Editing Openai/69636561-a85c-8009-a6d2-38643aad9e40 (section)

==== Outcomes: Successes and Failures ====

Successful Scales ($100M to $1B+): Despite the unconventional equity split, a number of companies built under these models have scaled spectacularly. We’ve already highlighted several:
* Snowflake (US) – Incubated by Sutter Hill Ventures, it reached over $60B market cap at IPO【35†】, showcasing how a venture investor’s heavy early involvement can produce an industry-leading company. Snowflake’s founder-operator structure (investor as initial CEO, then hiring professional CEOs) did not inhibit its growth – in fact, it may have accelerated it by injecting seasoned leadership at the right timesnews.crunchbase.com<ref>{{cite web|title=news.crunchbase.com|url=https://news.crunchbase.com/venture/sutter-hill-ventures-strategy-snowflake-sumo-logic/#:~:text=hire%20for%20the%20key%20positions,leading%20to%20consistent%20high%20returns|publisher=news.crunchbase.com|access-date=2026-01-14}}</ref>news.crunchbase.com<ref>{{cite web|title=news.crunchbase.com|url=https://news.crunchbase.com/venture/sutter-hill-ventures-strategy-snowflake-sumo-logic/#:~:text=build%20it%E2%80%94even%20if%20they%20are,%E2%80%9D|publisher=news.crunchbase.com|access-date=2026-01-14}}</ref>. The technical co-founders stayed on to build the product, while the control and strategy transitions were managed smoothly by the investor.
* Pure Storage (US) – Another SHV-incubated company, now public (~$10B valuation)【35†】, where the founding idea and seed came from the investor and the operators executed. By IPO, original technical founders and SHV both held significant stakes, though no single founder had a dominant share – yet the company’s performance did not suffer from lack of a singular founder figure.
* Asurion (US) – Grew from a tiny acquired service business into a global tech protection powerhouse with revenues reportedly in the billions. It proves the search fund model can produce not just moderate success but gigantic success. Asurion’s investors realized huge returns over the 20+ year journey, and the co-founder CEOs proved extremely loyal (one of them, Kevin Taweel, is still Chairman decades later)stimson.org<ref>{{cite web|title=stimson.org|url=https://www.stimson.org/ppl/kevin-taweel/#:~:text=Kevin%20Taweel%20,employees%2C%20becoming%20the%20world%27s|publisher=stimson.org|access-date=2026-01-14}}</ref>. The structure – multiple small acquisitions funded by investors, with the CEOs continually reinvesting – allowed Asurion to scale without needing outside venture capital, thereby preserving the investor group’s majority ownership throughout. Their alignment was so tight that they effectively functioned as one unit.
* Zalando, Delivery Hero, HelloFresh (Europe) – All started in the Rocket Internet stable, these are now multi-billion-dollar public companiesfortune.com<ref>{{cite web|title=fortune.com|url=https://fortune.com/2020/09/01/rocket-internet-startup-incubator-germany-europe-tech-industry/#:~:text=times%20what%20Kinnevik%20thought%20the,company%20was%20worth|publisher=fortune.com|date=2020-09-01|access-date=2026-01-14}}</ref>. Rocket Internet (as the early majority investor) eventually diluted when these companies raised external capital or went public, but by then the businesses had scaled massively. For example, Rocket’s stake in HelloFresh was around 53% at one point pre-IPO, though it decreased over time. The founder-operators of these companies often were MBA graduates hand-picked by Rocket; many stayed on as CEOs or executives through the IPO (the HelloFresh CEO co-founder, for instance, still leads the company). Their commitment suggests that even as minority shareholders, they were incentivized by the growth of the company and the not-insignificant equity they did own (often still tens of millions in value at exit).
* Aircall and Front (Europe/US) – Startups co-founded with eFounders that achieved $100M+ ARR and $1B valuationshexa.com<ref>{{cite web|title=hexa.com|url=https://www.hexa.com/companies/aircall#:~:text=Aircall%20raises%20%24120M%20Series%20D,|publisher=hexa.com|access-date=2026-01-14}}</ref>. The fact that eFounders reduced its equity stake to around 33% at inception likely contributed to these successes by enabling follow-on funding. By the time Aircall became a unicorn, eFounders’ stake was further diluted (as expected), but it remained a major shareholder and board advisor. Importantly, the CEOs of Aircall and Front – who joined through the studio – remained at the helm for the long term, validating that the right equity incentives (and the promise of building a market-leading product) kept them in place even though an external entity was a co-founder.
* Various Search Fund Exits: Aside from Asurion, numerous search fund-acquired companies have had big exits (though typically below $1B). For example, CFC (Collision avoidance firm) was bought via a search fund and later sold for a large multiple, IntegraBase (Brazil) was a Latin American search fund success sold to a strategic, etc. These outcomes often delivered 5–10x returns to investorsscalacapital.com.br<ref>{{cite web|title=scalacapital.com.br|url=https://www.scalacapital.com.br/post/key-takeaways-1st-latam-search-fund-conference#:~:text=Key%20Takeaways%3A%201st%20LatAm%20Search,4x|publisher=scalacapital.com.br|access-date=2026-01-14}}</ref>. A hallmark of the successes is that the CEO did not jump ship early – they steered the company to the exit and often beyond. The equity earn-out structure is credited with “locking in” these entrepreneurs until investors achieved their targets.

