Types of Startup and Venture Studios
Before exploring the various studio models, let’s remember that venture studios are much more involved in the day-to-day operations of the company they partner with rather than venture capital firms. They maintain deeper partnerships with their companies and become aggressively hands on in management, development, deployment, scale and market.
There is quite a range of variations between the venture studios and each venture studio aligns to a defined model. Some may ask for more equity than others, while others may have prerequisites of co-founder status on certain ventures. Additionally, some studios only work exclusively on seed-stage investments, while others concentrate upon those with a higher revenue traction rate.
Corporate Venture Studios
The first we will review is the In-House or frequently referred to as a Corporate Venture Studio.
All large companies struggle with innovation and many great concepts, conceived by their employees, never see the light of day. Large companies are not necessarily associated with entrepreneurship yet many understand they must foster this atmosphere if they are to continue to innovate. For the company, the goal of building an internal start-up to innovate new ideas essentially offers 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. Put another way, we must develop new products and enter new markets before our competition does it for us.
Strengths of Corporate Venture Studios
They provide sufficient funding and critical support that includes engineering resources, market analysis, financial management, HR compliance and legal counsel.
These in-house studios tend to be more entrepreneur and less smothering and bureaucratic than the typical corporate environment.
If the venture proves to be successful, there is an immediate exit which could be the company itself or a strategic partner.
Limitations of Corporate Venture Studios
Office cultural biases. Many times, these company venture studios are often subject to existing internal cultural prejudices within the company. This is when the interpretation and subsequent judgment of an idea is viewed through a myopic lens. “Good idea but that is not something we want to become involved with” Also, think information flow and control as well as consensus building that startups do not necessarily embrace or worse, bristle at.
Conflicting perspectives. Identifying and selecting an initiative and coming to an agreement of the path forward could be both potentially conflicting and rewarding. As the entrepreneur’s motivation is to disrupt the company internally, it may be difficult to identify the impact if the company is, or 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. For an entrepreneur, this can become most frustrating.
Production / Factory Venture Studios
These types of studios, sometimes referred to as venture builders, start-up foundries, start-up factories, start-up studios, full stack studios or a confusing collection of similar words, primarily work with small ventures such as startups to small and medium size businesses that already have revenue traction. They offer to exclusively provide operational services to further develop and grow the product or service.
It is important to note that, unlike incubators and accelerators, venture builders don’t take any applications, nor do they run any sort of competitive program that culminates in a Demo Day. Instead, they pull business ideas from within their own network of resources and assign internal teams to develop them (engineers, advisors, business developers, sales managers, etc.).
This model creates start-ups, from the start, onwards and upwards. Venture builders are not to be misinterpreted as accelerators or incubators in the traditional or operational sense of venture capital firms. Instead, their focus is simply the process of consistent start-up creation, built using standardized approach and an inventive, yet highly effective infrastructure.
Depending on the type of venture and what stage the company is in, these venture studios may ask for equity share and /or fixed percentage of resulting revenue for a fixed period of. Not unlike a licensing fee. Since they are providing 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.
Strengths of Production / Factory Venture Studios
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 markets or solutions.
Specialized capabilities: These venture studios are often working on multiple ventures at the same time. To increase their efficiency, the resource and talent in which they draw upon are specialized and segmented which typically results in very promising early stage startups.
These are 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 can accelerate the growth and value of a venture without the need for seed-stage funding by providing their own resources. The venture studio is also able to directly exit or IPO.
They have a “skin-in-the-game mentality”: With limited resources and bandwidth, full-stack venture studios come into this type of partnership. Immediately knowing the potential outputs and having equitable ownership, the studio and its resources are placing the same value of investment into a startup venture.
Get things done mentality: If you believe you know what your venture needs and what specific areas of development needs extra human capital such as user or beta testing, production venture studios are a great option, as they have an enhanced, get-things-done mentality. They drive the startup’s idea through to the finish line.
Limitations of Corporate Venture Studios
Strict selection 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 group of companies or a certain cause. As a production house, in certain cases, rather than taking equity, they may also offer their services for a fee. Production venture studios typically work with startups or companies that have already achieved revenue traction.
Cookie cutter approach: In exchange for speed, efficiency and scalability, some venture studios take on the practice of templating their approach for all projects. This cookie cutter approach can often minimize founder creativity.
ith this “one size fits all” approach, the limited time and bandwidth of available resources applied to multiple projects can result in the possibility of sub optimal results for the startups. Essentially, there can be a lack of ‘out-of-the-box’ thinking that entrepreneurship is often equated too.
They tend to be limited in scope and by resources. These limitations cause these studios to have a narrow scope in which they evaluate their ventures and potential endeavors. They have specific metrics and criteria in who they decide 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 designed will also directly impact the venture they are working with.