Since about 90 percent of startups fail, developing them successfully is anything but easy, particularly for nascent entrepreneurs. However, the venture studio is an emerging startup support model that could help more startups achieve success. Let’s take a look at what venture studios are and why they could be one of the most effective startup support models.
What Is a Venture Studio?
Venture studios are companies that dedicate resources and leverage connections to build startups from the ground up, a process that starts with a disruptive idea or product around which a business can be developed.
The venture studio brings in executives with industry experience to serve as the startup’s founders. This is especially valuable for new startups, as these executives have extremely valuable experience that can help the startup avoid common pitfalls. Additionally, the venture studio provides business strategy and capital and assembles teams of professionals who can facilitate the startup’s development.
The Venture Studio Business Model
The venture studio business model generally follows three criteria:
– The business focuses on building startups from start to finish by providing leadership, capital, time, and other resources.
– Venture studios work rapidly to develop multiple startups concurrently by using a methodical process.
– A venture studio leverages pooled resources to draw up infrastructure that can be reused to build startups more efficiently.
On average, a venture studio invests about $232,000 into each startup project. In exchange, the average venture studio receives about a 34 percent equity stake in the company. However, this stake can vary; some venture studios could have a stake as high as 80 percent or as low as 15 percent.
Venture Studios versus Other Startup Support Models
Unlike other startup support models like incubators, venture studios are heavily involved with the entire process of building the startup, from the early investments to the product rollout and beyond. Venture capital (VC) firms invest in already-existing startups rather than building new ones. VC firms generally take a hands-off approach relative to the startup’s day-to-day operations.
Venture studios also differ from accelerators, which make several small capital investments in a wide range of startups with the expectation that most of them will fail. Conversely, venture studios invest heavily in promising ideas for new startups. Accelerators also accept applications for new companies in their portfolios, while venture studios typically do not. A venture studio’s value is its business strategy and ability to identify new profitable opportunities.
Types of Venture Studios
Venture studios fall into one of two categories: independent or corporate.
An independent venture studio contributes all of the necessary resources for creating the startup, including capital, employees, and strategy. Some independent studios may use outside investors, but these resources are typically fully funded by the studio. The principal of an independent venture studio usually decides what startups to build and how to allocate the studio’s resources.
Corporate venture studios work with medium or large enterprises to provide capital, employees, and strategic guidance. The enterprises may provide the corporate venture studio with initial capital and strategy, while the studio contributes a talented workforce, process, and experience for successful startup building. The enterprise will hold a majority stake in the startup, which is riskier but has more potential financial upside compared to investing in established businesses.
How Successful Are Venture Studios?
The venture studio market is growing at an exponential pace, with over 625 percent growth over the past seven years. This startup support system has proven beneficial both for the studios and those in whom they invest. Let’s take a look at some numbers that illustrate the success of venture studios:
– Startups that launch with help from venture studios are 30 percent more likely to be successful.
– 84 percent of startups launched from a venture studio raise a seed round.
– 72 percent of venture studio startups that raise a seed round eventually secure Series A financing.
– The average venture studio startup reaches the seed round in about 10.7 months and goes from seed round to series A in 14.5 months.
– Conversely, only about 42 percent of traditional startups that reach the seed round go on to reach Series A financing.
The data show that the venture studio model is proven to be more effective than other types of startup support models. If this model continues to grow in popularity, which can be expected, venture studios could have a profound impact on the tech industry as a whole. Who knows how many potentially game-changing startups have failed due to a lack of resources or leadership in the early stages? As the venture studio model continues to improve, there is hope for world-altering technological innovation. We look forward to the future of this burgeoning industry.