From these successes we see a few patterns: the investor-majority structure can scale to unicorn levels, especially in enterprise/SaaS or in execution-focused businesses like e-commerce. It works when the incentives are sufficient for the operator and when the model itself adds value beyond capital (e.g., providing speed, expertise, or proven playbooks that an independent founder might not have). In Snowflake’s case, having a top-tier VC as de facto co-founder likely opened doors and attracted talent that a lone founder might not get. In Rocket’s case, heavy upfront funding and an aggressive playbook allowed blitzscaling in markets that competitors had not yet entered.

Failures and Challenges: There have also been failures, or at least structural failures, of this model. One common failure mode is founder-operator turnover and venture collapse. If the initial founder-CEO leaves too early and a strong replacement isn’t ready, the startup can lose momentum or die. Venture studios have seen this: one study found “co-founder termination...happens more often when studios own a majority”, indicating that many founder-operators in majority-studio setups ended up parting ways (either due to misalignment or being let go)linkedin.com<ref>{{cite web|title=linkedin.com|url=https://www.linkedin.com/posts/anwalsh_how-equity-works-inside-a-venture-studio-activity-7348313958367322112-nPtg#:~:text=Andy%20Walsh%2C%20great%20post,when%20studios%20own%20a%20majority|publisher=linkedin.com|access-date=2026-01-14}}</ref>. Each such departure is a disruption – if the studio cannot seamlessly install another leader, the venture may flounder. Some insiders note that majority-heavy studios attract a certain founder profile that might be “less committed or more opportunistic”, viewing it as a job versus a life mission, which can lead to higher churnlinkedin.com<ref>{{cite web|title=linkedin.com|url=https://www.linkedin.com/posts/anwalsh_how-equity-works-inside-a-venture-studio-activity-7348313958367322112-nPtg#:~:text=Andy%20Walsh%2C%20great%20post,when%20studios%20own%20a%20majority|publisher=linkedin.com|access-date=2026-01-14}}</ref>. For example, if a talented entrepreneur joins a studio venture but later realizes they’d rather have their “own” startup, they might leave once they’ve gained some experience, especially if their equity stake feels too small. This scenario has played out in some lesser-known studios and incubators, where promising projects were abandoned when the entrepreneur left, since no one else could champion them with the same energy.

