When getting to step four, many startup entrepreneurs think that the only option for funding is to get investment from a venture capital firm.
However, a few other options are available to founders and entrepreneurs, including joining an incubator or accelerator, or working with a venture studio.
In this article, we take an in-depth look at the last option, working with a venture studio.
This is a lesser-known option but a great one for many entrepreneurs, as it can often help with all the steps in the startup journey.
We will be covering the following topics.
🔺 What is a venture studio?
🔺 Alternatives to venture studios.
🔺 Reasons for working with a venture studio.
🔺 When is working with a venture studio right for you?
Read on to find out everything you need to know about venture studios and whether they are a good fit for you.
What Is a Venture Studio?
A venture studio is in the business of building startup businesses.
It can sometimes be called a startup studio, startup factory, startup foundry, or parallel entrepreneurship - but no matter the name, the business model looks the same.
The Venture Studio Business Model
According to Wired, this is the definition of the venture studio business model.
“You start a business, your business experiments with lots of ideas, many ideas fail, but some succeed, you turn these ideas into new businesses, and the formula repeats on its own.”
So, instead of the traditional startup approach of starting with a single idea and building it into a successful business, a venture studio will work on building multiple ideas into new companies at once - with the view that some of them will be successful.
The Difference between the Venture Studio and the Venture Capital Approach
Both venture studios and venture capitalists (VCs) reduce their investment risk by investing in a portfolio of multiple startups at once, with the view that even though some might fail, some will be successful.
However, a critical difference between the two is that venture studios function more as a co-founder to their portfolio companies than just an investor. So a successful venture studio will take a more vertically integrated approach to startup investment.
This means that apart from providing investment, they will also provide an initial team, strategic direction, and other resources to the startups they work on building up.
They employ experienced people with diverse skill sets who can take care of all relevant aspects of building a business, including day-to-day operations, product development, management, marketing, design, and sales.
Venture studios will often generate many of their startup ideas internally, test them for market fit, and then partner with a founder or entrepreneur to build the business.
But most venture studios will partner with very early-stage startups if they believe the business has a good chance of success. In contrast, venture capital firms will typically only invest in later-stage startups that they believe have high growth potential.
Types of Venture Studios
Independent Venture Studios
An independent venture studio, or startup studio, is a standalone studio that generates its ideas internally or partners with very early-stage startups.
It can have outside investors but will make the final decision on which startups to invest in, itself.
It will also provide the resources needed to build and launch the startup, including investment capital and a team of experienced entrepreneurs.
One of the most successful venture studios of this type, and the most famous, is Idealab which Bill Grossman founded in 1996.
According to their website, Idealab has “created over 150 companies with more than 45 IPOs and acquisitions”.
Within the independent venture studio model there are two further subtypes, namely niche studios and industry-agnostic studios.
A niche studio focuses on building startups within a specific industry in which their studio has a lot of knowledge and expertise, whereas industry-agnostic studios will build startups within any industry.
High Alpha is an excellent example of a successful venture focused on a niche - building B2B SaaS companies. Rocket Internet, on the other hand, is one of the most well-known agnostic venture studios.
Tech Transfer Venture Studios
Tech transfer studios work with government agencies, companies, and research institutes to source ideas to turn into new companies.
Tech transfer studios will then transfer the intellectual property from the entity that did the initial research and build the new companies within their venture studio.
This is why it can be advantageous to work with a venture studio, as they work with startups to do the necessary research and testing to ensure a product-market fit exists before they start investing in building the business.
Also, most venture studios are run by experienced founders who have been successful in business creation before, and they typically create, work with, and launch several startups per year.
They execute repeatable and scalable frameworks to test, validate, build, and grow new startup businesses.
And this is why venture studio startups have less risk and a much higher success rate than self-funded startups, or startups that come out of accelerators or venture capital firms.
Entering a Co-founding Relationship
One of the downsides of venture capital firms is that they only invest capital in startups, so their only loss - should a startup fail - is financial, and those losses are built into their financial models.
Venture studios do not only provide financial investment to a startup; they are co-founders in the startups they work with, sharing all risks and upsides in the business.
This means that even though they work on multiple startups at once, they are equally invested in the success of each one. They invest time and resources in a startup by providing a team to work on building the business and taking care of day-to-day operations.
Access to Expertise
Venture studios offer experienced teams with diverse skill sets that can support all aspects of building and scaling a startup.
They can help with research, testing, product development, design, marketing, management, sales, and everything else a business needs.
This is an incredible advantage over working with the limited teams that most startups typically have access to during their early stages.
Access to Problem-Solving Experience
This is closely related to the previous point of having access to expertise. Having worked on multiple startups, the team at a venture studio will likely have worked through most of the challenges your business will face.
So, when working with a venture studio, you have access to ready-made and tested solutions to any and all problems you might encounter during your startup journey.
When Is Working with a Venture Studio Right for You?
To know whether or not working with a venture studio would be a good fit for you as an entrepreneur, it is helpful to first understand when you shouldn’t work with a venture studio.
If the following applies to you, you shouldn’t work with a venture studio.
🔸 Your startup already has an MVP and is at a growth stage.
🔸 You are unwilling to give up a relatively high share of equity ownership in your business.
🔸 You don’t want to enter into a long-term co-founder relationship.
However, if you are an entrepreneur without an idea for a business, but you are interested in becoming a founder of a startup, then a venture studio is the perfect fit.
Most venture studios will partner with entrepreneurs to build out businesses based on the venture studio’s internally generated ideas.
Or, if you are an early-stage startup with a great idea but you are in need of a partner to help you build out, then working with a venture studio is one of the best options available.
Working with MOHARA
MOHARA is a startup studio and digital product development agency founded in 2015.
Our innovative sweat equity model makes MOHARA unique as a startup studio. We take an equity stake in exchange for providing our skills and expertise, meaning that we are invested in our partners' success.
We provide our expertise at cost, meaning you access some of the world’s best startup creators for a fraction of the price you’d pay anywhere else.
And, we only make a return if your startup works.
We have over ten years of experience developing software solutions, and a team of more than 75 product managers and engineers who have built thousands of products.
We can function as your tech co-founder and handle all responsibility for developing a winning product, from ideation to execution.
We have collectively functioned as tech co-founders for over 20 startup ventures.
So, if you’re an early-stage startup with a great idea, we can provide you with the perfect place to build products that translate into results.
Whether you are a pioneering founder with a great startup idea or an early-stage startup, get in touch with us to become a partner.