
Cool, okay, next question, our venture studio has gotten good at validating ideas, but we're slow at killing them. What's what specific criteria do you use to shut down your ventures early?
Marcus Daniels 27:14
Wow, well, I kind of touched a little bit about that on on the kill switches. I know, Ben, you love everything that's very specific to
Ben Yoskovitz 27:24
board specific criteria. Marcus, they didn't say shut things down. They said, give us specific criteria.
Marcus Daniels 27:30
Yeah. I mean, I don't think there's ever going to be specific criteria in that first phase, outside of the fact that managing those expectations of what winning looks like at different intervals, can be pretty black and white, right? Like, if you're setting the stage at that first venture board that this, these are the actual metrics on the dashboard, and you have to hit at least two of the three, right. You can't miss all of them. And then that will basically say, Okay, we're gonna, we're gonna sunset this venture. But the other element, I think, is interesting related to that, is what happens when you when you do kill it's one thing to say, Okay, we're going to shut this down. But can you even pre establish what happens to the people, what happens to the talent, the IP those elements? Because I think, you know, ultimately we see a lot of great talent that needs to be shuffled to another venture, or is it going into more of a shared resource, horizontal that's still supporting other ventures in the venture studio? But the question is, on a criteria, I think, as we know, corporate venturing, startup building is messy, so it'll always be contextual, but I've always liked the idea of narrowing it down up to three metrics that you establish before you start and having that level of alignment, and so it can be very precise on numbers, but I think there's always one element that'll come down to the people.
Ben Yoskovitz 28:52
Yeah, I definitely agree that you know that one of the challenges with killing stuff is, what do you do with the people and when people are working on a specific venture, and this shouldn't be a surprise, they start to attach their value to the venture itself, and they're, by extension, don't want to kill the venture because it might look bad on them, look bad on their career progression and all of that. So that's really, that's the human part of it, and that's a really tough part of it to figure out I would say on the metrics it really the way I would answer this is that it's really case by case based on the venture. So again, the way this is is phrased is we're good at validating stuff. How do we kill stuff? So I'm making an assumption that we validated something and we've built something and we've put it into market, and we've launched it. And so now I would put a bit of that investor lens on it and say, Do I think that this thing could raise external capital at this stage, whatever the stage may be, and if I don't think it could raise external capital, and that's where a venture board with a third party who has that lens can help, then maybe I do have to shut it down. Now we've seen come. In our own portfolio that look like they're going, you know, not side, well, sideways or not sideways. Yeah, fine. Sideways. Not growing, you know, not hockey sticking for a good chunk of time, a year, a couple of years, and then they break. And that's quite common in the startup world. So it's very hard to say, shut it down because it looks like it's going sideways, or give it more time. So there is a belief in the people. I think there's also, how much have I invested in this thing, and how much do I have to keep investing? So if you're if you've invested a very small amount, but the thing looks like it's going sideways, you might still be able to give it more leash and say, keep going, because it's not costing an enormous amount of money, but there is an opportunity cost in a venture studio where there's a fixed amount of capital. I have $100 and I have to decide where to place my bets. So I start to look at you have to have individual metrics for individual businesses, a B to B business will be very different from a B to C business will be very different from a B to B to C business. So you need those individual metrics when something launches. But I'm also looking at the dollars I've committed and the opportunity cost against something else that I might want to double down on, or something I want to start from scratch again. Yeah,
Marcus Daniels 31:13
I think the opportunity cost one is one of the most important ones when you think about kind of the portfolio construction, specifically for the studio itself, if the studio is trying to build one to four quality ventures during the year, and how those, those, those resources get reallocated. And that's why I was making the point of just, how do you also pre negotiate what happens at some of these stages? I think 100 days is very short, right? You think about the process of invalidation and then going through the zero to one phase to get to launch. And so it really does go back to, how do you manage those stakeholder relationships and expectations? But how much can you actually back to your point then leverage the idea of, should this thing or does it deserve more funding, right? Like, kind of like on the outside, even though it's a corporate budget or studio budget that's letting it continue to that next
Ben Yoskovitz 32:03
milestone. Still real dollars, right? Still dollars. Yeah, me, to me, it's like, is it? Is it? Is it, you know, good money after bad that you're going in now because you're over committed to this thing and you don't want to see it fail. Or could you use that money to double down on something that's actually scaling, recognizing that it is a portfolio, and out of 10 things, two or three are probably going to win. Am I splitting my money equally, or am I really doubling down on those two or three winners, you know, at the expense, if you will, of the others. And it doesn't mean those were bad ideas. It doesn't mean that you couldn't go back to them later, and it doesn't mean that somebody else won't figure it out. It's just in the moment you couldn't crack that nut, and you've got to go double down on the things that are actually winning.
Marcus Daniels 32:45
Yeah. But I mean, as you mentioned, too, the timelines do matter. Some of these ventures do take a bit longer to marinate then we get to that next stage. And so it's critical that you give them enough time before you double down. And you mentioned also about kind of the career impact for some people, which really becomes a challenge for people. So if you can pre negotiate where these where the talent is going, it might also allow to have a lot more intellectual honesty on Should we kill this faster, or should we take some harder decisions, because it won't impact the people's careers?
Ben Yoskovitz 33:17
In a perfect world, that decision should come largely from the people running the venture. In a perfect world, they would put their hand up and say, this is not working, and we should use our resources, including me as a person, on something that has a better chance of winning. I don't know that it often works that way, but with startups, it often does on the outside. Founders often do sometimes they're delusional, but sometimes they do put their hand up and say, I can't figure this out, and this is actually a waste of all of our time and money.
