Olivia Moultrie receives the ball with her back to goal, just past the halfway line. In a fluid motion, she turns, brings the ball into stride, and with an effortless shimmy evades a defender's pressure. It’s a confident, elegant move, almost knowing in the use of space and physicality.
With the ball at her feet, Olivia looks like a veteran. In the clip referred to, she’s only thirteen.
She’s already a professional, though. After training with European giants Paris Saint-Germain, Lyon, and Bayern Munich, Olivia signed terms with the Portland Thorns. To do so, she turned down the scholarship the University of North Carolina had offered her at the tender age of 11.
She also has a shoe deal. As part of her push into professional sports, she signed a multi-year agreement with Nike, thought to run in the six figures. She is exceptional if not exactly unique — in the bid to sign the next Michael Jordan, LeBron James, Serena Williams, or Lionel Messi, brands and franchises have sought to snap up generational talent at increasingly young ages. In 2017, Nike added Shane Kluivert, the nine-year-old son of a former Netherlands international, to their soccer roster. The same year, teenage tennis star Amanda Anisimova signed an ~$80M contract with the shoemaker. Coco Gauff, another young phenom in the sport, has sponsorships from New Balance and Head.
For both apparel companies and teams themselves, the arithmetic is simple: sign the best talent you can, as early as possible. If that means casting a wider net, so be it — a single breakout star more than compensates for a legion of nearly-rans. Or to put it another way, the value of single Michael Jordan far outweighs a thousand Jeremy Tylers.
The war for talent
Like signing athletes, venture capital is a game governed by power laws. Sufficiently big wins make up for frequent losses. It is also a game in which being early, being first has clear benefits: a 2019 paper from AngelList’s Head of Data Science confirmed the much-maligned “spray and pray” drives returns. As with athletes, talent has an outsized impact on outcomes, particularly at first. While Marc Andreessen may still be right in his assessment that the complexion of a market is the biggest determinant of startup success, talent may be the least replicable element. It was comparatively easy to see Uber’s early success and emulate the product, harder to manufacture the manic win-at-all-costs mentality and technical savvy of Travis Kalanick. All to say, promising startup ideas are often replicable. People are not.
Money has poured into the venture capital ecosystem, but severe skill gaps in technical industries remain, and natural entrepreneurs are hard to find. Promising startups increasingly have the ability to choose from a litany of possible financing partners, and given the lack of differentiation among firms, “winning” has become harder. Even worse, the most successful funds have swollen in size, meaning they have increased pressure to deploy and secure meaningful ownership.
More competition. More pressure. A scarcity of talent.
Perhaps it was inevitable that firms would borrow the playbook of great talent aggregators like Nike and Adidas. The “War for Talent,” a term first coined by McKinsey in 1997, is gripping tech’s capital allocators, creating a superabundance of options for early builders. Whereas a founder might once have hoped for a spot in “Cambridge Seed,” the precursor to YC, budding CEOs can now choose between an incubator, accelerator, Entrepreneur-in-Residence (EIR) role, or venture studio gig. Each brings with it different expectations, drawbacks, and benefits.
Though programs place their emphasis in different places, there are a few universal incentives. Outside the warm and fuzzy feeling earned by helping new entrepreneurs, these programs are architected to secure allocation.
For smaller funds, an EIR program offers a chance to “buy” into a deal they might not see or win otherwise. In exchange for taking on added risk — nothing may come of such an engagement — a smaller player seals their spot at the table.
For larger funds, these programs often look like an options strategy. For billion-dollar vehicles, deploying $250K is useful only in that it may smooth the road for a $5M, $10M, $50M investment later on.
In both instances, allocation — and perhaps more precisely, ownership — is the goal. In exchange for security, support, occasionally money, and in some instances an idea, founders trade a portion of their business.
There appear to be four core models for co-creation: launchpads, accelerators, residencies, and studios. Each possesses different characteristics and subcategories. Broadly speaking, launchpads and studios are on opposite ends of the spectrum — the former tend to be less structured and better-suited for early ideation, while the latter leans towards the more formal and often either expects or prescribes a business idea.
The process of starting a company is typically long and circuitous. Different types of programs have emerged to capture talented individuals as they leave a current position and explore ideas.
This category includes community-based programs hosted by Betaworks Studios, Prehype, On Deck, and Human Ventures, and “exploratory EIR" positions. Firms like a16z, Benchmark, and Lightspeed are all said to offer such unstructured programs that give entrepreneurs a place to kick around different concepts. These are recruited informally, and typically only available to experienced founders and operators. In some instances, a salary is included as part of an engagement.
In exchange for office space, some degree of mentorship, and introductions, launchpads may ask new founders to help portfolio companies or assist with deal diligence. Should a company emerge from an exploratory EIR role, investment firms often have the right to invest in the round at the market rate and receive a portion of common stock between 0-5%.
Ultimately, launchpads are designed to appeal to a wide range of talent and allow for serendipity. In many instances, participants may choose to de-escalate ambitions to build a business, accepting an operating role. Because of the low expectations, this can be advantageous for both parties as firms guide good talent to their portfolio and participants receive preferential access to openings.
Based on our research, we differentiate between “talent accelerators” and “business accelerators.” Examples of the former include Antler and Entrepreneur First. The latter include Y Combinator, 500 Startups, and AngelPad. In both cases, founders pass through a structured, time-bounded program designed to advance their company-building and ready them to raise capital.
