Founding + Scaling Is Hard
Startups build something out of nothing. They are among the greatest contributors to economic prosperity and one of the purest opportunities for the flourishing of creative expression. Founders have an idea. They scramble to put together the people and resources necessary to begin realizing their vision. They strive to create real value for others. They work tirelessly to capture some of that value for the expansion of the company. The small core team hacks and scrapes and claws to make the impossible achievable.
Then they raise money.
After a funding round, a startup must cater to a new kind of stakeholder – the investor. Sometimes this stakeholder represents their own interests, but often they are bound by fiduciary responsibility to the people and institutions they serve. In either case this influx of capital is expected to catalyze growth. 10x growth. 100x growth. 1000x growth.
Not Built For This
The most lethal threat to success at this stage, regardless of the size of a business, is that the organization is not built for this kind of process-driven, high-velocity sprinting.
Startups have a dedicated and talented core team, but they need to expand ranks quickly while often not knowing what roles to hire and simultaneously not being able to afford the highest-end or most experienced professionals. Completing the fundraising effort took far more of senior management’s time and attention than they would have liked, and now they must shift to months of interviews. Process and culture-building are profoundly important, but they take away from maximizing output. Finally, nearly inevitable hiring mistakes during this time can cost substantial money and unrecoverable momentum. Almost by definition, startups are not built for the moment that comes post-money.
In every startup, the leadership team and their financial backers feel accountability for producing innovation-driven growth, but more than any other combination of priorities, they constantly optimize for two elusive objectives. During the 12-24 months of concentrated effort toward expansion, they must find every possible way to (1) de-risk the process and (2) accelerate outcomes, both in timelines and impacts.
Everyone wants to know how they can achieve the highest order outcomes for revenue, brand, and product development with the lowest possible risks to capital, existing market position, and established operations. De-Risk. Accelerate.
Silos Are Dead
If you have been a part of any rapidly expanding business in the past decade, you have noticed one commonly reoccurring trend – silos are dying. We live in a world of DevOps, MarketingOps, SalesOps. Everything is folding in on itself. All teams are cross-functional, and all efforts are expended on Success and Experience.
In fact, when it comes to the highest caliber growth-innovation efforts, silos are already dead.
Pixel Recess was founded on the idea that our six areas of focus are not silos, they are layers. To produce the kinds of outcomes we desire – to De-Risk and Accelerate growth and innovation – these activities must be, at all times, inextricably intertwined.
If you have beautiful and meaningful branding, but the content on your sites and in your communications is awful, then nothing works. If your written content is compelling, but the supporting digital media (from photography to video assets to podcasts) is subpar, then nothing works. If your public face is captivating, but it leads customers to a product that does not deliver on the promises of the brand, then nothing works. If the product produces surprise and delight, but nobody ever finds out about it, then nothing works. And if everything else is humming along wonderfully, but you are not capturing the reams of data being produced and processing and visualizing that data so that it can drive your strategy and inform your stakeholders, then nothing works.
Each of these areas must inform the others as we continually research, then design, then test, then craft, then test, then deploy, then test – over and over again – unbounded creativity within the context of a rigorous, empathy-centered process. Getting this right produces real innovation that drives substantive growth, and it does so with two distinguishing characteristics – fewer mistakes and greater outcomes more quickly. De-Risk and Accelerate.
A New Way To Fund + Scale
The highly experienced, cross-functional team required to excel at this process is profoundly challenging to assemble, even for a well-funded startup. It is essentially impossible to assemble quickly. Even if those significant hurdles are somehow cleared, this newly formed team must magically develop an instant cohesive culture and interdisciplinary procedures in order to progress quickly with few mistakes.
How can a company have the best of all worlds? How can it make the progress required during scaling while simultaneously staffing itself for long-term growth?
A Unique Approach
In an effort to combine the most valuable parts of accelerators, operating teams, venture studios, investment bankers, consultants, brand and product houses, etc., Pixel Recess has launched something completely new – The Big Swings. In many ways, The Big Swings functions like a traditional VC firm, but there are important and compelling distinctions for both founders and investors.
