The client disclosed his expertise in additive manufacturing and 3D printing but lamented the difficulty in securing venture capital from coastal investors. Additionally, he was uncertain about the potential of his idea. Nevertheless, he had a burning desire to cultivate a small business into a substantial one. As we indulged in dessert, the Client asked if there were other means of starting a company besides raising capital.

As we grabbed dessert, the Client asked, “Other than raising money, are there other ways to start a company?”

I pointed out that there were.

Reducing Startup Risk

Over the past 20 years, three types of organizations have emerged to help early-stage startups reduce the risk of failure: incubators, accelerators, and venture studios. These organizations are typically founded and led by experienced entrepreneurs who have firsthand knowledge of the difference between theory and practice.

I explained to the Client that accelerators such as Y-Combinator, Techstars, and 500 Startups provide a six- to 12-week bootcamp for a cohort of startups. However, these programs seek out founders who possess technical or business model insight and have already formed a team. Accelerators offer these teams access to technical and business expertise, as well as a network of other founders and advisors. The culmination of this bootcamp is a “demo day,” where all startups in the cohort have the opportunity to pitch their companies to venture capitalists and angel investors. In some cases, the accelerator itself may provide initial funding. In exchange for participating in the accelerator program, startups typically give up 5% to 10% of their company’s equity.

Over the last two decades, there has been an emergence of three types of organizations – incubators, accelerators, and venture studios – that aim to reduce the risk of early-stage startup failure by providing assistance to teams in finding product/market fit and raising initial capital. These organizations are often founded and led by experienced entrepreneurs who have practical knowledge and can distinguish between theory and practice.

I informed the Client that there are thousands of accelerators worldwide that typically search for startups that can potentially generate venture-class returns, meaning they can grow into companies worth billions of dollars. Admission to most accelerators is through an application and interview process, and while some like Y-Combinator, Techstars, and 500 Startups are open to startups in any market, others like SOSV, IndieBio, HAX, Orbit, and dLab are more specialized.

Incubators provide shared space and resources to startups but typically offer little to no capital. Their financial models rely on membership fees that provide access to coworking spaces, resources, and operational expertise.

The Client stirred his coffee and remarked, “Accelerators may not be the right fit for where I am in my career. I don’t have a groundbreaking idea or a technical team, but I know how to develop, expand, and manage teams.”

The Alternative: Venture Studios

I recommended to the Client that venture studios might be a more suitable option for him given his skills and desire to start his own company. Unlike accelerators, venture studios do not invest in existing startups but create their own startups by incubating their own or their partners’ ideas.

The studio’s internal team develops the minimum viable product, validates the idea by finding product/market fit and early customers, and recruits entrepreneurial founders to run and scale those startups if the idea passes a series of “Go/No Go” decisions based on milestones for customer discovery and validation. Examples of successful companies that have emerged from venture studios include Overture, Twilio, Bitly, Aircall, and Moderna.

I suggested that the Client view a venture studio as an “idea factory” with its own full-time employees who search for product/market fit and a repeatable and scalable business model.

Most venture studios create and launch several startups each year. These have a greater success rate than those that come out of accelerators or traditional venture-funded companies. That’s because unlike accelerators, which operate on a six- to 12-week cadence, studios don’t have a set timeframe. Instead, they search and pivot until product/market fit is found. Unlike an accelerator or a VC firm, a venture studio kills most of their ideas that can’t find traction and won’t launch a startup if they can’t find evidence that it can be a scalable and profitable company.

There are four main types of venture studios:

• Tech transfer studios, such as America’s Frontier Fund, work with companies and/or government labs to source ideas and intellectual property. They then transfer the IP and build the startup inside the venture studio.
• Corporate studios, such as Applied Materials, source ideas and intellectual property inside their own company. They then build the startup inside a separate corporate venture studio inside the company.
• A niche studio is a standalone venture studio that generates its own ideas and IP in a specific industry and domain — for example, Flagship Pioneering, which is focused on health care and incubated LS18, the company that became Moderna.
• An industry-agnostic studio, such as Rocket Internet, is a standalone venture studio that generates its own ideas and IP and is industry and market agnostic.

