With the rise of entrepreneurs and startups, there has also been a rise of venture studios (aka venture "production" studios) in the the venture-building in the ecosystem. As an entrepreneur (in the broader sense, an individual with a business idea), what is it like to build a partnership with a venture studio?
Among existing traditional options, such as working with incubators or venture capital firms, what are the benefits and drawbacks in working with venture studios? What does that partnership look like? And what should an entrepreneur look for in a venture partner?
Here at Tangelo, we compiled points you should know to help better guide the next wave of ventures.
The venture-building universe encompasses a number of actors and institutions. We have the following:
So where do entrepreneurs fall within the world of venture builders? Specifically, among venture studios? In the broader sense, entrepreneurs are those who have done their due diligence, identified the gaps and solutions within a market, and simply need the resources to drive their idea into fruition. The partnership often takes the form of providing investment to the entrepreneur in exchange for equity. Venture studios, like many other forms of venture builders, are institutions who are willing to provide services to get products built, shipped, and marketed in a efficient and scalable pattern. For venture studio, this partnership is commonly known as "Sweat Equity" - where the investment is carried through the form of the talent executing the developing systems, business models, projects, and processes. As to what a venture studio does, they are basically a holding company that owns equity in the various corporate entities it helped create.
The opportunity and ability to have a bird's eye view of how something is operating or not operating, and the fluidity to test and solution, is a source of great satisfaction. The ability to sit at all the intersections of all variables that constitute in building a company, and the opportunity to be part of an end-to-end process can be mentally noted and referred to by the entrepreneur during future endeavors. Depending on the venture studio partnered with and term agreements, the potential for other areas such as fund-raising, exits, and IPOs are within the realm of possibilities.
Unlike consultants where services are set by parameters and scope, or traditional venture capital firms predicated on the fact that failure happens in any given situations, the flexibility to renovate and pivot quickly within a venture studio is within the full extent and capacity of both partners. Breakage and renovation as part of the system, and with an a team working in parallel on multiple fronts, the opportunity to test and solution
Although you are a entrepreneur who conceived the idea that is being developed, by commencing a venture partnership, you are no longer unilaterally making executive decisions. Instead, there are collaborative, executive decisions that require the buy-in of the team and the partners you are working alongside.
What happens if there's a clash between you and the venture builder? Historically, this has been a breaking point for a number of venture partnerships, as in the first months of building, it’s common to feel as if you work diligently for the venture builder and not yourself.
As an entrepreneur in this space, it becomes incredibly important to figure out the goals and objectives of the venture builder to which you apply. Past experience has shown us that founders who are able to view the institutions as much larger than themselves, are often times able to find more success and benefit from venture partnerships. The "trade off" is rapid growth and revenue.
Building a startup these day has never been more accessible. There are a range of venture studios with a wide range of specialization. However, understanding what you need and where you are in the current stage of your venture proves crucial. If you are still at the ideation phase of the venture, it's important to ask yourself what work fundamentals are needed. Aside from development, do you have the bread and butter of legal counsel? What of strategic and implementation management?
Not all information gathered is quantitative in nature. Both entrepreneurs and venture studios have to make a direct character assessment of the individuals they might potentially work alongside. Unlike incubators or private equity firms/VCs, venture builders touch all facets of the companies they work with. Consequential, the interpersonal relationships you foster not only set the tone and culture of your own inherent company that you are building, but they are also a form of professional investment and should also serve as a form of equity assessment.
Unlike cash funding where investment allocation is more transparent and comparatively easier to track, venture studios have a range of methods to valuate their services and time investment. Understanding a venture studio's business model and term agreement is critical, especially when it boils down to equity ownership. Having your venture set up in multiple phases, similar to how funding is done in rounds (e.g., seed, Series A, B, C, etc.) within a given parameter, will set scope to the efforts performed by both parties. Other methods include setting Key Performance Indicators (KPIs) and Key Metrics to divvy the ROI.
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