Talent accelerators do not expect a builder to arrive with a startup idea and provide programming to drive ideation. In many instances, talent accelerators expect co-founders to meet during the program and join forces. While no investment is made upfront, stipends of $2.5-3.5K per month are provided. At the end of the program, talent accelerators typically have an option to invest in a financing round. Builders can expect terms of $100K for roughly 10% of their business at pre-seed, though there can be variation.
Business accelerators back teams with an existing concept and provide several weeks of programming, typically ending with a Demo Day. It’s unusual for teams to search for additional co-founders within the program, and upfront investment is common. As an example, Y Combinator is moving towards a $125K investment for 7% of the companies they back. Business accelerators usually have the option to invest in subsequent rounds as well.
Accelerators are fundamentally more structured than launchpads and attract builders further along in the founding journey.
More traditional Founder-in-Residence engagements exist alongside the comparatively unstructured “exploratory” programs discussed above. These usually run for 6-24 months. Examples include FJ Labs, Inovia, Horizons Alpha, Create, and HVF Labs. The founder drives ideation but is able to rely on a firm’s resources.
Versus exploratory engagements, there is a much firmer expectation that a company will emerge from the process. Founders receive a salary and typically agree on terms upfront. From our research, we’ve found example investments to range from $100K - $750K, in exchange for 20 - 35% of equity at pre-seed. In some instances, promises are made for future allocation.
Compared to the options described earlier, residencies offer greater amounts of capital and guidance, but expectations are higher and allocations larger. This results in founders typically owning less of their business.
While the examples listed above are still, at least in some respect, founder-led, studios flip the script. Rather than providing resources for builders to navigate towards an idea, studios conduct internal research to validate promising concepts. They may bring these ideas to market and attract first customers, all before bringing in outside talent.
Early-stage studios include Pioneer Square Labs, Juxtapose, AlleyCorp, and Launch Factory. Typically these firms research an idea until they have ~70% confidence in its viability before hiring a CEO. Projects can be capitalized with $500K - $2M in exchange for 25-50% equity, leaving founders with 10-25% of their business. In some instances, additional resources are provided, such as software developers and designers.
Mid-stage studios like Atomic, Science, Thrive Capital, Expa, and Idealab look to reach greater conviction before hiring a CEO. Once confidence has been reached, companies are capitalized aggressively. Seed businesses may receive as much as $4M from the studio plus added services. Many studios have large sales and engineering teams on-hand to help. “Founders” may own as little as 10% of the business after this funding, though there is significant variation.
Finally, late-stage studios acquire customers before building leadership. An experienced executive team is put in place post-build, with the aims of scaling to a Series A and beyond. Resources are provided, and investment may reach above $4M. Again, “founders” may be left with a small, minority share, between 10 - 20%.
Rather than seeing founding as an emergent process, studios are comparatively top-down. Promising markets are identified, different approaches are trialed, and first customers may be won before a team is put in place. Founders entering such an engagement take the reins of a more mature business but accept a lower share.
As the American social theorist Thomas Sowell once said, “There are no solutions; there are only trade-offs.”
The structures mentioned above provide different benefits and drawbacks, suited to differing styles of builder. While some may wish to work on an idea that is uniquely their own, others may prefer to be set loose on a de-risked, pre-vetted notion. Though ownership may be the highest priority to one CEO, another may be glad to give up a percentage in exchange for more guidance and support.
All to say that when considering the different pathways, it is worth interrogating what matters most to you. While the table above provides a framework for comparison, we’ve also constructed a decision-tree to help guide new founders.
The battle continues
The original “War for Talent” paper begins with a simple line: “Better talent is worth fighting for.” Whether that’s on the soccer pitch, the basketball court, or in the boardroom, identifying and leveraging the gifted is a profitable business.
Because of the power-law dynamics at play, that is particularly true in the aggregate. When you watch Olivia Moultrie, you see a star in the making. In another clip, she strolls through the midfield, juggles the ball over a defender’s head, leathers a shot into the top corner. She may not reach the lofty expectations set for her, but it will not matter to Nike. Not really. A false negative is far more costly than a false positive which is to say that in both athletics and startup building, we should expect the further weaponization of talent agglomeration.
In that pursuit, we will see firms move even earlier. Dorm Room Fund, Rough Draft, Contrary Capital, and others focus on backing undergraduate founders. The Thiel Fellowship does the same, though seeks to separate the individual from the institution. Is it so ludicrous to imagine we might see such a structure applied at the high-school level? In the coming years, I expect the biggest venture firms to attempt to capture the brightest, most ambitious minds in their mid-teens, an “Extracurricular Capital,” of sorts. (A decent place to start: the country’s 500 best STEM schools.) While the payoff period for this sort of talent investment would likely be longer, it might yield a greater LTV. We may also see existing models applied in new geographies.
Whatever form such experiments take, the outcome will be the same: more options, greater complexity, trade-offs. Prospective builders will benefit by understanding what they are gaining and what they are giving up.
As a note, all figures stated above should be considered as illustrative rather than definitive. Individual cases may vary.
The Generalist’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice. You should always do your own research and consult advisors on these subjects. Our work may feature entities in which Generalist Capital, LLC or the author has invested.