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Atomic, With First Fund, Looks to Upend Venture-Capital Model

Startup studio has six companies backed with $20 million from Andreessen, Thiel and others

The partners at Atomic’s startup studio. PHOTO: ATOMIC

The partners at Atomic’s startup studio. PHOTO: ATOMIC

 
 

By Tomio Geron Jan. 23, 2017 7:30 a.m. ET

Is venture capital’s approach to building startups the latest industry to get upended by technology?

Jack Abraham, founder of a startup studio called Atomic Management LLC, thinks so. His firm comes up with ideas and then builds and funds its startups from scratch, essentially mashing together the roles of founder and investor.

“We think we’re inventing the next version of venture capital,” Mr. Abraham said.

Atomic has raised a $20 million first fund, which counts Marc Andreessen and Peter Thiel as limited partners. Quietly founded in 2013, the San Francisco-based firm has six startups so far and 300 employees across the companies. The startups have raised about $100 million in follow-on funding, including Wi-Fi marketing startup Zenreach’s $50 million from Founders Fund, Formation 8 and others.

in addition to Zenreach, the firm’s other companies are consumer photo service Ever, voice-powered sales startup TalkIQ, sleep-tracking specialist Rested, and video startup Mira.

Under Silicon Valley’s traditional approach, a couple of startup founders would get seed funding of $250,000 to $2 million, with or without an incubator stint. The entrepreneurs would then try out different paths to customer adoption and revenue. Often this entails several “pivots” and product testing, distribution and marketing —all in the span of 18 to 24 months.

Mr. Abraham, who at age 24 sold his startup Milo to eBay in 2010 and later held management posts with eBay, believes there is a better way to create and build startups.

The studio model has been tried by others, most famously Idealab, created back in the dot-com era.

But Mr. Abraham, who was also an angel investor in Pinterest and Postmates before starting Atomic, says his alternative strives to be an amalgam of venture capital’s massive exits, private equity’s greater company control and entrepreneurship’s original vision of starting companies.

The studio model has been attractive for some founders seeking to avoid the traditional venture model in favor of getting the support and resources studios provide. For investors, it’s an alternative to the “Power Law” idea of backing scores of venture investments to find one game-changing company like a Facebook or a Snapchat, which can rake in the vast majority of a fund’s returns. Other studios showing the model can work include Betaworks, which has Bitly, Giphy and Dots; and Los Angeles-based Science, which had a winning exit in the acquisition of Dollar Shave Club.

Unlike studios such as Idealab, Mr. Abraham and partners Andrew Dudum, Chester Ng and Andrew Salamon have focused on starting a small number of companies—one in the firm’s first year, two in the second, and three last year. This year they aim to do five.

Atomic has no shortage of startup ideas to draw from—working off a list of 250 company concepts created by Mr. Abraham that has expanded to 450. Using its own internal tools, the firm tries out ideas with marketing, sales, or talking to partners or industry contacts to see if they work. Once companies are created, Atomic’s four partners and a squad of internal specialists work with its startups to take care of time-consuming but important functions from accounting to recruiting to sales. That compresses the time required to build startups.

“It’s really important to get the right testing and validating of market risk,” Mr. Abraham said. “We’ve built all these tools so that even before a product is built, we can validate or invalidate an idea before you commit a decade of your life.”

When it comes to fundraising, its startups have raised capital more quickly than a typical startup would by avoiding the “shotgun approach” to pitching investors and focusing just on the right firms, said Mr. Dudum, an Atomic partner who is also co-founder of portfolio company Ever. The firm puts founders through a three-week venture prep course on pitches.

“They can do multiple companies in parallel where the learning and expertise is shared,” said Aydin Senkut, founder of Felicis Ventures, which has invested in Atomic’s fund and its startups.

While other studios have also created internal teams to help its companies, Atomic has taken this a step further, building remote teams to help across all its startups, since talent is so costly and hard to find locally. The firm has engineers in Waterloo, Canada and sales specialists in Scottsdale, Ariz.

To create companies, Atomic brings in “founders in residence” for a few months to develop ideas—typically from Atomic’s list but sometimes from the entrepreneur. The goal is to create a startup that’s their own—like the co-founding process of a traditional startup, ensuring that the founder is completely invested.

As a fund, this approach is designed to generate better returns than a typical venture fund. That is because Atomic tests out various ideas before getting to starting a company, to remove many questions that a startup typically confronts in its initial stages.

“We think the current process for company creation is a little like the lottery,” Mr. Abraham said. “It’s like free radicals in the world collide every once in awhile and you have a collision. Our insight is that can be controlled if you fuse the right talent with the right opportunity.”

Write to Tomio Geron at tomio.geron@wsj.com