Mike Jones is the CEO of Science, Inc., the studio behind companies like Liquid Death, Dollar Shave Club, Rover, and many others. They’re certainly one of the most well-respected and long-standing studios in the space.
Today, we’re very excited to do a deep dive with Mike on a myriad of topics. The episode above is a lengthy conversation where we dug into Mike’s backstory, the rationale behind Science’s structure and model, his approach to attracting top marketing talent, and much more.
In the Q+A article to follow, we’ll ask Mike 13 questions:
Here’s what Mike had to say:
Mike Jones: I was born in Philadelphia and grew up in Oregon. I started my entrepreneurial journey in college, founding several businesses, and continued this path after moving to Los Angeles. After successfully building and selling a prominent business to AOL, I transitioned from an entrepreneur to a more structured business role, using my time at AOL to deeply understand large-scale business operations. Post-AOL, I delved into angel investing and became heavily involved in the early-stage startup scene in LA. I later joined a private equity firm to hone my skills in mergers and acquisitions. My journey took a significant turn when I was brought in as the CEO of MySpace during its challenging period. After MySpace, I decided to return to the startup world but with a focus on operational investing. This led to the founding of Science in 2011, alongside three partners: Peter Pham, Greg Gilman, and Tom Dare, marking the beginning of a new chapter in the startup studio realm.
Mike Jones: When starting Science, we drew inspiration from established studios like Idealab and Betaworks. I had in-depth conversations with their founders, Bill and John, and some of their investors to understand their structures, operations, and both their successes and failures. From there, we developed our unique approach for Science, incorporating valuable insights from these industry pioneers. Idealab, in particular, with its exceptional track record in co-founding and taking companies public, served as a significant influence. Our model at Science involves co-founding companies at early stages, a practice we've successfully been doing for over 12 years.
Mike Jones: In developing Science, we considered three key aspects of studio structures inspired by Idealab and Betaworks. First, the nature of our involvement in creating business concepts: we primarily co-found companies, supporting external visionaries rather than driving our ideas. Second, our ownership approach: we aim for significant but minority stakes in businesses, avoiding majority control to foster independent company growth. Third, the allocation of resources: while we provide essential support like design, development, and business expertise, our ultimate goal is for each company to be self-sufficient, minimizing long-term dependence on Science's resources. This balanced approach allows us to blend the best practices of studio models while fostering independent success in the companies we help build.
Mike Jones: Our strategy at Science was nuanced, blending elements of both deliberate planning and adaptive response. In our formative years, particularly with our inaugural fund, we experienced substantial successes with Rover and Dollar Shave Club, both significant ventures we co-founded, selling for $2.4 billion and approximately a billion dollars, respectively. Our role in these early stages was more than just advisory; we were deeply involved in operations and instrumental in shaping their growth.
Our focus was keenly set on identifying and capitalizing on emerging trends. We actively listened to the market, observed cultural movements, and aimed to address the evolving needs of a shifting landscape. This period saw a marked shift towards direct-to-consumer business models, creating lucrative opportunities, particularly in the realm of paid media and subscription services. Rover, for example, tapped into the burgeoning gig economy, fostering a culture of 'shared role, work from home,' and leveraging the newfound trust in commercial interactions with strangers – a paradigm shift popularized by platforms like Uber.
Our strategy was to strategically position our ventures in line with these cultural currents. While we recognized that we couldn't direct the course of culture itself, our goal was to place our bets on companies, founders, and ideas that stood to gain from these ongoing societal shifts. This approach was not about manipulating the market but rather about understanding and adapting to its natural progression. As a result, some ventures didn't take off as we hoped, but others like Rover and Dollar Shave Club achieved remarkable success, validating our belief in the power of aligning with cultural trends.
Mike Jones: We've experienced several structural changes at Science, similar to what most studios undergo. Initially, our setup resembled a consolidated holding company rather than a traditional fund. This structure had intricate waterfall mechanics for our investors, who all profited substantially, a trend we anticipate continuing. Despite this, we recognized the inherent difficulty in securing funding for studio models.
Consequently, we shifted our approach when transitioning from our first to our second vehicle. We adopted a more standard fee and carry fund structure, aligning it closely with our studio operations. This meant that with each new fund, we effectively established a new studio. This setup involves a significant commitment of our labor, which is allocated to the studio pool to foster the development of various businesses.
