Here’s what we believe
Money is not the only resource founders need in order to be successful. But it is a resource that can only be allocated once.
Let’s say a founder receives seed funding. They use their first $500k to hire engineers, develop a marketing team, and maybe lease some office space for their growing team. That is all that $500k can be used for from an investor standpoint. It’s gone until an exit occurs. Until the exit, an investor in their company will have their cash tied up… and if the company fails, the investor never sees their money again. It’s either lose your money or tie it up for 5–10 years.
But what happens if instead of investing money in exchange for equity, you provide an MVP, or marketing team, or office space? What happens if you could give a founder an SDR, an incredible brand that voices their vision, and a part-time marketing savant in exchange for 5–10% of their company?
KnowCap’s entire thesis revolves around the idea of trading reusable resources for equity.
Rather than making a one-and-done trade of money for equity, offering founders reusable resources instead means 1) they don’t need to worry about the huge hurdles to raising VC capital (only 2% of startups succeed in this) and 2) they don’t have to pay out of pocket or use raised funds to pay for these resources themselves. They can ‘pay’ with equity.
These resources can be expertise (Core and Exchange services), intellectual curiosity (Studios), relationships (KnowCap X program and Events), speed (Sprint service), a physical, central hub (KnowCap Labs program), and money (Ventures). Unlike money, these resources don’t have to stay with one startup until its exit, so they can provide value to multiple founders… making them ‘reusable.’
But there’s more. We don’t just want to exchange resources for equity in a vacuum. We want the entire ecosystem.
With KnowCap’s resources/programs, we aim to run an entire startup ecosystem under one unified brand that only serves one purpose, our mission: We want to help visionary people turn their ideas into fast-growing businesses, and we want to do that as fast as possible.
We are laser-focused on this initiative. We don’t want to take on SMBs who are already successful in their own right. We don’t want to take on just anyone with an idea. We want visionary people who have ideas and want to build something that makes a material change on the world around them.
We aren’t naive. Many of these ideas will fail, as is typical with entrepreneurship, but we know that we can have an impact by removing those intimidating barriers to entry in order to give them a stronger chance at success.
Case in point: There are ambitious people all around the world and many of them have some amazing ideas. Yet, as of three years ago only 1% of VC-backed founders were black and only 8% were female (CB Insights). For many potential entrepreneurs, getting VC funding is a HUGE barrier to entry. Other barriers include office space, good mentors/advisors, and human capital or experts that will help you design and build your idea into a startup.
The current landscape says that if you cannot raise capital (either through equity or debt), your idea isn’t good enough or your connections aren’t powerful enough. However, we all know that the biggest returns are in the margins. They are laughed at. They are ridiculed and more often than not, shown the door without even a second of due diligence. But we believe if you give people an established process for building a high-growth startup, combined with expert operators in an ecosystem designed to support development, you can plug and play for the first stage of growth until product-market fit. That’s why we’re going after founders who have less than $3,000,000 in revenue (preferably less than $1M).
After writing this Thesis, I realized this is also a pitch of our vision. If you’ve read this and want to invest (wisdom, time, money, etc…) in the vision of KnowCap, email stephen [at] knowcap.io.
Here’s who our customers are
People with ideas. That’s it. It’s that simple.
There are people all over the country who have ideas, but either do not have the confidence to handle everything that comes with business or do not have the financial runway to do so.
We want to help them with both. With our ecosystem model, they will be able to tap our partners for help in exchange for equity (or cash). These partners will help them with hiring, bookkeeping, marketing, branding, website design, product development, customer development, market research (and a host of other services)…
Our customers are high-ranking executives in corporate America, scientists in a laboratory, business school students, Silicon Valley software engineers, stay at home mothers, and more… We want to develop a methodology for building businesses that can help them get to the next level of revenue growth.
Here’s the problem we’re addressing
In meeting hundreds of aspirational entrepreneurs we’ve noticed that even high-potential ones fear the lack of resources awaiting them on the other side of their 9–5.
They are engineers, doctors, consultants, executives with years of experience developing domain expertise and unique ideas to solve customer issues, yet they never take the leap. Why? They see a sea of options from the internet on how to get funding, but they also see how hard it is and how it’s next to impossible to get VC funding based on an idea.
