Finance is just as much about people as it is about numbers. Not a phrase you hear often, right? Well at K8 we buy into it. But before we dive into the role of people in finance, we have to acknowledge that the structure people work within plays a large part in how well they do their jobs. We’ve made it a focus of ours to optimize structures and teamwork to build a venture firm that is focused on controlling all aspects of company creation and growth; a venture firm that equates that very control with higher shareholder value.
Let’s dive in.
K8 is a venture builder studio (VBS). The VBS model is relatively new, and K8 is among the first in this new category of Venture Capital. Essentially, K8 ideates, invests, builds, and takes to market companies that fill significant market gaps or are poised to lead a market segment. We do this with the idea that control, through our company creation methodology and world-class team, de-risks and increases the future success rates of our companies—leading to overall IRR for our investors. (Try saying that five times fast!) What sets K8 apart is that it is the founder of each of its portfolio companies, which means it maintains 100% of each companies equity and 100% of the value creation for its shareholders. To understand the true meaning of this statement you have to look at how venture builder studios run in comparison to traditional venture capital funds.
As a financial innovation, modern Venture Capital has been around for over 40 years. It was created to offer a greater number of investors the opportunity to invest directly into a growing pool of entrepreneurial private businesses. The Stock Market, for instance, is structured so when investing in a prevalent public company, the value from the transaction goes to the holder of that security at (hopefully) a profit. The stock owner is rewarded for buying low, and selling high, and the company has no direct financial benefit.
In venture, however, a dollar is invested and goes virtually directly to the entrepreneur or venture. They are the direct beneficiary of that infusion of capital, and with it they have the funds to build, create, manufacture, and innovate. In other words, a dollar of investment in venture goes directly to value creation. However this is mitigated by the venture funds charging management fees, that divert capital that could go to the portfolio companies.
With the VBS model, firms like K8, because they are the founders of each portfolio company, retain more control and more ownership of their companies. Traditional funds invest small portions of money in many large companies, hoping for a significant payout from a small percentage of their investments. With this model, traditional venture funds typically own about 25-35% of a company. With K8, on the other hand, our team of industry veterans invests time, energy and resources to vet ideas and then create and build potent companies around those ideas. K8 has six stages that companies go through from initial idea to MVP, with ownership ending up around 65%-85% by the final stage. While value creation (and a level of risk) is existent in both models, we fancy the odds that our methodology offers.
But we’d be naive to say that our model, the venture builder, is not without its risks. When a firm both builds and controls its own investment, it can be blinded by its own stake in the project. Flaws must be minimized before they grow into major issues that grow in the blindspot.
At K8, we’ve gone out of our way to build a diverse team, with industry leaders and experts across sectors who are able to function as checks and balances. On our projects, our domain experts tell us when ideas don’t have a strong market fit or when our distribution plan is not realistic. On conceptual undertakings, our strategy experts can tell us where data needs to be added and how our mechanics can be tighter. We’ve worked hard to create a varied, knowledgeable and experienced team that works seamlessly together, providing fortification where it’s needed to produce the strongest outcomes.
As we expand and iterate on our VBS model, this emphasis on control is going to continue to be central to our identity. Trends in finances and investment cycle through, but building strong, innovative companies that offer investors high, direct returns will always be appealing. The best way we know how to accomplish this is by maintaining strong leadership control over the K8 core portfolio companies. From idea to market leader, we’re dedicated to bringing a new paradigm to venture capital.