Approach to Building and Investing in SaaS Startups
Despite its vastness, Alaska is a place of great interconnectedness, where people and technology shape the land, and the land shapes the people and technology.
The Alaska Startup Studio sees great potential in transforming the state into a tech hub by leveraging Alaska’s unique environment and partnering with tech entrepreneurs to build scalable SaaS businesses.
We bring hundreds of software startup ideas into the top of the funnel. Then, during a sprint process, we take the best ideas and transform them into business concepts, complete with branding and positioning, software click-through models validated by buyers and users, a go-to-market strategy, and a business case. These concepts are then built out collectively by our startup studio team and the founding entrepreneur/startup team.
In this partnership, the entrepreneur(s) and the AlaskaStartup Studio join forces as equity stakeholders. In exchange for equity, our startup studio can provide design, product, marketing, finance, and talent services that allow our startups to grow quickly and efficiently. These resources allow the studio companies to avoid some of the early pitfalls that sink startups during the critical stage of finding product-market fit.
How We Determine Equity Splits
Usually companies "slice the pie" on equity before the pie is baked. This means that the percent of equity owned by each co-founder is fixed in the beginning before the idea is turned into a business. Later on, someone on the team may resent the fixed equity split when team members are not pulling their fair share. Great startups and relationships are lost over disagreements on equity. That is why we use the Slicing Pie model when partnering with entrepreneurs, which creates a simple and fair calculation for valuing a person’s contribution to the startup.
Slicing Pie is a simple formula where a person's percentage share of rewards equals their share of at-risk contributions. There are two basic types of at-risk contributions: cash and non-cash like time, ideas, relationships, and supplies. These contributions are tracked as part of a grunt fund, which is a legal vehicle to dynamically allocate equity. Because contributions are constantly being made, the model is constantly self-adjusting to provide a fair equity split.
We love implementing the Slicing Pie model with the startups in our studio, because it includes mechanisms that we think incentivize startups to make better decisions. Once a startup breaks even or raises enough money to pay out for contributions, the model freezes, so however much of the pie someone has at that point gets locked in. Managers and employees will be aligned in their interests to get to cash flow breakeven as soon as they can so they can freeze their share, before others come in at later stages to make contributions.
In contrast, when using the fixed model to divide equity, it does not really matter when the company gets to breakeven. In a fixed model, contributions and cash flow break even will not impact one's percentage of ownership and ultimately their total compensation.
Learn more about Slicing Pie.
Why Give Equity to a Startup Studio Instead of a Venture Capital Firm?
There is a common misconception that shapes today’s startup landscape: you have to raise money in order to successfully launch and scale a company. The media glorifies companies getting early-stage investment funding from venture capitalists. Yet in reality:
- 75% of VC-funded startups fail,
- 95% of VC-funded companies do not deliver the returns expected, and
- only 1% of companies get VC funding
Angel investors and early-stage VC firms focus more on financial capital. Even those that offer guidance and strategic help rarely invest in pre-revenue companies. By insisting that startups achieve revenue prior to considering an investment, they are, in effect, de-risking their investments. Put another way, the startup must prove they have a product, a market, and paying customers. Long gone are the days when a VC firm would invest in just an idea.
With our startup studio, however, we love working with pre-revenue startups, even if it is just an idea for a company. And we go beyond financing. The primary focus for our startup studio is the rapid development and prototyping of new products. We have developed a uniquely competitive infrastructure made of pooled resources, technical tools, management processes and a multi-disciplinary team. For each new software startup, we leverage this infrastructure to increase your likelihood of success.
If you are an entrepreneur or part of a startup team that loves Alaska and have a business idea or some custom software code that you want to turn into a successful SaaS business, let’s talk! Submit your idea to start the process of seeing whether we can partner together.Submit Your Idea