Hackernoon logoWhat Makes A Venture Studio So Successful at Building Startups? by@joegardner

What Makes A Venture Studio So Successful at Building Startups?

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@joegardnerJoe Gardner

Investor, entrepreneur, and founder of four tech companies: Modasphere, Surebilling, VentureDevs, and VentureLabs.

As an increasing number of venture studios break into the entrepreneurial scene, it’s time to analyze what makes this model so competitive. 

The venture studio isn’t a new idea, so what explains its sudden popularity? According to GSSN, there’s been more than 625% growth in the number of active venture studios working across the entrepreneurial ecosystem over the last seven years. For comparison, that means that studios are growing faster than funds, accelerators, and incubators. 

Simply put, venture studios have become such a formidable presence in the venture market because they’re so successful. Take Idealab, for instance — the very first venture studio founded back in 1996. Of the 100+ companies that Idealab has created, 70% have been successful, 35% of those have exited, and 5% of them became unicorns. Those are startlingly competitive metrics compared with the traditional venture capital funnel

As the stakes get higher for entrepreneurs and investors competing with platform giants and their internal innovation arms, the venture studio’s track record offers a reliable and repeatable way to build competitive startups. To really understand what’s drawing the attention of VC veterans, let’s discuss what makes the studio model so successful. 

Early Intervention and Market Validation

To get a new business off the ground, founders have to build resilient teams, secure ample funding, and get their core business functions up and running. If startup teams fail to hit these milestones at just the right time, they’re liable to fail — as 90% of all startups do. But that’s actually not the main reason why most startups crash and burn. 

In fact, most startups fail because there’s no market need for what they’re trying to sell. It may sound surprising, but a lot of founding teams don’t take the time to ensure that people actually want their product. This means that they invest their money — and their investors’ money — on a product and a business that hasn’t been adequately validated.

This is where venture studios excel. Because studios ideate their own startups, validate their own products, and invest their own resources, they make sure there’s sufficient market need before they do anything else. By getting involved earlier than funds and accelerators, studios can invest time and capital on startups that are more likely to succeed while meeting proven market demand. 

Streamlined Startup Services and Repeatable Processes

Once venture studios validate a startup concept and move forward with it, they can leverage established in-house services to get that startup ready for launch. These include legal services, HR tools, software development, executive leadership, and more. Because all of these resources are at the ready, studio-based startups can move faster than their competitors and beat them to new market niches. 

And, since studios put a premium on repeatable processes, their startups are more likely to get these things right. While independent startups put the plane together while flying it — and risk making critical mistakes along the way — studio-based startups rely on proven infrastructure that’s built successful startups again and again.

Taken together, these pre-existing, repeatable processes help studio startups move more quickly and more confidently. Research shows that the studio model helps startups get to seed round in an average of 10.7 months and to series A in an average of 14.5 months. In short, these startups are getting to a seed round 25.3 months faster than traditional startups. 

Experienced Founders and Established VC Networks

Finally, studios benefit from experienced leadership. Creating and funding a studio requires considerable experience, with principals usually having built, grown, and launched several startups already. This means that studio leadership will have the skillset needed to validate startup ideas, prioritize the most promising opportunities, and assemble the right teams. 

When studios attach executive leadership to internal startups, they’ll also be tapping into their own VC networks. While this kind of network is essential when it comes to funding, it’s also critical for sourcing talent as startups prepare to launch. Studios can draw on contacts from across the venture ecosystem to connect experienced founders with internally validated concepts, ensuring that their startups are in safe hands.

Venture studios aren’t without their own challenges, but they’re a welcome addition to the startup market nonetheless. By emphasizing market validation, iterative development, and founder experience, they solve for consistent obstacles throughout the traditional venture capital funnel — all while offering higher returns on smaller and safer VC investments.

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