Three types of organizations have emerged: incubators, accelerators, and venture studios to help teams find product/market fit and raise initial capital, thereby reducing the risk of early-stage startup failure. . Venture Studios is an “idea factory” where its employees are looking for product/market fit and repeatable, scalable business models. They do the most to de-risk early stage startups.
Outside a small college in the Midwest, I was having coffee with Carlos, the rising star of a mid-sized manufacturing company. He has a track record of taking small teams and growing them into successful product lines. However, after his ten years working for other companies, Carlos became interested in creating and growing his own company. I asked him how much he knew about how to get started. 3) Start testing a minimum viable product, 4) raise seed funding, 5). Then he gets venture capital.
When describing his work in additive manufacturing and 3D printing, Carlos said he knew there were seed investors in his town, but venture capital was still primarily coastal and their attention was limited. said it was difficult to pull He also wasn’t sure if his idea was a great one. But he still had a desire to grow a small one into a substantial company.
While eating dessert, Carlos asked, “Is there any other way to start a company other than raising money?”
pointed out something.
Reduce start-up risk
In the last 20 years, three types of organizations have emerged: incubators, accelerators, and venture studios to reduce the risk of early-stage startup failure by helping teams find product/market fit and raise initial capital. is reduced. Most are founded and run by experienced entrepreneurs who have founded companies before and understand the difference between theory and practice.
I pointed out to Carlos accelerator favorite Y Combinator, techstarsWhen 500 startups We offer cohorts of startups a 6-12 week bootcamp. However, these are looking for founders who have technical or business model insights and teams. Connect to. The culmination of this bootcamp is a few minute “demo day” where all startups in the cohort pitch themselves to venture capitalists and angel investors. (Sometimes the accelerator itself provides the initial funding.) The startup gives up her 5% to his 10% of the company’s stock in exchange for joining the accelerator.
There are thousands of accelerators around the world. The business model for most of these accelerators is to select startups that can generate venture-class revenue. That means it can potentially grow into a multi-billion dollar company. For most accelerators, admission is through an application and an interview.like some Y Combinator, techstarsWhen 500 startups Open to any type of startup in any market, but others like it SOSV, indie bio, Hux, trajectory, dLab more professional.
incubator They are similar to accelerators in that they provide space and shared resources to startups, but usually have no or very little capital. Their financial model is based on membership fees that grant access to shared coworking spaces, resources, and access to other founders and operational professionals.
Carlos stirred the coffee. “Accelerator just doesn’t seem right where I am in my career,” he said. “I don’t have a great idea or a tech team, but I know how to build, grow, and manage one.”
Alternative: Venture Studio
I pointed out that there is an organization better suited for his skills and his passion for independence — Venture Studios. Unlike accelerators, venture studios do not fund existing startups.
Venture studios create startups by incubating their own ideas or ideas from partners. The studio’s internal team builds a minimal viable product and validates ideas by finding product/market fit and early customers. If they pass a series of go-or-no-go decisions, studios hire entrepreneurial founders to run and scale those startups. Examples of companies born from venture studios include: overtureTwilio, little by little, air calla, and the most famous alum, Moderna,
I suggested to Carlos that he think of Venture Studio as an “idea factory” with full-time employees engaged in exploring product/market fit and repeatable and scalable business models.
How the Venture Studio Works
Unlike accelerators and incubators, venture studios do not fund existing startups. A company that launches multiple startups in-house, finds entrepreneurs, takes over and nurtures them.
Most venture studios create and launch multiple startups each year.They are higher success rate than those that come out of accelerators and traditional ventures. This is because the studio has no set timeframe, unlike accelerators, which operate on a 6-12 week cadence. Instead, search and pivot until you find product market fit.Unlike accelerators and VC farms, venture studios kill most of their ideas If you can’t find traction and evidence that you can be a scalable and profitable company, you won’t launch a startup.
Comparing Startup Funding Options
Venture Studios are suitable for entrepreneurs who don’t have an idea or team, but want to run and grow their startup. Venture Studios employees have already identified products, market fit and early customers. That means someone else has eliminated much of the early risk of a new venture. In exchange for lower risk, venture studios typically get a larger percentage stake.
There are four main types of venture studios.
- technology transfer studiolike that American Frontier Fund, collaborates with companies and government laboratories to source ideas and intellectual property. We then transfer the IP and build the startup within the Venture Studio.
- corporate studiolike that Applied Materials, source ideas and intellectual property in-house. Then another corporate within the company builds a startup within his venture studio.
- Ah niche studio is a standalone venture studio that produces unique ideas and IP in specific industries and domains. for example, flagship development focused on healthcare and cultivated LS18— The company that became Moderna.
- Ann industry-agnostic studiolike that rocket internetis a standalone venture studio that produces unique ideas and IP and is industry and market agnostic.
today About 720+ venture studios In the world – half of europeIn both North America and Europe, many venture studios in non-major cities receive funding from government agencies to stimulate local growth, sometimes with matching donations from companies. These studios have different metrics than startup studios whose limited partners are private family offices or venture capitalists.
Why Entrepreneurs Join Venture Studios
During my second cup of coffee, I told Carlos about the downsides of joining a company created by Venture Studios.
In contrast to such accelerators 5%-10% of startup equityVenture Studio from anywhere 30% to 80% of startup stocks. This is because companies exiting the venture studio are handed a startup that removes many of the risks of the early stage startup process. (There is a direct correlation between the amount of equity a venture studio gets and the founder’s beliefs about how much he wants his CEO to be an enforcer rather than an entrepreneur. )
Why would an entrepreneur join a venture studio and abandon most of their company instead of going to an accelerator? Most accelerators tend to look for the “founder type.” So the stereotypical tech guy who just got out of college and already has an idea and a co-founder.
Most people don’t fit that pattern. But many companies are well equipped to take a stress-tested and validated idea and build it.
What should I look for in Venture Studios?
Carlos asked when we got up.
That was a great question. There are no hard and fast rules, but I advise an entrepreneur to ask his four questions:
- Is the studio run by a former founder and do you have the former founder as a full-time employee? The most successful venture studios are founded by entrepreneurs who previously founded companies with revenues of $10 million or more and over 100 employees.
- What percentage of stock are they asking for? The answer is directly proportional to what they think you are worth. Companies seeking 60% or more are actually hiring employees, not founders.
- Need a studio with specific expertise? A studio focused on a specific niche or industry can build a deep bench of domain experts (founders, advisors, mentors, etc.) who are experts in this one area.
- do they have enough money? Beware Zombie Studios. If you’ve transferred most of your company to a studio, make sure you’re available for support after launch. If they don’t have enough money to keep the lights on for a few years, you’re on your own.Make sure the studio has funded him over $10 million.
A few weeks later, I received a note from Carlos. I learned that he has a venture his studio in his city, another state-run, and a third in his area that specializes in manufacturing. He applied to all of them.
Filed Under: Harvard Business Review, Venture Capital |