Today there are around 720+ venture studios across the world — half are in Europe. In both North America and Europe, many venture studios in non-major cities are funded by government agencies to stimulate local growth, at times with matching donations from companies. These studios have different metrics than startup studios whose limited partners are private family offices or venture capitalists.

Why Would an Entrepreneur Join a Venture Studio?

While we were on our second cup of coffee, I told Carlos about the downside to joining a company created by a venture studio — how much equity/ownership they take.

In contrast with an accelerator that takes 5% to 10% of a startup’s equity, venture studios take anywhere from 30% to 80%. This is because companies exiting a venture studio have been handed a startup that has de-risked of much of the early-stage startup process. (There’s a direct correlation between the amount of equity a venture studio takes and their belief in how much they want their founding CEO to be an entrepreneur versus executor.)

Why would an entrepreneur join a venture studio and give up the majority of their company rather than go to an accelerator? Most accelerators tend to look for a “founder type” — a stereotypical techie, fresh out of college, who already has an idea and cofounders.

Most people don’t fit that pattern. Yet many are more than capable of taking an idea that’s been stress-tested and validated and building it.

What To Look for in a Venture Studio

As we got up to leave, the Client asked, “How would I know whether the venture studio is a good one?”

It was a great question. While there are no hard-and-fast rules, I advise entrepreneurs to ask these four questions:

1. Is the studio run by a former founder, and does it have former founders as full-time employees? The most successful venture studios are founded by entrepreneurs who have previously built companies with $10+M in revenue and had 100+ employees.
2. What percentage of equity are they asking for? The answer will be directly proportional to what they think your value is. Firms asking for greater than 60% are actually hiring an employee rather than a founder.
3. Do you want a studio with specific expertise? Studios that focus on specific niches and industries can build a deep bench of domain experts — e.g., a founder, advisors, and mentors — who are experts in this one field.
4. Do they have enough funding? Watch out for zombie studios. If you’ve given away a majority of your company to a studio, it would be helpful to have them around for support after you’ve started. If they don’t have enough funding to keep the lights on for several years, you’re on your own. Make sure your studio has raised more than $10m in funding.

VENTURE STUDIO BUSINESS MODEL

If you are asking yourself, “what is a venture studio?,” then you have come to the right place.

For those looking to start a new company, one popular business model is called a venture studio. A venture studio business model, which is also called a startup studio business model, is a company that works to build several different companies in rapid succession. Venture studios develop the idea behind a company while simultaneously investing capital.

In the academic world, this model of business building is also called parallel entrepreneurship. There are a number of reasons why the companies that are involved in this type of startup can succeed. 

First, venture studios typically focus their resources on creating startups. This means that venture studios have a lot of experience building new companies and can apply this experience to achieve a greater chance of success. Furthermore, because of the repetitive nature of the company building, these companies are ideal for developing product and service prototypes rapidly. In addition, because these companies are typically building multiple startups at the same time, they have the ability to work on multiple projects simultaneously. Finally, the venture studio business model means that the same infrastructure can be applied to multiple companies at the same time. This means that venture studios are efficient when it comes to building multiple companies. For those wondering, “do venture studios work?” — the answer is yes. 

In a lot of cases, a venture studio will provide companies with the initial team, capital, and strategic direction they need to help them find the product-market fit and scale efficiently. It is the most efficient vehicle for new business creation.

WHAT IS A VENTURE STUDIO?

One of the most common questions we hear is “what is a venture studio?” The definition of a venture studio is that this is a location that aims to create multiple companies in rapid succession. As alluded to above, this model is often referred to as a startup foundry or “parallel entrepreneurship.” In order for something to be classified as a venture studio, there are three separate criteria that the studio must meet. These include:

• The resources of the venture studio are focused on creating startups from the ground up, meaning that there is a lot of time, effort, and dedication focused on working on a project for a certain period of time.
• The venture studio builds several different startup companies in rapid succession, meaning that they are often working on multiple prototypes at the same time.
• The venture studio has the infrastructure in place that lends itself to an efficient company-building machine. The venture studio often pools its manpower, technical tools, and skills to build several projects in a year, reusing infrastructure in an efficient manner.

People often confuse a venture studio with an incubator studio, also known as a business incubator. When comparing a venture studio vs. incubator, an incubator studio typically receives some sort of equity in the business in exchange for capital and expertise. This is a key difference that everyone should keep in mind.

