Venture Studio: A game changer or just another fad? (Part2)
The purpose of this post is to explore the model and its benefits, as well as its potential drawbacks. Additionally, we will discuss how venture studios differ from traditional incubators and venture capital firms, highlighting their unique approach to entrepreneurship and innovation.
Startup studios, often known as venture builders, are becoming increasingly popular. There were less than a handful a few years ago. There are now over 750+ in the world. Despite ranking fourth in terms of a quality entrepreneurship ecosystem, India has only 4–5 (publicly known) studios. Let’s dig in.
Why a Venture Studio?
Over the next 20 years, several industries will change more than they did in the previous 200. Any change carries a tremendous amount of uncertainty, and businesses frequently find it difficult to manage these situations. Standard & Poor companies now have an average tenure of just 15 years, down from 67 years in the 1920s.
Understanding unmet or underserved client demands and promptly creating new products that address them are prerequisites for successful business growth.
Building external ventures combats longer-term growth stagnation and market share loss in situations where corporations are unable to respond through startup alliances or their core businesses. Large firms get a competitive advantage and a head start in markets where new competitors and entrants will emerge by investing in non-core business models.
Most venture studios develop and introduce a number of startups every year. These have a higher success rate than startups that are backed by standard venture capital or accelerator programs. That’s because studios don’t have a predetermined timescale, in contrast to accelerators, which run on a six- to 12-week rhythm. Instead, they search and change course until they find a product or market fit. A venture studio, unlike an accelerator or a VC firm, kills most of its concepts that fail to get traction and won’t launch a startup if it can’t show that it can be a scalable and lucrative business.
The Comparison
Venture studios take anywhere between 30% and 80% of a startup’s equity, as opposed to accelerators, which take 5% to 10%. This is due to the fact that businesses leaving a venture studio now have startups that have had a significant amount of the early-stage startup process de-risked. (There is a direct association between a venture studio’s stock holdings and how much they think their initial CEO should be an entrepreneur as opposed to an executor.)
Why would an entrepreneur choose a venture studio over an accelerator and give up the majority of their business? The “founder type” that most accelerators seek out is the stereotypical technologist who is just out of college, has a concept, and cofounders.
Why do Venture Studios have a higher success rate?
In a report released in 2022 by the Global Startup Studio Network (GSSN),
- Compared to conventional businesses, Venture Studio startups have a 30% greater success rate.
- In-studio startups raise a seed investment in 84% of cases.
- Compared to 42% of typical businesses, 72% of these ventures succeed in reaching Series A.
- Compared to 56 months for traditional companies, the time from zero to series A for venture studio businesses is 25,2 months.
- Compared to 21.3% for traditional businesses, the internal rate of return (IRR) for startup ventures is 53% on average.
Examples of successful venture studio businesses include companies with names like Dollar Shave Club, Snowflake, Aircall, Moderna, and more.
Obvious Reasons-
Optimized resources and effective execution
Startup studios use shared resources, networks, and infrastructure across multiple ventures, reducing costs and getting the most out of each resource. They use a validated approach to identify only a few high-potential ventures per year and then put 100% of their focus into bringing them to life.
Great entrepreneurial talent
Teams from startup studios are made up of seasoned business owners, growth hackers, and specialists with a track record of profitable businesses. Their employment is based on equity reward models, which provide them with a stake in the outcome and raise the likelihood of long-term success.
Reduced risk
Startup studios are equipped with established procedures, knowledgeable team members, and a detailed validation method that allows them to recognize possible problems and take proactive measures to address them before they become significant problems. As a result, startup studios may work more effectively and confidently, which lowers the risk of failure and increases their chances of success.
