The venture studio model has emerged as a valuable resource for startup founders in recent years. 84% of startups accelerated through a venture studio go on to raise a seed round, and 72% of those will also raise a Series A round. Compare this to the 42% of traditionally-founded startups that make it to a Series A round, and the competitive edge gained by participating in a venture studio becomes clear.
While venture studios are a haven for startup success, it’s also possible for the venture studio itself to fail for diverse reasons. Whether it’s overextending resources, failure to source innovative ideas, or a breakdown in the processes that cultivate innovation, each venture studio’s future is only as secure as its last round of investments. Let’s explore what makes a venture studio unique, and how to choose between them to find a community for your growth that won’t fold up overnight.
What is a Venture Studio?
A venture studio is an organization that creates startups. Yes, we chose the word “creates” very carefully. Unlike more traditional forms of support for startup founders, a venture studio takes an active role in not just evaluating a startup idea, but helping it go to market. This means not only sharing feedback on the business concept, but also helping with product development, business structure, compliance, and the other details that go into creating a business. Comparing a venture studio to other, more familiar kinds of organizations makes the distinction even more clear:
- Venture Studio vs Venture Capital: A venture studio helps a founder execute on their idea and create the business from nothing more than a concept, where a venture capital firm simply invests in existing ideas they feel confident will succeed. That means a founder meeting with a venture capital firm will already need elements like a business plan, pitch deck, and minimum viable product under their belt.
- Venture Studio vs Incubator: A venture studio supports startup founders in everything from finance, to marketing, to human resources as they work with the founder to get the business off the ground. By contrast, a startup incubator is a physical space where founders can go to work, network, build community, and grow a startup which already exists in the early stages. While an incubator gives founders the chance to connect with one another and with more experienced mentors, the community will not support as many of the basic business functions as a venture studio does.
- Venture Studio vs Accelerator: A venture studio offers hands-on guidance in structuring a business and testing its products or services for the ideal market fit that will help the startup succeed long-term. Startup accelerators are immersive programs that happen on a fixed schedule, connecting founders with peers and mentors and helping them ramp up to the seed funding stage.
Part of the reason some venture studios fail is not understanding the nuances between these different types of programs from a founder’s perspective.
A venture studio must be prepared to invest time and experience into a founder above and beyond any of the other models on our list. That means the venture studio needs a team of experienced entrepreneurs on-staff who are ready to assist with everything from high-level ideas all the way down to filing forms and building prototypes.
How Do Venture Studios Make Money?
Venture studios make money by taking a stake of the equity in the startups the studio helps create. The equity stake taken by a venture studio can range anywhere from 15-80%, depending on the amount of support the studio provides in getting the business off the ground.
Another reason a venture studio might fail is not taking enough equity in a successful startup to offset the investment of time and money it took to get the business off the ground.
Venture Studio Success Rate
Startups founded through a venture studio achieve successful exits in almost half the time of startups founded through other processes. The industry average for a typical investment exit is over six years, while startups created in studios usually exit after between three and four years. For investors and founders, this means more profitability in a shorter time frame.
According to Enhance Ventures, there are over 500 venture studios in operation around the world, a 625% growth since 2013. Of that number, 26% have more than one location to meet founders where they are.
NEXT Studios: A Venture Studio by Entrepreneurs, For Entrepreneurs
The exact success and failure rates of venture studios aren’t easy to calculate. But what drives a venture studio to success is taking high-quality ideas and talent and plugging them into the local ecosystem that will help them thrive. That’s just what we’re up to at NEXT Studios in Indianapolis. Our repeatable process helps visionary founders shape and craft their ideas in a way that will attract future investment and talent. We view the work we do with founders as a collaboration to bring the best ideas to market. If you need support building your business from step one, we’re here to help you figure out what’s next. Contact us today to learn more about participating in our venture studio.