STUDIO VC

One of the important topics of discussion when it comes to venture studios is the possibility of equity. Equity is incredibly valuable to startup companies, particularly given the potential for massive returns with the success of even one product prototype. Some people view venture capital firms as a subset of venture studios while others look at venture capital as a different entity altogether. Studio venture capital investors are typically much more involved in startups than a typical venture capital fund. With a typical venture capital fund, there are investors who pump in a tremendous amount of capital into a project that is already somewhat off the ground. Then, these investors expect a significant return on their investment within a few years. Sometimes, venture capital firms take a portion of the equity in the company in exchange for their investment. For the most part, venture capital firms leave the day to day operations of the business alone.

On the other hand, a venture studio fund builds a business from the ground up. They are heavily involved in getting the startup off the ground, working with prototypes, and providing assistance to the startup in the form of capital, expertise, manpower, and connections. When looking at a business agreement with a venture studio, the agreement may resemble that of a venture capital firm agreement. Sometimes, venture studios are going to take some equity from the startup company in exchange for the tremendous amount of resources the studio is going to provide. Startup studio equity will vary depending on the capital and the studio policy; however, this is an important point to examine in the agreement.

At High Alpha, a venture studio based in Indianapolis, we build new B2B SaaS companies from the ground up. We design, prototype, and validate our top concepts during our quarterly Sprint Week process, which is our forcing function for launching new tech startups. When we launch a new company, we essentially build a cocoon of expertise around the startup, across every discipline required to build a world-class company. The level at which we support our companies allows us to compress the amount of time it takes to move from an idea to a world-class business. Our studio services include brand, design, engineering, HR and recruiting, sales, marketing, finance, and data science.

CORPORATE VENTURE STUDIO

Many companies have a venture studio as a subset of an existing corporation. This is often referred to as a corporate venture studio and is called corporate innovation. Because of the tremendous amount of success that many venture studios have already enjoyed, existing corporations are looking to create an arm of the company that looks for new ways to grow and build. This comes in the form of investing in startups, as this has the potential to lead to exponential investment returns in exchange for existing capital which the company already has plenty of. Many corporations already have a powerful social venture studio that can make static capital work harder than ever before. This means that startup companies can take advantage of the tremendous amount of capital these corporations have while corporations can enjoy much larger returns on their capital than they otherwise might. For this reason, there has been significant growth in the number of corporate venture studios over the past few years.

STARTUP STUDIO PLAYBOOK

While startup studios are very popular, the venture studio platform is still very much evolving. One of the most popular areas of venture studios today is the healthcare venture studio. With so much new technology being created in this space, there are a lot of people who are looking to build new products that have the potential to save lives. While the playbook for venture studios is still very much under development, there are a few best practices that venture studios tend to follow. These include:

• A high-quality venture studio is going to provide advice to young startup companies that help turn ideas into concrete operations
• This will come in the form of operational guidance that comes in the form of human capital
• In addition to human capital, venture studios are going to provide financial capital as well. The amount of financial capital will vary with the specific venture studio.
• Venture studios may also set up portfolios that can provide a steady income to the startup company as it gets off the ground

In this manner, startup studios are going to provide operations, advice, capital, and guidance to help turn startup dreams into reality.

STARTING A VENTURE STUDIO

There are many people who are wondering how to start a S7Clear X venture builder. For those looking for answers to the question, “how to start a venture studio,” this comes in the form of answering a few important questions. First, where is the funding going to come from? Startup studios function by providing capital to startups that help get the ideas off the ground. There are a few sources of funding available including the founder’s wealth, corporate funding, and money from outside investors. Next, how is the venture studio going to be structured? Is the studio going to fund a few startups on its own? Or, is the studio going to collaborate with investors to decide collectively how to invest in startups? Finally, what is going to be the focus of the studio? Is the studio going to invest in companies overseas? Is the studio going to function on a single sector of a single industry? How is the funding going to be distributed? It can be helpful for those looking to start a venture studio to learn more about this process. Some popular books to take a look at include Startup Studio Playbook and Anatomy of Startup Studios. 

TYPES OF VENTURE STUDIOS

Venture studios may focus on a single industry, like us here at High Alpha. We specialize in B2B SaaS companies based on our deep experience and can be helpful in applying our tried-and-true strategies in that space to grow and scale similar companies.

