Why is Everybody Talking About Venture Studios?
Teem Ventures was set up to help get great companies and products created efficiently. Along the way we have seen more companies like ours in the market, and many have done incredibly well creating companies efficiently, using a variety of models.
First, what is a venture studio model?
Sometimes known as a startup studio model, the venture studio is a company that builds various companies in rapid succession, or a few companies simultaneously. Often these studios will invest in the venture also either with reduced fees, and/or with capital. They build each business from the ground up and provide assistance to the startup founders in the form of capital, expertise, manpower, and connections – all in return for an equity stake in the future business.
But are venture studio models effective?
It sure seems that way based on the data! A study of 24 leading venture studios found that of the 415 companies they created, only 9% failed and the rest are all still active with average yearly revenues of more than $1 million. If a traditional startup is even lucky to make it to a seed round, only 42% progress to Series A. Therefore, venture studios greatly increase the chances of success.
Why are venture studio models so effective?
The core value prop of venture studios is that they accelerate the building process and increase the likelihood of success by building a team of experts to support the entrepreneur. This is in part due to their rolodex of seasoned venture builders who range in expertise from software development to HR infrastructure to legal counsel and more.
While the founders focus on key areas like validating the model and bringing their knowledge to the product, the venture studio and its partners guide the day to day operations of the new venture. Often this can include areas like making sure the founding team is well aligned, and the company is set up correctly. Thus, unlike startup accelerators and incubators, who mainly provide mentorship, venture studios can act as both a builder and a co-founder.
This model has proven quite successful as startups co-founded by venture studios both scale faster and provide better returns to investors. On average, these startups have a 53% internal rate of return (IRR) while non-studio startups sit at a mere 21%.
Venture studios are renowned for providing a wealth of capital, both monetary and human, to the startup. Venture developers, in-residence entrepreneurs, C-level personnel, and in-house support staff all work with the startup to see to its success. The average studio injects an initial amount of $232,458 into each startup and in return for this support, they generally take a 34% equity stake, with the highest equity percentages at 80%, and the lowest equity percentages hovering at 15%. These numbers are all dependent on the type of support the studio provides and the experience level of the incoming co-founder, or CEO.
The type of partnership that makes sense may be a combination of discounted services, relationships, and/or capital, but the key is to pick a partner that feels natural and gets you to early milestones quickly and efficiently.
ABOUT TEEM VENTURES
You need strong leaders to advise on the initial conception using research, strategy, and concept testing. Studios like Teem, have the unbiased decisiveness and proven expertise to make efficient use of capital and ensure your product launch will transform into a thriving, scalable business. Don’t risk the high opportunity cost of overbuilding- or even failure. Schedule an evaluation session with us today!