So, they tuck their idea away to either be pitched to the company they work for (with a high chance of getting declined) or to explore when they have their own means of funding.
This is a big issue and also a HUGE market. There are women out there with unique ideas and strategies to solve pressing issues across the board for their gender… from hair (MyAvanna), to on-demand healthcare (Maven), to genetic testing (23andMe). These are just the ones that have made recent headlines. There is a treasure trove of “unicorn” ideas swimming in minds all across the world with no outlet, absent funding or the kind of savings that can support an entrepreneurial risk.
Here’s our solution
KnowCap aims to solve this problem with our “startup ecosystem” model. Here’s an overview of how we’re targeting this space with different offerings and services:
Startup Agency — Using our “startup engine” method for building a startup, we’ll work with founders and teams who have between $1–3M in ARR, and get them to their next milestone of $5M.
X — Online experience split into “Bootcamp” for founder education, and “Residency”, a 24-month mentorship program.
Exchange — Where founders can exchange services from expert operators for equity.
Events — In-person events where founders and potential hires can mingle and learn more about building and scaling a startup.
Labs — A unique place that is a hub for startup activity. Founders and teams will have an option to lease space in exchange for equity.
Studios — Tools built by KnowCap for startup founders and teams.
Ventures — Good ol’ fashioned equity in exchange for cash. Will focus on Pre-seed and seed rounds to help founders get to product-market fit quickly.
KnowCap Startup Agency
Our focus as a Startup Agency will be getting a team from pre-revenue/little revenue to $1M in revenue as quickly as possible, and then re-evaluating. The services under the Startup Agency will range from branding to product development, and from operations to fundraising. The maximum ARR a client of ours would have is $5,000,000, and after this milestone KnowCap will help them hire internal resources.
The startup agency will be accomplished by building a team who bring expertise in building and operating a business to the table, but who can also operate like chameleons. They are able to identify with a mission and engage in the challenge of bringing that mission to fruition. Startups will pay for Startup Agency services via a monthly flat fee.
This program’s focus is to solve three problems and create a win-win-win scenario…
1. Entrepreneurs — We want them to get access to some of the top minds in the B2C and B2B space with our Bootcamp and Residency programs, and also gain entrance into initial meetings with our VC investment partners. Founders and founding teams will come to the X program to get an amazing board of advisors, education on scaling a business, and investor introductions.
2. Advisors — Interested in building credibility as an expert in your field with the potential to receive equity in exchange for your time? That’s why expert operators will come in as Advisors to the X program. To mentor one company, advisors will be required to provide approximately 27 hours over two years. To present during Bootcamp is only a one-hour commitment per cohort.
3. Investors — Separating signal from the noise. Investors partner with us because they want exclusive access to the deal flow of startups who graduate from our program. We’ll have their growth numbers, their strengths and weaknesses, and expert mentors to guide them through the bumps in the road. As an investor, having curated deal flow that matches your investment philosophy and also the KPIs that you deem “promising” is an easy win.
We believe that the core pillars of building a startup are as follows:
6. The Customer
If you can get these core pillars covered within your company, you will likely succeed and achieve the goals you set forth for the organization. These are simple in nature, but extremely difficult in practice. That’s why we built the Residency program for select startups who complete our Bootcamp program.
Bootcamp is an 8-week learning experience for founders and founding teams. In this process, they will receive education from expert operators who have experience building and scaling startups. This program is completely free for participants, but we ask for a donation of their perceived value once the cohort “graduates.” This helps us build a better program for the next cohort, and so on down the line.
What we love about the Bootcamp experience is that it operates after hours and contains so much actionable and hard-won wisdom from people who have “been there” before. We think this program is a no-brainer for startup founders.
Residency is the second piece of the X experience. It is a 24-month accountability program that incorporates a lot of mentorship time and a lot of hard work. In Residency, founders and executive teams work one-on-one with up to eight mentors from the X program. All in all, the startup team receives 27–35 hours of mentorship from each of their advisers. In exchange for this expertise and the investment of time, startups will give 0.5% of equity in advisory shares to each of their mentors, and 3% to KnowCap Interactive.