A distinctive aspect of this model is the relationship between the fund and the studio. The fund not only owns substantial shares in the companies we develop but also benefits from preferential pricing and other advantageous terms. This unique arrangement, we believe, disproportionately benefits our investors, a belief that has been increasingly validated over time.
For those looking to establish their studios, adopting a similar structure might be advisable. We've documented our journey and lessons learned, although we haven’t published these insights publicly. It's worth noting that operating as a consolidated holding company can present significant challenges, both in terms of investor relations and tax implications. We were fortunate to have partners adept at navigating these complexities. However, it's crucial to establish a structure that facilitates consistent, repeatable investment from the onset, as this is key to avoiding a continuous fundraising cycle.
Mike Jones: Yes, there were challenges. When you consider the global investment landscape, venture capital represents just a tiny segment of the total available capital. Within this segment, venture capital is seen as a high-risk, high-reward option. There's a limited pool of investors, mainly large Limited Partners (LPs), who traditionally invest in public markets and major private equity firms, with venture capital being a minor, albeit high-stakes, component of their portfolio.
When presenting our studio model, which was different from the norm, to this selective group of investors, we encountered confusion. It was clear that our model was too unconventional, too out of sync with what they were accustomed to in the venture capital space. This realization led us to adapt and align with the industry standards. We recognized the importance of offering a structure familiar to venture capital investors, one that wouldn't disrupt their usual processes or expectations. Our goal became to integrate our model seamlessly within the established norms of venture capital investment structures, ensuring it was accessible and understandable to the investor community.
Mike Jones: I already had established relationships with a group of investors, although I may not have directly invested in deals with them. They knew about my background in building, selling, and running large companies, as well as my advisory roles. As a result, there was a considerable amount of capital interested in my next venture. Peter, my partner, had a similar experience. So, when we joined forces to start our venture, we leveraged our network of individual investors. These investors, familiar with our track records and capabilities, were very supportive and became the source of our initial capital.
Mike Jones: In our current model, we generally target funding 8 to 10 new companies each year. Not all of these companies receive the full extent of reserved funding initially. Our strategy is to assess early and minimize costs if a venture isn't showing promise. For instance, I prefer to discontinue funding after an investment of $75,000 rather than reaching a point where we've invested over $2 million in a company that isn't working out.
The companies we invest in typically fall into three categories: Consumer Packaged Goods (CPG), marketplace models, and mobile and social media sectors. We occasionally delve into fintech but largely steer clear of SaaS. By focusing on these areas, we've honed our expertise, which is crucial in understanding founder dynamics, market entry, and potential exit strategies.
When it comes to ownership stakes, our preference is for substantial minority positions, though the specifics can vary depending on the company's stage and performance. For example, a company already generating significant revenue would warrant a different equity structure compared to one that's just starting with a prototype and a business plan. We meticulously plan out our investments, considering the anticipated number of financing rounds and our desired ownership percentage at each stage, to ensure we meet our fund's return objectives.
Historically, this approach has shown that while many investments may not yield significant returns, a few will be exceptionally successful, achieving returns multiple times the initial investment. This pattern of results, established over 11 or 12 years, underpins our investment strategy and guides our decisions in selecting and supporting companies.
Mike Jones: In venture capital, success tends to attract similar opportunities. When entrepreneurs believe they have an idea comparable to Dollar Shave Club or Liquid Death, they often approach us, seeking to replicate those successes. It's interesting because someone who has known me for about 25 years recently questioned why I'm not focusing on software anymore, given my background in building social software pre-MySpace. They were surprised to see me involved in funding businesses like candy companies and beverage brands.
The truth is, our initial successful ventures have led to a stream of CEOs and founders who aspire to similar achievements, and this includes a significant interest in the pet industry. The reason for this trend is partly due to our involvement in and the success of Rover, which had a notable exit. This success story has influenced the kind of projects and entrepreneurs that come our way, and as a result, we've seen an influx of high-quality, ambitious individuals looking to partner with us.
Mike Jones: I've always been keenly interested in observing and learning from trends, often turning to media and my interactions with younger generations, including my kids, to gain insights. There are a few trends in 2024 that particularly stand out to me. For instance, the thrift clothing movement has been a surprising development. My daughter in New York, like many others, spends entire weekends thrifting, seeking unique, personalized items without much concern for price. It signifies a shift towards bespoke, one-of-a-kind fashion.
