Today, we’ll go a few layers deeper than the typical conversation to chat with Healey Cypher, COO of Atomic and CEO of one of their portfolio companies, BoomPop.
In this candid Q+A, Healey sheds light on the nuances, strategies, and future trajectories of a leading studio. This isn't just another conversation; it's a masterclass. If you've ever wondered what fuels Atomic's unparalleled prowess or sought insights that can redefine studio-centric ventures, you're about to get your answers.
For those who are unaware, Atomic announced this past May the close of their fourth, and largest, fund of $320 million. Their last fund in 2021 was $260 million. They are the studio behind giants like Hims&Hers, OpenStore, Bungalow, BoomPop of course, and many others.
Before we dive in, we encourage you to listen to the full deep dive episode, shared above.
Healey:
I owe a lot to Jack Abraham. He's a dynamo in churning out brilliant ideas, roping in exceptional talent, and capital raising. After I had just sold my company, Jack approached me with a golden opportunity to help scale Atomic.
When I first joined, Atomic was operating like a startup. With a 25-member team, they were already nurturing 14 companies. The growth has been tremendous. Today, our AUM is just under $800 million, with a 75-strong team overseeing 40+ companies. Joining Atomic was humbling; the expertise, shortcuts, and cheat-codes at their disposal were staggering.
Healey:
The initial days were a whirlwind. I thought I had a grip on things, but the team had so much more to offer. Within my first month, I felt like I was back at square one. But that's the beauty of Atomic – they challenge you, groom you, and make you look at things with a fresh perspective.
Healey:
Atomic has a unique ideology. If you're part of the core team and come across a concept that intrigues you, there's freedom to delve deep. You might decide to work on it perpetually, take it to a certain growth stage and pass the reins, or stay on the investment side. All paths are open and valued here. A shining example is how we took a startup from scratch to a $3 billion public listing in just three years.
Healey:
BoomPop emerged from a personal need. Our aim is to make event planning as seamless as e-commerce shopping. Despite corporate travel constituting a major chunk of the industry, simple meetings between 6 to 50 people, which account for roughly $150 billion yearly, lack a streamlined system. With the rise of distributed work, the demand for such a service is monumental. At BoomPop, we're addressing this gap head-on.
Healey:
It's a tightrope walk. Besides my role at BoomPop and Atomic, I'm a father to two wonderful kids and have an amazing supportive wife, Rachel, who's an academic. I strive to stay fit, but admittedly, sleep takes a backseat. Most days, I get by with just 4-5 hours of sleep.
Healey:
Studios exist primarily for three reasons. But first, let’s recognize that many studios propose to take a large chunk of equity, promising to aid startups, but ultimately leave the heavy lifting to the founder. Unfortunately, a lot of them can be overpriced and offer little value. It's crucial to extensively check references and engage with other founders before getting involved with such studios.
Studios come into play at the very beginning of the venture stack. They get involved at the lowest cost. This unique positioning means that they're not competing based on the flow of deals like Series A or later investors. Instead, the quality of ideas and the founders they collaborate with are what matter most.
Today, with the Federal Reserve hiking interest rates, the economic impact trickles down. Late-stage venture investing has slowed down, Series A requires startups to be exceptional, and seed stage investing has turned into a battlefield. The focus has shifted toward ensuring venture returns are maximized by minimizing initial costs.
Drawing from insights by Bill Gurley, venture returns don't follow a consistent S-curve. Instead, there's a decade-long rise followed by a sharp decline. Historically, the best returns are made at the start of these long rises, selling just before the peak.
With many investors not having experienced a downturn, there's a heightened sense of fear. This has driven many to the pre-seed market to maximize returns. It's also led to the rise of numerous studios. However, there's a difference between offering advice and truly understanding how to operate a startup, which is something aspiring founders should be aware of. Always be discerning about whom you choose to collaborate with in the seed stage.
Healey:
If a studio isn't priced right, it's doomed for failure in the long run. Any company is only as good as its team, and a venture portfolio's value is determined by the quality of the CEOs of the portfolio companies. If you exploit them, word gets out, and no one would want to collaborate with you again. Those that choose to be predatory from the outset have a limited lifespan.