At the six-month mark, we’ll begin introducing all of the remaining Residency participants to our investment partners. Investment partners are VCs and Angel investors who have given us their investment profile and what they are looking for in a startup so that we can play matchmaker. The only requirement for our investment partners is that they have to take the first meeting with any startup we introduce them to. We’ve structured the process this way mainly because we know most VCs want to meet startup founders through referrals, and we want to stand in and be that referral source for them.
Some would view the X program as an accelerator, but that’s not what we are. It won’t give startups funding, an office space, or make them come to us in order to participate. When startups sign-up for our full KnowCap X program, they are mentored and taught one-on-one with some of the best out there. All in all, if they have six advisers on their board, they will receive 162 hours of work from their mentors. That’s the major shift — our mentors are heavily investing in the process, which will be enticing to investors.
Using the example above, what happens when a founder receives an SDR, an incredible brand that voices their vision, and a part-time marketing savant in exchange for 5–10% of their company?
This is an example of the KnowCap Exchange.
Let’s unpack this a little more…
The hard costs of those hires/projects may be $40,000 for the SDR, $10,000 for the branding, and $35,000 for the marketing help per year. If the company hires the three roles on their own, they just used up $85,000 of equity funding (and let’s be honest they wouldn’t hire a part-time marketer even if they only needed part-time help).
Instead, KnowCap brings those hires in internally, allowing them to operate in a full-time capacity and diluting their “cost” per company equity value. By offering these staff to work with multiple companies simultaneously, the per-company costs drop significantly and the staff resources become reusable.
With KnowCap Exchange, we take on those costs and spread roles throughout multiple startups, taking 5–10% of each company. Our hard costs become $40,000 for SDR, $70,000 for branding, and $70,000 for marketing. That’s $180,000, but when spread out over three companies, it’s $60,000 per company.
Effectively KnowCap receives 5–10% from three startups who are in dire need of human capital resources to launch quickly, for an output of $60,000 per startup. The onus is on the founder(s) to work their tails off, but they have as much (or more) help than they may have been able to afford on their own, without having to spend a dime of equity funding.
Events are core to our mission. We have to educate people in the community on how to be better founders, or even just let them know that being a founder is an option! With Events we offer free and paid educational opportunities, networking events, demo days, and investor open-houses (this will be more applicable when we have opened the Labs department).
KnowCap is committed to building up the next wave of entrepreneurs and giving them the tools to succeed. However, it’s not just about them. It’s about the other workers in the community who don’t have access to the education that will keep them competitive in the job market.
For example, what could happen in the city of Atlanta (known for having some of the worst socio-economic gaps in the country) if lower-income students who show a creative knack are given a free 6-week course in Graphic Design? And then when armed with that skill, are given paid internships with startups around the city with the potential for full-time gigs? This is our vision for our Events department. It will be a vehicle to enrich the community and provide a great space for diverse backgrounds, perspectives, and ideas to clash and create beautiful organizations and solutions.
We aim to host our first events in Atlanta in Spring 2019, starting with a series that will help aspiring founders understand the pitfalls and roadblocks that they’ll encounter while building their company. This initial event series will incorporate three experts from diverse experiences that will each spend 15-minutes giving a presentation on actionable advice they believe entrepreneurs NEED to know when launching or growing. This event series is inspired by the TED talk format.
Also known as “The Lab”, as in… “Hey, I’m going to the Lab to work on some new ideas.”
Labs is the crux of our mission and a way that KnowCap can make a significant local economic impact while also providing value to entrepreneurs and investors.
A Lab is a physical space where entrepreneurs and aspiring entrepreneurs can come to work on their business, interact with others in the same boat as they are, attend networking events, and take free courses. We envision The Lab as a hub of activity for those who are thinking about starting a business.
The best part… people will not pay for access to Labs!!!
In the beginning, people with ideas may not have money to spend on a coworking space, or a 6-week course on UX design, or one-on-one consulting on branding strategies. The ‘cost’ to have an office or to work out of a Lab is equity in your company.
By being a part of a Lab, you are joining a community that will be specific to the locale. A Lab in Nashville will be different than a Lab in Chicago, and these two labs will be different from a Lab in Seville, Spain. Each will take on the identity of the community around it and will be staffed by people in that community as well. The key to building sustainable ecosystems is to make sure that they are designed for the community to engage, not just to be a part of it, but to further it.