Another set of failures comes from misaligned incentives blocking growth. EFounders’ early experience is telling: U.S. VCs were initially wary of funding Front because the cap table showed the studio owning a big chunk for “free” – from the VC perspective, the founders hadn’t borne enough risk, and the concern was that the founders might not be hungry enoughmedium.com<ref>{{cite web|title=medium.com|url=https://medium.com/inside-hexa/birth-of-a-startup-studio-b514be405574#:~:text=The%20Startup%20Studio%20model%20is,read%20more%20about%20it%20here|publisher=medium.com|access-date=2026-01-14}}</ref>. Had eFounders not adjusted, Front might have failed to raise and scale. Similarly, if a majority investor refuses to dilute or insists on onerous terms, future financing rounds can stall. Some Rocket Internet ventures after Rocket’s IPO struggled to attract independent investment, perhaps because Rocket’s continued control was perceived as a negative (investors prefer a standard governance where founders are driving). For instance, Rocket’s post-IPO batch of startups produced no breakout hitsfortune.com<ref>{{cite web|title=fortune.com|url=https://fortune.com/2020/09/01/rocket-internet-startup-incubator-germany-europe-tech-industry/#:~:text=shares%20tank,%28Grosenia%3F%20FlashCoffee|publisher=fortune.com|date=2020-09-01|access-date=2026-01-14}}</ref> – possibly because Rocket itself was less hands-on or because external capital was less available due to Rocket’s involvement. In general, inflexible structures that don’t evolve can break at scale: a model that works with a team of 5 might crumble with a team of 50 if decision-making and equity aren’t adjusted.

Failures also occur for the usual startup reasons – market timing, product misfit, competition – but when they do, the investor-majority setup can amplify tensions. If a venture is faltering, the investor might decide to cut losses faster (since they have the power to do so), shutting down the project and leaving the founder-operator suddenly without a job or any payoff for their efforts. Bill Gross of Idealab admitted that of the 100+ companies he started, 40 failed, often because they were too early or mis-executedreview.firstround.com<ref>{{cite web|title=review.firstround.com|url=https://review.firstround.com/lessons-learned-from-bill-gross-35-ipos-and-40-failures/#:~:text=www,First%20Round%20CEO%20Summit%20talk|publisher=review.firstround.com|access-date=2026-01-14}}</ref>review.firstround.com<ref>{{cite web|title=review.firstround.com|url=https://review.firstround.com/lessons-learned-from-bill-gross-35-ipos-and-40-failures/#:~:text=Make%20the%20Cash%20Last|publisher=review.firstround.com|access-date=2026-01-14}}</ref>. In some of those failures, Idealab’s central control may have also played a role – for example, insiders mentioned that Idealab sometimes spread resources too thin across projects or interfered with pivot decisions, causing ventures to miss their window. The “identity-less builder” problem identified in research refers to studios struggling with unclear mission and juggling too many ventures, which can lead to startups not getting enough attention to succeedsciencedirect.com<ref>{{cite web|title=sciencedirect.com|url=https://www.sciencedirect.com/science/article/pii/S0007681325001417#:~:text=Venture%20studios%2C%20typically%20referred%20to,supporting|publisher=sciencedirect.com|access-date=2026-01-14}}</ref>sciencedirect.com<ref>{{cite web|title=sciencedirect.com|url=https://www.sciencedirect.com/science/article/pii/S0007681325001417#:~:text=challenges%3A%20%28i%29%20the%20identity,models%20and%20emerging%20best%20practices|publisher=sciencedirect.com|access-date=2026-01-14}}</ref>. A failed example was Idealab’s Zeo (a sleep tech startup) – it had plenty of initial funding and guidance, but ultimately the consumer market wasn’t ready, and the company shut down, illustrating that no structure can compensate for lack of product-market fit.

To sum up, success in these models is possible – even at massive scale – but the failure modes cluster around people and incentives. A venture can fail because the founder-operator left or was misaligned, or because the structure scared away critical resources (talent, investors), or simply because heavy-handed control stifled adaptability. Next, we delve deeper into the founder-operator’s perspective: what keeps them in the game or causes them to leave?