Venture Builders vs Acceleration Programs explained to my grandmother
What are the differences between the two models of incubation? Which are the advantages of the VB?
This story is an excerpt from my research thesis, Venture Builders: shooting or guiding start of the European Entrepreneurial Ecosystem. More than an excerpt I would say that it is a fragment, the 13th one! In fact my thesis is “in the making”. I am currently writing chapter 2 on “Literature Review” and in particular this story will talk about the differences between Venture Builders and Accelerators Programs.
Much of what I wrote here is the result of the work of analysis of scientific articles and reports such as Venture Studios demystified by Shilpa Kannan and Mitchel Peterman and Venture Building & Startup Studios versus Acceleration Programs — Conceptual & Performance differences by Rodrigo de Alvarenga et al.
I chose to publish the thesis, step by step, here on Medium. I don’t have many demands and above all it is a draft in continuous upgrade. That’s also why I would love to have your feedback if you have any, so feel free to connect with me.
Between Sep ’22 and Oct ’22 I will travel around 7 European countries, to interview leaders from 20+ European Venture Builders. Follow me in this journey to understand if VB will be “the missing piece” of the European startup ecosystem.
A New Classmate
The startup support landscape is varied. There are numerous actors such as incubators, accelerators, BAs, VCs and… Venture Builders, who all try, in their own way, to do business with entrepreneurs. The theory of entrepreneurial ecosystems is based precisely on the interdependence of these players.
In this context, the Venture Builder business model is an outsider compared to the other organizations, but, given its recent spread, it is important to understand how it fits within an already dense environment. Indeed, only in Europe, there are more than 1200 incubators and accelerators, but despite this, the failure rate of European startups continues to be over 90%. At the same time the EEE suffers from a strong scale-up gap.
Here, there is no question about whether this new business model will replace the others that already exist. Rather, starting from a systemic ineffectiveness relative to the process of creation and growth of European startups, it is necessary to understand if and how the VB can fit in a virtuous way within the already existing entrepreneurial ecosystem.
Some questions such as how effective is this model of strong and long-term guidance compared to more traditional accelerators and incubators model, remain open.
Comparison
Despite the continuous effort of the Policy makers and of the existing startups support organizations, the mortality rate of startups remains too high. A relatively new phenomenon called Venture Building has been formed to address this challenge. One could compare venture builders (or startup studios) to movie studios. Just like movie studios, a Venture Building process is based on creating and analyzing many ideas at the same time and then choosing the most promising ones to be developed further (Rodrigo de Alvarenga, 2019).
The startup studio does what no other organization had pushed to do so far: the ideation of the startup. Whether it is internal or external, the VB participates in the ideation phase and supports the startup from day 0. The incubators instead often make “calls for ideas”, while the accelerators are almost always aimed at established startups already on the market.
The incubators and accelerators make a game of volumes, supporting a greater number of startups and hoping that in the following years at least some will boom. Accelerators, opening 1 or 2 calls, can even support 10–20 startups per year. The number of startups created by VB per year varies, but it is certainly lower than the other models. This is because, compared to studios, incubators and accelerators provide less support to startups, especially once the programs are finished.
Moreover, unlike other models, the duration of a Venture Builder’s support for startups is not predetermined. In the case of accelerators in fact, at the end of the program also ends the support and services. Regarding the VB, the strategy ranges from day 0 to exit, and the relationship goes further on a long-term focus.
The smaller resources stacked by the traditional support organizations mean a smaller percentage of retained equity, which for incubators/accelerators is about 5–15%, while for the studios can get up to 50%. The studios in fact hold a founding equity stake because they act as co-founders of the venture. However, as funding rounds pass, their percentage is significantly diluted.
Even comparing VBs to fellow VCs there are considerable differences. The goal of the VC is to provide scaling-money to startups. The involvement checks and stages are more advanced. Even if collecting a round from a VC means adding a seat in the board meeting and surely investors have a say in directing the business strategy, unlike the studios, VCs do not act as cofounders and are not involved in day-to-day operations.
The table shows the differences and similarities between the models.
Sharing economy
Any person or organization that is fighting for the growth of startups is worthy of admiration. Besides being a noble job it is also very risky. Unfortunately, to date, the success rate of startups has not increased, and therefore new solutions are needed for the ecosystem to flourish.
From a first comparison it seems that the structure and the operation of the VB can better adapt to the European context today, because of a greater flexibility and sharing of resources.
Ali Diallo, the founder and CEO of MIT Ventures, predicts a bright future for Venture Building model. He argues that the emergence of the sharing economy is one of the forces pushing Venture Building forward. The so-called “uberification” of society, according to Diallo, refers to “vertical integration of the customer experience within a specific industry”. Thus, Venture Building could be useful in enhancing this access by building networks and ecosystems from which the resources can be pulled. In this way, venture builders could be acting as shapers of the sharing economy (Rodrigo de Alvarenga et al. 2019).
Today’s great challenges cannot be tackled alone. And just as a startup alone can’t do anything, so can’t an accelerator, or an incubator, or a VC on its own. The venture builder model focuses on teamwork and resource sharing. Will it become the focal point of a dense network of players eager for innovation and business?