We aren’t creating Labs to compete with coworking spaces or other startup hubs. We want to create Labs as a feeder into those organizations.
Serendipitous interactions with other creatives, entrepreneurs, and veterans in the startup space are so important when you’re building a company. Without these encounters, many entrepreneurs feel as if they are on an island, and going to networking events may not be the fix.
There are two ways to “graduate” out of the Lab.
1. You grow to over 20 employees
2. You have been in The Lab for 24 months
We have graduates because we want to make sure that founders are pushing their ideas forward and building sustainable businesses. If they aren’t showing meaningful progress it may be time to pivot or seek to partner with another startup in the Lab. There will be ample opportunities for meeting and collaborating with others in the Labs, like exclusive conference speaking engagements, offsite events, community outreach, job fairs, etc… We will have accountability measures in place that ensure that we are providing the right kind of value to startups that are stationed in our Labs.
From time to time we see an opportunity to serve a need that we’ve experienced over the course of operating KnowCap. Heck, this whole “ecosystem” idea came from our founder visiting multiple countries and seeing what their startup cultures were like, and realizing that there’s an opportunity to shift how startups are being built and how investors are interacting with them.
Studios is KnowCap’s plan for a “black ops” department. It will consist of ideas that our team members have come up with while serving startups or consumers in our ecosystems. One of our value statements is that we encourage innovation and entrepreneur mentality within our team, and we want to be sure that we stand by that core value. Anytime a team member has an idea, they are welcome to pitch us and we’ll have one of several answers:
1. We’ll help you launch the idea and invest in it.
2. Let’s get some more feedback to see if this is a viable idea before launching.
3. Let’s table it for now.
4. We think it would be a great idea for you to launch on your own, with our support.
Team members who have been with us for longer than six months are eligible to apply for the Studios department. Investment into the Studios department will come from profits out of the Agency and Sprint (a service where KnowCap will build an MVP for founders in a week) programs, meaning projects stemming from Studios will only be funded when there are profits being generated from cash-flow initiatives. This is an important distinction, since returns from startup exits within our ecosystem will be earmarked for investing in and building out other ecosystems.
This is the last piece of our ecosystem. Arguably, the most vital.
Ventures is the in-house investment department that will provide seed-series C investments to companies that come out of a KnowCap ecosystem. We understand that while we build these ecosystems for investors and entrepreneurs to find common ground, this won’t always happen and investors may choose to pass on a venture. When we see a promising company in this situation, KnowCap Ventures will allow us to fund them ourselves.
This department will not be built to compete with our investors (a VC that invests in KnowCap will still benefit from investments by Ventures, so it’s actually a win-win for them), but it will be designed to lead investment rounds and do follow-on investment with eligible startups. Situations where companies are THIS close to a breakthrough but need a bridge round is a perfect situation where our Ventures team will step-in to help raise funds but also invest them into startups.
Only startups that are a part of our ecosystems will be eligible for investments via KnowCap Ventures. This ensures that we are putting our money where our mouth is and investing into the programs that we’ve designed and grown.
So there’s the ecosystem, laid out in all of its glory. We know that building this vision on such an unprecedented scale will take years (we’re aiming for our first 6–8 ecosystems to be working with startups by 2029), but we are committed to building it. There’s too much at stake not to.
We know that there’s an opportunity to enhance the communities that each ecosystem will be built in, and we fully intend for each ecosystem to invest back into its own community. This means that Atlanta’s ecosystem will be functionally and operationally separate from St. Louis’ ecosystem. This is vital, because as with any business, each ecosystem will need to be measured and held accountable, but should also be able to reap the rewards of its success. If the St. Louis ecosystem has a huge exit, that money should be invested back into St. Louis, not moved to Nashville.
Speaking of cities… here are high-potential metro areas where we see an early ecosystem not only thriving but having a major, positive impact on the community around it:
4. St. Louis
10. Sao Paulo
Here’s our timeline
We have some aggressive milestones in place to make sure our vision is executed sustainably and effectively. Below we have a potential timeline for building our first ecosystems over the next five years.
Startup Agency launch
Beta for KnowCap X
Studios designs first product
Official launch of X
Exchange accepts first startups
First Event series takes place in Atlanta, GA
First location of Labs opens for startups
Ventures invests in its first portfolio company
Second ecosystem is built
Here’s how we’ll make money
KnowCap’s Agency, Sprint, Events, and Studios programs will be our sources for generating short-term revenue.