We have a tremendous amount of experience working with B2B SaaS companies, including Smartwyre, so we can help you conduct target market research, develop your products, and expand your customer base. You can also learn from the expertise of our partners. As one of the most successful venture studios in our industry, we can help your startup company progress through the exciting but challenging, stages of launching a new company.

STARTUP STUDIOS BY CITY

When looking for funding, it is important to find the right startup studio. There are lots of startup studios all over the world. Some of the top venture studios NYC include the MIT NYC Startup Studio, which is a trust with a tremendous amount of funding for those looking to create venture studio NYC. There is even a startup studio in London called Nesta which has enjoyed a lot of success. Superset venture studio San Francisco is another great example of a growing venture studio. There is more than one Atlanta venture studio that people should take a look at — Atlanta Ventures’ studio and The Core Ventures Studio are just two studios in the city.

If you can’t tell by now, there is a global startup studio network of companies building the next generation of businesses. At S7Clear, our venture studio’s mission is to build the next generation of B2B SaaS companies. In addition to a network of startup studios, in recent years, the Venture Studio Collective has grown, providing a tremendous amount of resources for those looking to start a new company. 

When someone is looking for a source of funding, it’s important to take a look at all of the options available, weighing the pros and cons, and looking for a partner that has the appropriate reach. When considering fundraising options, it’s important to consider local, regional, national, and international partners. 

VENTURE STUDIO PARTNERS

When trying to find funding for a new business, it is critical to find the right partner. A startup founder needs to create a list of criteria that will help them go through the list, finding the right resources to get their business off the ground. Some of the top venture studios in the world right now include Human Ventures, High Alpha, IDEO CoLab, Idealab, Superset Venture Studio in San Francisco, West Venture Studio, OC4 Venture Studio, and Techstars Venture Studio. 

All of these venture studios have enjoyed a tremendous amount of success; however, venture studios also need funding to be successful. Venture firms like True Ventures, Foundry Group, and Emergence Capital have a track record of working with venture studios. It is important for startups and entrepreneurs to take a look at all the options available, doing their due diligence to find the one that is right for their needs.

VENTURE STUDIO VS VENTURE CAPITAL

hen taking a look at a venture studio vs venture capital, the key difference involves services to help a business with their early operations. Both models provide funding to the new company, but only venture studios help them as a pseudo team while the company is starting out. This maximizes the quality of the new brand, the companies output, and its speed to market. Venture capital firms are not going to be as involved in a company’s day-to-day operations.

A venture studio fund will usually have several venture studio partners who are responsible for providing services as a part of the venture studio structure. Services can include but aren’t limited to design, marketing, go-to-market, finance, HR and recruiting, and more. Along with the services, they also have a vast network of partners that can help you get discounted services, create investor relationships, and meet potential customers. All of these partners will spend time thinking through the problems the new company faces so that they can support the co-founder with the resources they need to fuel the early stages of growth.

VENTURE STUDIO VS INCUBATOR VS ACCELERATOR

As you take a look at the startup studio business model, you may be curious about a venture studio vs incubator vs accelerator. What are the perks of working with a company builder from a venture studio fund? What makes the most successful venture studio? Is the model the most efficient way to start your early-stage startup?

STARTUP INCUBATOR

A startup incubator usually offers a long-term relationship with curated members. They usually do not take any equity but charge a fee instead. Some might provide access to technical facilities and physical space.

STARTUP ACCELERATOR

Accelerators are growth-based and usually have a time-limited relationship. They have a time-limited program focused on speeding up your company’s growth, and they might also provide funding in exchange for equity.

When looking at how a how venture studio is different from a startup accelerator, you need to look at the specifics of the program. A startup accelerator is usually a brief program that lasts a few weeks and might also involve a financial award. A startup accelerator program is usually limited and scattered across a wide variety of industries. This is not the case with a venture studio, which tends to be more narrow and focused, developing a long-term relationship with a company that goes beyond the startup period.

VENTURE STUDIO MODEL

A venture studio provides you with access to all the resources you need to get your company off the ground in addition to funding. With a full-stack venture studio, you get to work with a team that can help you design, market, and build your product. This also includes long-term relationships with the entire network associated with the venture studio’s portfolio.