Pioneer Square Labs (PSL) is a venture studio headquartered in Seattle, Washington, a technology hub in the Pacific Northwest. The studio has 22 employees and was founded in 2015. It provides venture building opportunities in the software and technology spaces.
We spoke with T.A. McCann, Managing Director at Pioneer Square Labs, to better grasp the studio’s collaboration models, its successes, and more as part of our venture studios series.
Who They Work With
McCann said PSL primarily focuses on partnering with companies that have a desire to start a standalone business.
“A lot of people are good at consulting, giving people advice, innovation — sort of, ‘Here’s how you could innovate,’ but we are very, very oriented toward creating standalone venture scale companies,” McCann said.
He said PSL builds software and technology companies, and that when it’s looking to partner with a corporation, the corporation has to have buy-in from leadership.
“We’re very much trying to find corporate partners that have a very senior decision maker that’s going to be engaged in the business,” McCann said.
PSL has worked with corporations like Fortive, Rover, and Kroger.
PSL builds standalone corporate ventures on a timeline that moves quicker than the corporate environment can.
“When we’re creating these companies, we are very focused on, ‘Can we create a venture scale business where the studio and the corporate own a significant amount of equity in the companies?'” McCann said.
PSL has built several ventures with industrial conglomerate Fortive, including TeamSense, a tool that improves communication between companies and hourly workers, and Genba, a voice assistant for maintenance technicians. It is currently collaborating with other corporations, as well.
PSL uses a five-stage process to create its corporate ventures — ideation, validation, creation, spin out, scale up.
Ideation — in this part of the process, PSL comes up with ideas for businesses. At the end of this phase, there is a decision, McCann said. “The key decision point between ideation and validation is, ‘Are we excited about about this basic concept, in order for us to go spend time on it?'” he said.
Validation — PSL validates that ideas are viable to the market. “If we get to the end of validation, and we haven’t killed the idea — which most ideas are killed — then we say we feel now this is a venture scale opportunity that is a good one for us and [our partner].”
Creation — PSL hires a CEO to begin working on and building the business. At this stage, more resources are allocated to the project. The last day of the creation phase is the founding day of the company, McCann said.
Spin out — The company goes through early recruiting, fundraising, and customer traction. McCann said the goal at the end of the spin out stage is to have external venture funding.
Scale up — The company continues its growth with a team in place.
McCann said PSL first hires a CEO to lead the team for the new venture. He said when PSL hires a CEO, that person often comes from the startup world.
“In the best case, [the CEOs] are usually repeat founders,” McCann said. “Next best case is they either have a very strong functional expertise, or they have very strong domain expertise — or sometimes both.”
Once a CEO is placed, PSL uses a “first five org chart” to determine the most important hires it needs to make to begin filling out the team. PSL has a recruiting function to help find those people, but the CEO makes the hiring decisions.
PSL runs a fee-for-service model.
McCann said the corporation typically puts about $300,000 into the company to start, which PSL sometimes matches from its venture fund, depending on what the company needs. Corporations often continue investing in the company as the process moves along.
“If you’re excited about [the company], and you have a good investor, then why wouldn’t you want to keep investing in that company, assuming you have the balance sheet to support it?” McCann said.
What’s the key question a corporate leader should ask before partnering with a venture studio?
McCann said he thinks a corporate leader should ask a studio leader, “How do you find and evaluate CEOs?”
He said while that question should matter to corporate leaders, it also helps PSL evaluate how serious a corporation is about building a standalone venture. He said finding strong CEOs can make or break the process.
“If we find awesome CEOs, a lot of things take care of themselves. If you find average or below average CEOs, then everybody’s got a lot of pain and suffering for a long period of time while you’re managing [them],” McCann said.