Marcus Daniels 33:47
Yeah. No, exactly. I mean, I think you could leverage being a bit delusional to turn into obsession that helps drive the speed. But also, again, like back to what you described. Like, co founders tend to have challenges sometimes, and sometimes the talent needs to be recycled and find ways on how you can both take the right decisions on should you move forward or not? Yeah.
Ben Yoskovitz 34:06
Okay. Next question, are corporate venture studios considering its first acquisition? How do you structure diligence differently if you do compared to corporate development, and how a corporate development group would do that?
Marcus Daniels 34:19
Yeah, I can take that. I mean, we talked a little bit about it already. You know, bets on taking that kind of more VC lens, like, what does a VC look at versus a corporate development group? A corporate development group is typically looking at more the synergies and the financials, whereas, you know, a VC on the outside is looking at the growth towards product market fit. I think, you know, you mentioned it earlier too, just the power of pilots. I think pilots could be a really useful tool to effectively speed up that process. Is almost pre DD, before there's kind of some sort of acquisition. And then, you know, ultimately, even thinking about pricing, i. How the acquisition usually becomes a contentious issue, less contentious if it's a corporate venture, and how it's structured, but if you're looking at something that maybe was a spin out, that's in a separate entity that's now getting tied back in, you know, getting past that pilot phase, and then looking at how it's scaling and seeing the impact of scale can get to a quicker, maybe resolution to pricing, which tends to really slow down a lot of these M and a kind of transactions. I mean, I've seen this a lot. I know you've seen it a bit too. Ben, any other thoughts on that? Yeah, I think
Ben Yoskovitz 35:31
for me, a venture studio, since a venture studio is in the business of building things from zero, from an early, early stage, to me, a lot of corporate development groups at big companies are only acquiring stuff that is at a later stage. Right? It has revenue, it has traction, it has scale, and we see as a corporate development group an opportunity to plug this into one of our business units and 10x it through just our sheer size. The difference for a venture studio is it's probably acquiring something at a super early stage, before it's actually hit product market fit, because if it, if it's much later than a business unit should be acquiring it with a corporate development team. So if it's early, if it's early acquisitions, it's really the talent, because you really want that talent to stick around, and it's really figuring out what value the venture studio is going to provide that acquisition. It could be a pilot, for sure, but it's not going to be huge sums of capital. It might not be access to the corporates customers and go to market, because it's not fully integrated yet. So to me, the due diligence is a little lighter weight. It should be a little bit faster for a venture studio to do it, because they're really saying, I like this team. I like what they're working on. Maybe they haven't even launched yet, but I need to bring this in to accelerate what we're doing in the venture studio. That's really the number one goal of early acquisitions inside of a venture studio.
Marcus Daniels 36:53
Yeah. I mean, we've seen it a lot, that also our friends in corporate venture capital play a massive role at this stage, also speed up diligence. I mean leveraging, you know, an independent or associated group that's also investing in earlier, and so you're having a lot more of not just understanding how the venture can integrate, but you're doing a lot of the diligence before that investment. So I think, you know, there's many tools, kind of beyond the core of all of the elements you can for M A and I think we're also seeing because you think you brought up a really good point, Ben, just one the stage. Often, we're seeing these integrations happening a much later. But again, a great corporate venture studio on the outside is creating value in so many different ways in a portfolio. And so there is a lot of things that are earlier, before product market fit that need to have faster kind of acquisitions beyond just the Acqui hire or the the asset purchase transaction is, how does this venture actually integrate into the maybe Innovation Lab and still has a role to basically create a lot of value? Now, these are really great questions.
Ben Yoskovitz 37:57
And what I would say here is, I like the idea of a venture studio not exclusively building everything. I think many corporate venture studios start that way with the notion of, we're going to build that's the tool in the toolbox. We're going to build stuff. And then they realize, wait a second, do I have to build everything? Is that the fastest path to success. Sometimes it might actually be partnership, sometimes it might actually be acquisition. So I think when you realize as a venture studio, if you've been set up that way, or you can expand your mandate beyond just building, where you can buy stuff partner with other startups, because again, your mission isn't build things, it's solve problems and create value of some kind that might not always be I have to build everything in house. So I see a lot of venture studios thinking I got to build everything, and then saying, wait a second, do I have to build everything? Maybe I don't. Maybe I can acquire something. And that accelerates my KPIs as a venture studio, which I think is totally reasonable and makes complete sense.
Marcus Daniels 39:00
Yeah. And there's also acquiring these assets doesn't necessarily mean they have to be fully integrated. They could still live on the outside and be fully owned. And I think that's also a piece that we probably need to do a whole episode on in the future. Yeah, 100%
Ben Yoskovitz 39:15
Well, all right, that was eight questions. Fair. It felt very rapid fire, but hopefully, hopefully valuable for everybody. Thanks for listening, and we really appreciate everybody's time.
Marcus Daniels 39:28
Yeah, thank you. Please add more comments, really enjoying the questions and looking forward to continue the conversation.
Ben Yoskovitz 39:33
We'd love to hear more questions from folks about venture studios and venture building or any other topics that we're talking about. You can always reach me on LinkedIn, and you can email me at ben@highlinebeta.com or marcus@highlinebeta.com
We always enjoy conversations about innovation and startup building so please get in touch.
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