It is estimated by Enhance Ventures that there are now over 550 studios in operation around the world, having grown by 625% since 2013.
This growth may come from several factors:
- Due to the rapid growth of large cloud-based platforms like Google, Amazon and Microsoft, there has been a reduction in the availability of venture capital for early-stage startups. Investors are increasingly wary of funding a startup which could be seen as a competitor to one of the platform companies. To the degree that VCs make earlier stage investments, the risk reduction provided by venture studios makes those startups more attractive.
- Many of the bigger opportunities for startups come from machine learning, deep computing, and other technologies that are beyond the capabilities of first-time entrepreneurs. Solving these issues usually requires the deep experience that few startups can afford. Studios offer this expertise in a teamed approach with the startup founders, which allows the company to be more ambitious in its goals, which could drive larger returns.
- The typical ten-year cycle for a startup that focused on the largest sale price of the company is not the ideal training ground to develop new entrepreneurs and seasoned teams. It also tends to result in a lack of diversity in investors and founders, because the only objective is the best return on the investment, so anything outside of the “tried and true” is perceived to add risk. Studios can be tailored to cater to different geographies, diversity in founders and objectives beyond the biggest “exit.”
What is the difference between venture studios and startup accelerators?
Venture studios are not the same as startup accelerators such as Y Combinator or Techstars. A typical accelerator may offer a 10-to-12-week program focused on ideation or productization in exchange for $10,000 to $100,000 in funding and an equity stake. The objective is to help the founder move their business along to the point where investors might be interested in funding the next stage. It is expected that most of the startups will fail, and so an accelerator becomes an effective way to “play the field” and invest a relatively small amount of money in many different startups at the same time, such that if just a handful are winners, they offset the losses for the majority that don’t succeed.
While it’s possible to succeed as a startup founder without the support of a venture studio, partnering with one reduces the risk of failure and can accelerate your ability to access venture capital and the resources you need to succeed.
Written by the NEXT Studios Team