How it works:
- The Big Swings solicits and vets deal flow globally to find the best founders, companies, markets, and opportunities.
- Only a tiny portion of the most promising companies enter official due diligence proceedings.
- After completing due diligence, The Big Swings works closely with senior management and the board of the company, preparing it to become investment-worthy.
- Organizes and prepares all financial reports
- Establishes a Data Room
- Develops the long-term funding cycle
- Performs market and competitor research including persona development
- Completes a full audit of all assets, resources, and strategies
- Technical product audit to lay out the product roadmap for the following 18-24 months
- Brand and positioning audit to develop a cohesive and consistent visual identity (including potential rebranding)
- Website, public positioning, and content audit
- Digital marketing audit reviewing all SEO and SEM strategies and devising an optimized 18-24 month approach
- Data audit of both on-hand repositories and plans to leverage data collection, processing, and visualization for both management of the company and presentation to stakeholders and customers
- Designs and produces new investment materials (e.g., decks, executive summaries, and the like)
- For completing the extensive process of auditing, consulting, developing strategy, producing materials, brand identity development, etc.
- The Big Swings receives no cash compensation
- The Big Swings receives warrants representing a 5% preferred equity stake in the company exercised at the closing of the next round of funding
- After completing this rigorous audit and strategy refinement process, The Big Swings facilitates presentations to investors (angel, super angel, institutional, strategic, etc.).
- The Big Swings negotiates with investors, organizes the syndicate, and creates the legal structure for the investment.
- Typical deal terms are similar to the following:
- The syndicate closes an investment in a priced round via an SPV
- $2 million investment
- $5 million post-money valuation
- During the fundraising period, The Big Swings receives no monthly cash retainer
- The Big Swings receives no “success fee” (neither cash nor equity) for finding the investment target and for closing the investors
- At the closing of the funding round, The Big Swings takes one board seat
- The Big Swings manages the life of the deal including communications with investors
- For this deal management, The Big Swings receives no management fees
- The Big Swings acts as GP for the SPV and receives a 20% carried interest
- If there is a lead and primary investor which would like to be involved in SPV management, The Big Swings Co-GPs the SPV and splits the carried interest with that party
- The syndicate closes an investment in a priced round via an SPV
- Pixel Recess enters a 18-24 month contract to operate as the product development and management, marketing, and strategy backbone of the company (typical monthly payments of $100k-150k depending on scope).
- Pixel Recess executes the proposed product and growth plans including all of the following:
- Software and internal systems development
- Product design (UX and UI)
- Brand refinement and extension
- Content marketing including site and product language, ebooks, blogs, social media management, etc.
- Growth marketing including SEO and SEM design and execution, etc.
- Digital media asset development including photography, videography, podcasts, etc.
- Data collection, analysis, and visualization
- Over the course of the following 12-24 months, Pixel Recess works with company leadership to slowly and methodically vet and hire the best talent to take over product and marketing and to scale the enterprise.
- Pixel Recess often stays engaged past the originally contracted period to manage the skunkworks/innovation portions of product and marketing.
The Best For Everyone.
This unique approach provides the best of all worlds for all stakeholders in the deal. The portfolio company receives the most valuable benefits of an Accelerator, a Brand House, a Dev Shop, a Marketing Agency, a Media Company, a Data Firm, a Strategy Consultant, a Headhunter, and an Investment Banker without the separate lines of cash outlay and without success fees for the raise. No stock-based success fees means that equity is reserved for the investors and for retention by the founders. Throughout the period of scaling, when mistakes are costliest, the company and investors immediately leverage a world-class cross-functional team applying rigorous processes to all aspects of product and market development in order to De-risk and Accelerate growth. This approach allows company leadership to focus on expanding market share, hiring the right long-term human capital, and developing exceptional company culture. Finally, Investors have representation on the board and consistent insight from the party with the most intimate knowledge of the portfolio company’s operations, successes, and challenges.
This is the future of funding innovation!