The Startup Agency model is designed so that founders with ideas can pay to work with our team of experts rather than giving up equity, but our business model also allows for those who have the funds to pay to bring their ideas to life.
We also know that corporations, who tend to struggle with incubating and launching ideas, will work with us to spin off products and services that they deem have profitable margins worth dedicating new resources to. Working with corporations will likely be our largest revenue generator, mainly because we will have a proven methodology for turning ideas into fast-growing companies. This process will be refined over time until we are the top experts across the board on launching businesses.
The Sprint service is built for entrepreneurs and businesses who don’t have time to work with our team in the normal agency model. They want a business to be designed and built in a very short amount of time (most likely a week). These opportunities will come from executives and small-business owners who are flush with cash and would like to begin establishing new revenue streams. Sprint services will start out at $15,000 and we will build a website, an MVP of the product/service, a marketing funnel/strategy, all social media accounts, sales/marketing collateral, and custom branding. It’s a startup-in-a-box, but delivered over a weekend or five business days.
Events will be a mix of free and paid experiences. We want the majority of our education to be free, which aligns with our belief that everyone should have access to education that will better their lives. It also coincides with our belief that armed with the knowledge of what’s possible, people will be empowered to break convention and disrupt the status quo. We will rent out our space for events and host events for other organizations (i.e. fundraisers for nonprofits, corporate benefits, etc…) as well as personal events (i.e. weddings) and that will generate more revenue.
Studios will be an interesting revenue generator because it lies in both short-term and long-term. In the long-term, since we will own the majority of the equity in each company launched, KnowCap and its investors will have a much higher upside compared to when we work with external startups. In the short-term, all revenue from the products/services that we spin out of Studios will be invested back into that company and the ecosystem that it stems from. Again, if a HealthTech company is founded in the Nashville Studio location, the revenues and exit value will be reinvested into the Nashville ecosystem.
Each ecosystem will work with up to 1,250 startups over a 10-year period (estimated 4,250 total). In our model of exchanging resources for equity (Agency, Exchange, Studios, X program, Events, Sprint, Labs, and Ventures) we don’t need many individuals startups to have a big exit for us to have an outsized return for the dollars our investors put in. We anticipate over this period, we’ll return $493M with an average startup exit of $10M, and an 8.7% success rate. This is how these exit dollars will be allocated:
* 50% will go to building new ecosystems — $246M
* 25% to investors — $125M
* 15% to KnowCap Ventures — $74M
* 5% to community building/philanthropy — $24M
* 5% to employee exit bonus — $24M
This is how we will generate revenue long-term and continue to invest back into the vision.
Here’s what’s in it for investors
The first point is obvious. Investors will receive the most personalized deal flow available and are able to only focus on signal while we weed out the noise.
By the time any startups are introduced to investors, they have already met the milestones and are near-perfect matches to their investment philosophy. This results in no wasted meetings.
As matter of fact, we want to be so good at sourcing deals that you don’t need to take any more meetings outside of our ecosystems, as our end goal is to make sure that every startup that pitches to you is one that you are 80% likely to invest in.
Second. You’ll have some equity at play while we grow ideas into scaling startups across multiple levels. Or in other words, if an investor invests with us, they will likely never have to invest again as the effects of our ecosystem model compounds. Moreover, with 15% of each exit being reinvested in the Ventures fund, the amount of money you have in play will grow exponentially whether or not you ever write another check.
Third. Follow on gets much clearer with our ecosystem. We’ll have the data from all startups within the ecosystem to know what works and what doesn’t. With this much data, we can know with a decreasing margin of error whether or not an idea will succeed, how big their exit will be, and how we can create more winners across the ecosystems.
Lastly, and perhaps most importantly, we’ll not only return better than most startups…we’ll spread your risk out in doing so.
In 2029, 10 years after we begin executing on this vision, we will have eight ecosystems and will have worked with 4,250 startups. With an initial investment in KnowCap of $5M, if just 9% of our startups exit with an average of $10M, we’ll return $125M back to our investors. This is a 25X return in 10 years based on the initial $5M investment.
Interested in learning more about investing in KnowCap IO? Click here.