Funding fuels success; it’s not success: Venture builder John Fearon

The Co-founder of Sugar Ventures talks about the ‘startup studio’ business model and why it’s a good fit for a serial entrepreneur like him

Sugar Ventures Founder John Fearon (right) with Natalie Ip (left), Folr Co-founder and Sugar Ventures Project Lead. (Image Credit: Sugar Ventures)

Having been Founder or Co-founder of EatAds (an online marketplace for outdoor ads), Dropmysite (a website and database backup service) and MeetDrinks (a social meet-up application), John Fearon has had extensive experience in the startup world.

After tasting varying degrees of success with these ventures, which Fearon focussed on individually over the years, he has taken that experience to venture-building.

As Co-founder of Sugar Ventures, which has eight startups in its portfolio, the South African has to inevitably spread his attention and multitask.

“Being exposed to different things is what I need. When I was working one startup at a time, I had to effectively shut down part of my brain to stop myself from thinking about other things,” says Fearon, who discloses that he has been clinically diagnosed with Attention Deficit Hyperactivity Disorder.

He goes on to describe how he found his way into venture building.

“People would approach me to say, ‘Hey, you’re successful in this startup, so can you help me start a startup?’ If they were friends, I’d say, ‘Sure, I’ll help you.’ So you’ll have to help them raise money, refine their ideas and what I realised was that there was a need to support the act of venture building,” says Fearon, whose portfolio company Folr was acquired in August this year, a little over a year since Sugar Ventures was launched.

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Sharing resources

Venture builders have to share resources — financial, human and otherwise — amongst the various startups in their portfolio.

“We offer everything [a startup] needs. From PR to marketing, product management, accounts, human resources and legal counsel. We have everything that you need to run a company,” says Fearon.

There potentially comes a time for a startup, however, when it becomes too big for the venture builder to manage without compromising attention to, and resources for, other startups in the portfolio.

In preparation for this, Sugar Ventures recruits personnel to meet the demands of growing startups. They would be employees of the startup and not Sugar Ventures.

“At some point, that business becomes a standalone entity that no longer requires our resources, or it takes up too much of our resources that it needs to have its own people. Usually, they become independent of us (Sugar Ventures) – of our office space and resources,” says Fearon.

‘I don’t like post-Series A environments’

When a portfolio company gets to that stage of independence, it is likely that it is near or has closed Series A funding. Fearon says his interest in the startup diminishes at this stage.

“What I realised is that I don’t like post-Series A environments. What happens is very simple – the business has stopped being super-innovative. They have to start really focussing on execution — because they’ve taken on larger capital — and to get the company to being profitable or sold, which is fine,” says Fearon.

“[But] you get 15 to 20 people into the business and politics kicks in. I like to be part of the no-politics zone. Usually, that’s the case when you’ve only got a few people in the business and everyone’s pulling in the same direction and it’s fun,” he adds.

Venture builders and accelerators

That early stage of a startup, which Fearon enjoys, is the first 12 to 24 months, which he says is typically the time required to grow a startup capable of raising a Series A round of funding.

A venture builder will accompany the startup every step of the way in this period, in contrast to an accelerator, which Fearon chooses to use as a basis of comparison for the venture builder model.

“Acceleration is traditionally a three- to six-month process while venture building is usually a 12- to 24-month process. After [accelerators have] invested SG$25,000 (US$17,800) to SG$50,000 (US$35,600), and they’re done with mentoring, it’s over. They move on to the next batch [of startups],” says Fearon.

The source of ideas for both accelerators and venture builders differs as well.

“Usually, the source of the idea [that a startup is based upon] for a venture builder is internally generated while, for an accelerator, it’s externally generated [by the startup that the accelerator takes on but in which the accelerator only owns a minority stake if anything at all],” says Fearon, who adds that “more than 90 per cent” of the ideas for Sugar Ventures’ startups come from him.

On whether his venture builder model accepts external ideas, Fearon says, “If we come up with the idea, we keep 80 per cent of the equity. If you said to someone [who approaches a venture builder with an idea for a startup], ‘Thank you for your idea, you can have 10 to 20 per cent [equity] of the company’, they won’t accept it. It’s very easy for us – we don’t take those deals because we don’t want to be working for 10 to 20 per cent of the company.”

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Turning ideas into products

When Fearon conceptualises an idea, he goes through a set of considerations before deciding to develop it into a working product.

“At any point in time, we are looking at between eight to 10 different ideas. And we’re evaluating if the timing is right and if we have the resources for that particular business. It’s not just financial resources but also if we have the right people to fit the business,” says Fearon.

Adding market research, analysis of competition and other related assessments into the mix, Fearon says it takes about three to six months — during which Fearon acts as the de facto CEO — for a startup to emerge from being in stealth mode. When the startup is launched, then Sugar Ventures hires a CEO to take charge.

When probed about the sort of ideas that he’s inclined to pursue, Fearon says, “Traditionally, we don’t do niche problems because they are hard to see how you can make a billion dollars (sic). So we have a similar mindset to venture capitalists in terms of targetting big markets.”

One such startup currently under Sugar Ventures’ portfolio that Fearon is excited about is Voice Map, an app that allows users to create and tell stories associated with a specific location, and which other users, such as tourists, can then access as they explore a place.

“From a traditional business model viewpoint, it acts as an audio tour guide and is in the tourism business. But, if you dig deeper, it’s actually an entertainment space where digital storytelling can take place through audio in real life,” says Fearon.

Benefits of a venture builder model

Whether Voice Map takes off or not, Fearon says, is not down so much to funding or the uniqueness or viability of the idea as the timing of Voice Map’s emergence.

“Is this the right time for the business to be successful? By taking a portfolio approach [and a venture builder business model], you give yourself more chance to time it correctly,” says Fearon.

Citing Idealab, which has ‘created and operated more than 125 companies with 40 IPOs and acquisitions’ since 2006, and Obvious Corporation, which created Twitter and Medium, Fearon says venture builders — also known by a variety of other names such as ‘startup studio’ — are viable business models.

“This model has become popular with entrepreneurs who have built one or two startups and then what they find is that they don’t fit into traditional venture capital, and they don’t want to become accelerators. They like venture building because it’s the way that they can continue to do what they love but at the same time have the freedom to do several startups, not just one at a time,” says Fearon, who has had to fend off criticism of what he’s doing at times.

“It looks like we’re not focussed and not doing what traditionally will be expected of an entrepreneur. But we’ve set ourselves up not to be an entrepreneur, but a venture builder. And the intention is not to be the CEO of a company; the intention is to support the businesses and to find CEOs for them,” says Fearon, who counts two failures from the more than 10 investments that he’s made.

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“Twenty per cent [of my investments or startups] have been failures in the last five years but I have eight working businesses that are growing. Some are looking at IPOs, some are looking at good funding rounds,” says Fearon, adding that his company does not have a habit of announcing funding.

Putting resources and teams together

With the gamut of startups that Sugar Ventures is working on, one imagines that there is a sizeable number of people that Fearon has to scout for and recruit.

When asked to describe what he finds himself doing most as Founder of Sugar Ventures, Fearon says, “My biggest contribution is in putting the right resources and teams together. It doesn’t look very difficult, but, if you ask recruiters, it’s very hard to find the right person to do the job successfully and that’s why they charge a premium for it.”

Fearon, who has the walls of his office painted pink and grey, concludes with, “You can’t throw big money at someone because there’s no big money to throw. So you have to sell the opportunity to the candidate to leave that safe job and join a crazy startup.”

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