Two years ago VentureBeat.com showcased a rising movement of venture studios (aka tech studios or venture production studios). Now more than ever we see a number of variations of venture-building taking shape. As a venture studio (VS), Tangelo has observed some highs and lows in the industry. Here we provide a brief analysis and a general introduction into the alternative forms of investment happening in the venture-building landscape, along with an overview of the various types of venture studios that exist in the market.
Unlike incubators and accelerators that run competitive programs and founder-bootcamps, venture builders work alongside existing products or business ideas from founders, iterate those ideas, and assign internal teams to develop them (e.g., engineers, advisors, business developers, etc.). Venture studios often see an idea through from conception to a successful company.
They've nailed down the practice of efficiently using shared resources, such as teams, partnerships, and capital, to launch products or solutions that then operate as fully autonomous companies.
Additionally, venture studios commonly develop multiple projects in parallel and then select the most promising ones to continue with. Once focusing on the most promising model, the studio then applies similar internal solutions to more than one company they are building. As such, partner companies often develop a connection not only with the studio, but among each other as well.
From day one, venture studios have hit the ground running and have since developed many systems, models, projects, and processes. However, to execute on successful partnerships, their role is extremely operational and hands-on. Tasks tied to the studio may involve pre- and post launch phases, and their responsibilities can range from raising capital, staffing resources, conducting market research, building and iterating products/services, branding, customer development, beta testing, and running effective marketing and sales campaigns.
The 3 Types of Venture Studio You Should Know
Let's delve further into the Venture Studio world, where there are multiple options available. Having roots in venture capital firms, venture studios are decisively different. They’re much more involved in the day-to-day operations of the company partner than venture capital firms. They maintain deeper partnerships with companies, whereby they become aggressively hands on in management, development, deployment, scale and market.
However, there are a range of variations between the venture studios out there in the market. Each venture studio aligns to a defined model.
Some may ask for more equity than others, while others may have prerequisites of co-founder titles on certain ventures. Further, some studios only work exclusively on seed-stage investments, while others might have a sweet spot around those with a higher revenue traction rate.
There is obviously a number of venture studio variations in the market, along with different forms of partnership. In general, there are three categories of venture studios to keep in mind when looking for a substantial partnership. Below are three models to which venture studios generally align:
1. In-House / Corporation Venture Studios
Partnership Model: Primarily larger corporations (e.g., Fortune 500, etc.)
Goal: For the partnering corporation, the goal of building an internal start-up to innovate new ideas essentially offers ease of mobility and agility to develop new solutions and stay competitive with the smaller ventures that could potentially disrupt the market. Overall, the idea is to disrupt internally before being disruptive externally.
- Sufficient Funding and Core Resources: Corporations are able to provide core resources that range from financial management to legal counsel.
- More Entrepreneur, Less Admin: For venture studios this mean primarily providing strategic value and an in-house entrepreneur and technical experts to oversee and/or implement the end-to-end processes. The majority of the core resources are available in-house.
- Exit Opportunities: An immediate exit if the venture becomes successful.
- Office Cultural Biases: In-house or corporation venture studios are often subject to internal cultural biases within the company.
- Conflicting Perspective: Identifying the solution and coming to an agreement of the parameters could be both potentially conflicting and rewarding. As the ‘neutral’ third-party attempting to disrupt the company internally, it may be difficult to identify the impact if the company is and is not a dominant market player.
- Risk, Compliance and Legal Regulations: Corporate venture studios must negotiate for a valid space to implement their operations, especially if it goes against the traditional methods of how the corporation runs its business. The venture that is being housed directly under the corporation may also be subject to certain regulatory standards of the corporation. Thereby, setting a degree of restrictions in what is / isn't possible to implement and test.
2. Production / Factory Venture Studios
Partnership Model: Primarily work with small ventures (e.g., startups to SMB companies) that have revenue traction and offer to exclusively provide operational services to further develop and grow the product or service.
