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Before we begin, let’s clarify some terminology. The report we’ve sourced interchangeably uses the terms ‘startup studio’ and ‘venture studio’ to refer to the following definition:
An organization that routinely creates startups, typically from the ground up. It generates and tests ideas, invests money, allocates resources and the studio team among various projects, and attracts co-founder entrepreneurs to create startups. The studio usually retains a 20-40% stake in each company, sometimes more, rarely less.
Although they share many similarities (e.g. creating and building their own companies in parallel) some will distinguish the two based on funding sources. While venture studios raise external funds to invest and support startups, startup studios do not raise a fund and typically rely on founders’ or partners' own capital to get started.
Incubators, on the other hand, engage startups at earlier stages and assist with refining the idea, building a team, and launching. Accelerators take on startups with a prototype or MVP and sometimes the first revenue – they boost them within 3-6 months and help attract investments. Finally, the model we know the best, the venture fund invests in startups that have already exhibited traction and hold the potential for high growth.
1. Holding company
This structure is simple: a studio that creates and funds startups, taking a stake in them. Initially, the studio attracts investments by offering a stake to LPs in the holding company.
2. Fund as a startup studio
There is the opportunity to receive a management fee and earn a carry – a portion of the investment profits after returning the initial amount to investors. All funds, including the founders' money and capital acquired from investors, are contained within the fund. All shares of the companies also belong directly to the fund.
3. Dual-entity model: holding company + fund
The holding and dual-entity models are the most common for forming startup studios. It might be easier to start with a holding company and, after proving the studio-market fit, shift to the dual-entity model.
Did you know? Startups created in venture studios achieve seed funding twice as fast and exit 33% faster than conventional startups.
Startup studios may feel like foreign territory for some investors but there are definitely advantages that might convince you to write a check. For one, startup studios develop speed as they essentially build an assembly line for companies. They create frameworks for generating and validating ideas, creating an MVP, and launching the product to the markets. Not to mention having the initial pre-seed and seed funding also accelerates traction.
Second, based on 182 studio startup acquisitions and 22 IPOs, research indicated that it takes 5 years for studio startups to be acquired, 33% faster than non-studio startups, and 7.5 years to IPO, 31% less time. Third, startups can share data and learnings which facilitates faster development of each other. As a startup studio acts as a hands-on co-founder, such data exchange is more manageable than among VC fund portfolio startups.
Fourth, startups have access to agency-level support without using a significant amount of their funds on specialists. Fifth, there’s a much higher investment efficiency – higher IRR due to cheaper equity at the start, less dilution at exits, and more frequent exits. Sixth, there’s less risk as startup studios will test hundreds of ideas and discard the ones that don’t work before committing to the most promising ones.
At Nobody Studios, we are startup artisans and serial entrepreneurs who curate the best ideas, expedite company creation, and craft successful ventures in succession.
Atomic is the venture studio that pioneered the model of starting companies by pairing founders with the best ideas, teams, and resources.
High Alpha Studio partners with exceptional leaders to transform opportunities into breakout companies. We lock arms with co-founders for the long haul, providing; expertise, empathy, capital, and resources.
Betaworks invests, accelerates, and builds companies and projects from scratch — our focus right now is on AI and Augmentation, LLM's, NLP, web3 rails and applied machine learning.
Colab, is an innovative Venture Studio based in Los Angeles that partners with a select portfolio of strategic companies to design, launch, and grow early-stage businesses.
Founders Factory’s Venture Studio co-founds businesses from inception, developing new ideas, technologies and business models into high growth companies.
Interested in learning more about startups and venture studios? Check out these additional readings!