How Do Venture Studios Work?

The new engine of intentionality in the world of startups and innovation

Sometimes called “startup studios,” venture studios are organizations designed to create new startup companies. They do this either by generating new ideas for startups or by recruiting founders with ideas, and then they apply significant amounts of time and capital to the process of growing the startup successfully.  At the heart of every venture studio lies a process, which generally has four steps (though each studio may give them slightly different names):

  1. Ideation – the process of coming up with a new idea and “pressure testing” it with potential buyers through conversation and the sharing of prototypes
  2. Productization – the process of developing the “minimum viable product,” or MVP, which is not the final version but is enough to share it with customers for feedback and continued development
  3. Launch – the process of creating and initiating a go-to-market strategy, including sales, marketing and customer support 
  4. Scale – the process of building an organization around initial market success that will help it grow

Venture studios are often outgrowths of venture capital funds, as each stage of the process requires capital funding to pay for each activity. Depending on the depth of the involvement, the equity stake taken in the company can be quite high, as startups are risky and most fail.  The involvement of a studio in the startup tends to reduce the risk for investors, as the process and the experience of the team can help to avoid common mistakes that would cause others to not succeed.

There are several different models for venture studios, but most of the differences center around how much of the company is owned by the studio as compared to the founders.

  • 1st Co-founder studios are designed for founders with an idea but little to no expertise in how to start a company. Generally, the studio will take half of the equity in your company, leaving you with the other half, and then they will do practically everything else from validating the idea through development of the product through the launch of the product into the marketplace. Usually, the founder will move into the role of CEO at the launch stage, and the company then operates like other new startups.
  • 2nd Co-founder studios are designed for startups that are further along in the process. Often, they have a minimum viable product and some degree of customer interest but are struggling with a go-to-market strategy and the funding required to launch the product and scale a team. This is frequently seen with engineering-oriented founders who are experienced with a technology and have created the basic product but lack the business skill and experience to create a company around it.  More of the equity is held by the founder in this model – typically 65% with 35% to the studio, and the role of the studio is to supplement the founder’s team with additional resources working in concert to move the company forward.
  • 3rd Co-founder studios are designed for startups that have a solid team but have certain “holes” they need filled. A very typical need is for someone to manage the product or technology, or perhaps to setup and manage a sales team or a marketing team. In this model the studio operates like mercenaries brought in for specific purposes to complete the leadership picture. Here the smallest amount of equity goes to the studio – somewhere between 10% and 25% depending on how many needs must be met.

Of course, all of these are guidelines: there is an infinite range of models for studios across the spectrum.

Why do founders choose to partner with venture studios?

The core value proposition of a venture studio is to access skills, expertise and a network beyond the founding team. These resources reduce risk and enhance outcomes by equipping a startup with resources they usually cannot afford early on:

  1. Skilled teams employed by the venture studio or through their partner network amplify the ability of the startup to execute and reduce the time and expense of rework based on mistakes and inexperience.
  2. Methods and tools created and offered by the studio to portfolio companies help obtain results more quickly as they are the result of distilling experience and failures into process.
  3. The willingness of venture studios to “roll up their sleeves” and provide hands-on guidance both reduces risk and provides accelerated mentorship and training to founders.

Essentially venture studios absolve you as founder from having to figure out how to attract or get investors to fund your business or how to convince someone to invest in your product. You get to focus fully on leveraging the skills, expertise and network of the studio to build your startup.

Written by the NEXT Studios Team