It's important to consider the kind of founder or co-founder drawn to a studio model. Many who feel like outsiders in the entrepreneurial world might find studios enticing. These studios offer connections, guidance, and promise to prevent common mistakes. However, many also exploit the naivety of founders, who may not fully understand concepts like board control, governance, dual class stock, and dilution. This can lead to unfavorable deals for the founders.
A studio that starts with an aggressive ownership structure destroys not just operational incentives but also its chances of securing further funding. Recognized venture firms avoid such setups. I would personally refuse to collaborate with any investor known to be that predatory or unethical. Aspiring founders need to be diligent in their research and understand the implications of such deals.
I always aim to act with integrity and consider the impact of my decisions on others. No organization, including Atomic, is perfect. But relative to other studios, our approach is more equitable, and we're committed to building a legacy brand that stands the test of time.
Healey:
First, economic appeal: Many are drawn to the potential of fronting the stack at the lowest cost ownership. The simple math suggests that if you initiate ten companies and even one succeeds, at a moderate level, it can return your fund. This contrasts with needing a significant success later on to see a return.
Second is operational itch: There's a distinct difference between being an active participant and an observer. Being a board member might often feel like always being a bridesmaid and never the bride. Those who have previously operated might have an itch to get back into the mix and the studio model provides that avenue.
The third is pattern recognition and execution: As an investor, one often spots patterns and potential opportunities for new ventures. The studio model allows these individuals to not just spot these opportunities but act on them, bringing them to life. They can conceptualize and create, while letting others handle the nitty-gritty details of operations.
Lastly: importance of ideas and execution: Ideas are pivotal. For instance, the story of Travis and his Uber journey highlights this. Before Uber, Travis and his team were headed in a direction that wasn’t yielding results. However, with the right idea, the same team transformed it into a success story. While studios can help validate ideas early on and de-risk certain ventures, execution remains paramount. A good strategy is essential, but its execution is where the real value lies. Effective studios should ideally have a team skilled in both validation research and execution to truly assist and elevate their ventures.
Healey:
At Atomic, we don't view the studio environment as a zero-sum game. We want everyone to succeed without a restrictive playbook. An essential aspect at Atomic is that our primary currency is time. Swift actions are highly encouraged, and we even celebrate short-lived ideas that don't consume a lot of resources. This mindset allows quality founders to focus on significant challenges instead of getting trapped in drawn-out ventures.
It's all about speed and agility at Atomic. I remember once, within 24 hours of conceiving an idea with Jack, we established a legal entity, started the company, and in just two and a half weeks, we had set up a brand new company with its website, selected products, and even upon launch were at a $1.3M run-rate.
Our internal team is versatile and covers a wide range of areas like design, legal, marketing, and more. We also have a centralized knowledge base, which provides insights, patterns, and even successful pitches from our past companies.
Take BoomPop as another example. It initially started as “Activv Labs” but pivoted several times based on market feedback and eventually found massive success.
For us, it’s about placing trust in the right people. If you empower talented individuals and provide them with the right incentives, they'll invariably do the best thing. At Atomic, we believe in not mistaking chaos for inefficiency. Sometimes, you just need the right people in the right positions, and they'll figure things out.
Healey:
While I can't share specifics, I can confirm that we give significant thought to that. Our approach is indeed unique, and we recognize that proper incentives are pivotal in driving outcomes. And frankly if they weren’t, we wouldn’t be working with the amazing founders and CEOs that we do.
Healey:
The path forward isn't just about what I'd like to see; it's about essential transformations. One significant prediction? A whopping 90% of studios might fold. But this isn't necessarily a bad thing. Many of these studios were built on shaky foundations — greed, a lack of talent, or not delivering genuine value. Their exit might be a form of industry natural selection.
The macro environment is predictably pretty soft on late-stage venture-backed businesses. Once the public markets, and then private markets, start to deploy capital in later stage opportunities, the current overconcentration on early-stage ventures might start to normalize again. But it will take time.
Currently, there's a sentiment that there aren't many deals on the table. I've even heard of General Partners being advised to take extended breaks because deal-making is at a standstill. It's time for a shift in focus.
