Why Founders Choose to Build with Venture Studio

Venture studios have been making big waves lately and are considered to be the “best model for creating startups”. But is all the buzz warranted? Are their success rates really higher than traditional methods of building ventures?

According to a 2022 report by Global Startup Studio Network (GSSN), there are more than 800 such Studios across the globe and they have collectively raised more than $21B funding, representing more than 625% growth in the studio market over the last seven years. Another report by Enhance Ventures estimates 3000+ venture studios with $100B funding and generating unicorns monthly by 2030.

Some of the notable venture studios include Idealabs, Rocket Internet, Science Inc & Flagship pioneering, who have launched multiple successful startups including Snowflake, Twilio, Picasa, Moderna, Dollar Shave Club & many more.

‍Many would argue that the venture studio model is disrupting the traditional way of building startups. By bringing in the best and dedicated entrepreneurial co-founding teams to ideate, validate, launch and scale startups faster, they are achieving higher success rates than other entrepreneurial models including incubators, accelerators and VC’s.

‍Sounds intriguing, right? Let’s deepdive into exactly what a venture studio is, why they have higher success rates and why founders should choose to build with it rather than going solo or choosing traditional entrepreneurial models.

Founding a startup comes with a very high degree of risk and it is a well-known fact by now that the startup failure rate is 90%. The top reasons for failure include: Lack of market demand, inadequate funding, inexperienced teams & poor product-market fit. Only a very few smart and lucky founders (<0.001%) will be able to navigate through this tough journey. Some well known examples from India include Zoho & Zerodha.

The early-stage startup journey involves five stages. De-risking at every stage is crucial for building a successful venture. And that’s where venture studios come in: Proactively identifying and mitigating the risk at every stage by acting as an institutional cofounder and allowing entrepreneurs to dedicate more time to core business activities.

· Stage 1 — Discovery & Validation of the idea (“Market risk”)

· Stage 2 — Identify the right confounding team (“Team risk”)

· Stage 3 — Build & validate the prototype (“Technology risk”)

· Stage 4 — Raise initial capital (“Capital risk”)

· Stage 5 — Achieve Product Market Fit (“Scaling risk”)

What is a Venture studio?

A venture studio or a Startup studio is an institutional cofounder that proactively invests in and co-builds ventures from scratch. Unlike traditional incubators or accelerators, they take a more hands-on approach to venture building, by leveraging the expertise of dedicated cross functional teams working together to ideate cutting-edge business ideas and turning them into profitable ventures.

They are often involved in every phase of the startups’ journey, from concept development to scale including product development, validation, marketing, fundraising, talent acquisition, and more. The approach provides founders with the crucial support needed to get off the ground and thrive, not just during the initial stages but also in the long term.

Do venture studios actually have higher success rates? Let’s take a look at some of the numbers. According to report by Global Startup Studio Network (GSSN):

· Venture Studio startups have a 30% higher success rate than traditional startups.

· 84% of startups coming out of studios go on to raise a seed round.

· 72% of those ventures make it to series A (compared to 42% of traditional ventures).

· Time from zero to series A is 25 months for studio startups compared to 56 months for traditional startups.

· The average internal rate of return (IRR) for startup ventures is 53% compared to 21,3% for traditional startups.

Why do Venture Studios have a higher success rate?

Venture Studios partner with founders to build ventures faster and with higher odds of success. Here are few reasons why:

Reduced risk: Venture studios are equipped with established processes and a thorough validation approach that enables them to identify potential challenges and address them proactively.

Speed: Venture studios use a validated lean approach to identify high-potential opportunities and then take a hands-on approach to reach product-market fit with greater speed and efficiency.

Proven model: Venture studios have proven frameworks for generating and validating ideas, creating an MVP, and launching the product to the market without wasting time and resources on concepts that may not succeed.

Team: Venture studios have a dedicated confounding team made up of experienced entrepreneurs and cross-functional experts with a proven track record of launching successful business ventures.

Focus: Entrepreneurs can dedicate their efforts towards executing core business while the studios handle funding, hiring, marketing and other activities

Network: Venture studios connect startups to the relevant ecosystem including Corporates, Investors & others. There are also strong shared services to support the ventures such as legal, finance, marketing, design, development and others.

What should entrepreneurs look for in a Venture Studio?

There are several factors that come into play when founders evaluate different venture studios or even entrepreneurship models to choose from. Entrepreneurs should consider the below as there are no set templates for this.

Focus: Does the Studio focus on specific industries & technologies?

Operating Team: Does the core team have venture building, industry & tech expertise?

Equity: What percentage of equity are they asking for and what is the value addition?

Funding: What is the total investment commitment & what is the source of funding?

Ecosystem: How big & relevant is their network? Who are the mentors, partners, investors associated?

Final thoughts

Venture studios are incentivized to help their startups succeed because their success is tied to the equity they hold in the company. By partnering with venture studios, entrepreneurs can bring their idea to life with greater speed and efficiency, and with higher odds of success. There is no better time than now to start exploring to build your startup with a venture studio.