Goal: Depending on the type of venture and what stage the company is in, these venture studios may ask for equity share and / or a fixed duration of revenue share. As they are offering up direct talent and services, either on their own or as a venture arm of an existing larger corporation, there may be certain prerequisites that they actively look for in partners.
- Speed, Scalability, and Efficiency: In these production houses, they commonly allocate their effort by scalable methods to ramp up the growth of the company. This in turn not only accelerates the growth and valuation of the company, but also allows opportunities to test different ideas and pivot quickly for new solutions.
- Specialized Capabilities: As these venture studios are often working on multiple ventures at the same time, in order to increase the efficiency, the resource and talent in which they draw upon are specialized and segmented. With clear structure and processes, timely deliveries along with quality of output should be a status quo.
- Get Things Done Mentality: If you know what your venture needs and what specific areas of development needs extra capital, production venture studios are a great option, as they have an optimized, get-things-done mentality. They are ready to drive your idea through to the finish line.
- Cookie Cutter Template: In exchange for speed, efficiency and scalability, some venture studios take on the practice of templating frameworks and products to leverage in other projects. A potential downside to this approach is cookie-cutter templating that could offset creativity.
- Status Quo Thinking: With most processes and production of deliverables standardized, the limited time and bandwidth of available resources distributed across multiple project can result in the possibility of standard outputs and solutions. Essentially, there can be a lack of ‘out-of-the-box’ thinking that entrepreneurship is often equated too.
- Strict Criteria: Production Venture Studios maintain strict criteria in what types of ventures they like to partner with. For example, they may focus on products / services aligned to a specific agency or a certain cause. With the mobility of being a production house, in certain cases, rather than taking equity, they may also perform ‘venture-building’ as a service fee. Production Venture Studios typically partner with startups or companies with revenue traction.
3. Full-Stack Venture Studios
Partnership Model: Primarily with Startups and adhere to a parallel entrepreneurship partnership
Goal: This is perhaps the most ideal and difficult form of a venture-building partnership. Both the entrepreneur and the venture studio are coming together as equity stakeholder and driving the idea, product/service, and/or company forward. Without necessarily providing direct cash capital, the venture studio is able to accelerate the growth and value of a venture without the need for seed-stage funding. The venture studio is also able to directly exit or IPO. Realistically, adjacent partnerships may be needed to provide additional funds to supplement the areas in which the company needs additional resources. This is commonly achieved through an angel.
- Skin-in-the-Game Mentality: With limited resources and bandwidth, full-stack venture studios come into a partnership with a skin-in-the-game mentality. Immediately knowing the potential outputs and having equitable ownership, the studio and its resources are placing the same value of investment into a venture
- Direct Exit / IPO: Depending on the capabilities, bandwidth, and available resources, the most optimal outcome for a full-stake venture studio is not necessarily ever having to go seek additional funding. Instead, there is a high potential of an exit or an IPO. More realistically, full-stack venture studios are able to grow a company with a valuation in which additional funding remains relatively small as a means to avoid ownership dilution.
- Creative Output: Unlike production venture studios where some of the outputs are templated, full-stack venture studios are able to put additional time and effort to produce more creative and out-of-the-box outputs.
- "Full-Stack": Every full-stack venture studio has their own definition of what types of resources are considered core and fundamental to growing a venture. This, in many ways, either opens a breadth of opportunities to work with various stages of companies, and similarly, also closes the scope of opportunities.
- Narrow in Scope: Limited by resources, full-stack venture studios have a narrow scope in which they evaluate their ventures and potential endeavours. They have specific metrics and criterias in who they decide who to partner with and what the process to market might look like.
- Inherited Company Culture: This also contributes to the fact that the culture of the venture studio will also ultimately transfer into the foundation of the venture itself. In many ways, the visions of how a venture studio is implemented and design, will also directly impact how a venture is created out of it.