Another interesting trend is the growing preference for low-fidelity imagery among younger people. I've had conversations with college students who are fascinated by old digital cameras, valuing the grainy, authentic quality of photos they produce over the high fidelity of modern smartphones. This inclination suggests a broader move towards individualization and a departure from the pursuit of perfection in every aspect.
AI's role in promoting imagery of 'perfection' in faces and bodies also raises intriguing questions. As AI increasingly influences media and even pornography, it might lead to a broader acceptance and celebration of individual differences in body types and beauty. I find the potential for greater acceptance of true individualization in our society to be both fascinating and positive.
Additionally, there's a growing awareness of the negative mental health impacts of social media, particularly around issues like cyberbullying. This awareness is becoming more prominent, and I believe it's a crucial trend that needs attention. Overall, I'm drawn to trends that spotlight and celebrate previously uncelebrated individuals, which I find truly compelling and beneficial for our society.
Mike Jones: I'm inherently optimistic, always seeing the glass as half full. My philosophy is straightforward: either change your attitude or change your situation. Complaining isn't my style. In venture capital, much of what you invest time in won't succeed. It's the nature of the game. You have to play the numbers, believing that if you invest in a dozen ventures, a few will succeed. It's all about keeping that pipeline full and learning from every outcome.
We are currently evaluating a deal where we've noticed several red flags. It reminds me of a past experience where we lost money, and I'm determined not to repeat that mistake. We've invested significant time and resources over eight or nine months, but we're prepared to walk away if necessary. For me, the key is turning failures into lessons and ensuring not to make the same mistake twice.
Venture capital is a mental challenge; you have to recognize that you will spend a lot of time on ventures that might not pan out. It's important to understand the concept of feeding your winners and not your losers. This might seem counterintuitive, but in venture capital, your successful investments need to cover the losses from the unsuccessful ones. This approach means focusing on ventures that show promising growth and potential, rather than trying to salvage those that are stagnating without any significant changes in strategy or approach.
Mike Jones: If I were to start a new startup studio now, I believe we would adopt a similar structure to what we have at Science, which is a combination of a fund and a studio, along with a standard economic model for Limited Partners (LPs). I see particular sectors as highly suitable for studios. For example, SaaS is an excellent fit because it allows for the consolidation of sales resources. Imagine if we were to handle 10 ventures, all requiring outbound call teams. We could establish one high-quality outbound call team to support all these startups, creating a synergistic structure that benefits each company by providing growth opportunities at minimal cost.
Such a model, where we consolidate key resources like sales or growth teams, offers a distinct advantage to the companies we support. This approach could be effective in various sectors like medical, app development, SaaS, and FinTech, especially in regulated industries. Additionally, specific geographies, like India with its vast talent pool and potential for mergers and acquisitions, could be highly advantageous.
The critical factor for a successful studio is having exceptional talent within the studio itself. The team needs a comprehensive understanding of what founders require throughout their entrepreneurial journey. My concern is with individuals starting studios without having prior experience in effectively building and running companies. Without this experience, there's a risk of providing misguided advice, which can be detrimental to startups. For anyone aspiring to start a studio, my advice is to first gain hands-on experience by building and managing a company, whether it leads to success or failure. This experience is invaluable and equips you to offer seasoned, practical advice to young founders, rather than just figuring things out as you go.
Mike Jones: One of the most insightful types of questions I've encountered, and perhaps the most profound, revolves around uncovering hidden knowledge or 'secrets.' In my interactions, especially with great founders, I've realized they often possess unique insights or secrets related to growth, success, happiness, business, or relationships. These are closely guarded, rarely shared openly. When they approach me, their questions often aim to uncover such secrets. They might ask about the nuances of identifying talent, effective hiring practices, or the intricacies of building a successful company.
It's not just about straightforward queries; it's more about probing for that deeper, unspoken wisdom that everyone has but is hesitant to reveal. When I meet people whose achievements I admire, I actively seek out these insights. The belief that each person harbors a secret, a unique driving force behind their success and actions in business, intrigues me. By understanding these hidden truths, I feel I can apply them not just in business but also in personal life. So, for me, the most intriguing question is not a specific one but rather an exploration of these hidden depths of knowledge and experience.
