Shared Venture Builders: A Factory-model for Breeding Unicorns

Shared Venture Builders: A transformational operating model for Incubators & Accelerators

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A few years ago, when my work involved setting-up and scaling shared-services for multinationals, I used to advocate the need for creating a?growth-template?— a kind of standard-operating-model, which can be used for quickly implementing-replicating the standard process, and systems into any new geography or product-line, the organization is expanding into. This is similar to how a global-master-template is first built, tested, and then rolled out in each of the countries in global SAP implementations. In the absence of a ‘growth-template’, expanding into new businesses/geographies can be like reinventing the wheel each time; a time-consuming and prohibitively expensive exercise. In the absence of a ‘growth template’, the business case for expanding into any new product-line, or geography would reflect an infinitely longer duration to reach breakeven volumes and peak efficiency, hence a much lower IRR.

While the scope of this ‘growth template’ was originally limited to support services like HR, accounting, and marketing, over time I experimented with delivering bits and pieces of core operations from the SSO. In my experience, delivering the core operations from the SSO is entirely possible… and in time, the SSO can actually become a?centralized lean-engine?driving the economies-of-scale and continuous improvement. The growth-template can?help?spread and percolate-down?the accumulated best practices?from across the organization?to each and every?new adjacency?the business aspires to grow into.

My operating principles have always been simple:

• The core purpose of SSO is to ‘reduce’ overheads and cycle-times; reduce the cost and time required to reach break-even volumes, optimal efficiency and flawless quality through ‘the economies of scale & the accumulated best practices’ encapsulated into the ‘growth template’.
• Build Centers of Excellence: one for the ‘Core Operations’ & Others for different Support Services like HR, F&A, Marketing etc.…
• SSO to deliver the Services to individual businesses & charge business entities only for the services delivered, for the period delivered.
• Individual Businesses being sufficiently lean-nimble, operate on a low direct cost & even lower overheads, hence with substantial operating margins.
• A ‘templatized business model’ that can be taken to ‘adjacencies’ or ‘new geographies’ for the quickest possible run to ‘break-even’ — that otherwise would have been prohibitively expensive.

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Over the last decade, I mentored a few Startups operating out of an incubator; been on a jury judging early-stage Startups for couple of years, and invested in one of them. I have personally experienced the very same constraints Startups experience when I was searching for a tech-partner and recruiting developers for a start-up.

I could clearly see that if one finds a way to apply the Shared Services model to Incubators, it will be possible to substantially bring-down the time & investment required to build the MVP (Minimum Viable Product).

More importantly a good quality centralized-development-team (recruited on market salaries) building the MVP can enhance the quality of the MVP and thereby the chances of finding funding early, besides laying down a foundation for long-term success of the Startups.

Around the beginning of 2020, I approached the Vice-chairman of a well-known government-run Incubator and gave a proposal on setting-up a shared services entity within their Incubator — to deliver not just support-services, but also software-development and product-building, complete with pay-as-you-use operating model, SOPs and safeguards for IP protection; in a nutshell, set-up a Shared Venture Builder with in the Government-run incubator for a potential entrepreneur to walk-in with an idea, and walk-out with a funded Start-up. While there was substantial interest in the proposal initially, the onset of COVID had brought everything to a standstill. Given there are no IP rights for ideas, here is my attempt to publish the proposal and claim a copyright to start with.

The Proposal In a nutshell: Shared Venture Builder

1. Set-up a Shared Venture Builder (“SVB”) for offering the “technology services” — like functional design, architecture, and building a minimum viable product. The SVB would be staffed with a set of architects, developers, testing team, marketing specialists, and mentors”
2. The SVB resources will be on rolls of Incubator / Accelerator. SVB to recruit a range of skills depending on kind of Startups they would like to mentor — including but not limited to:?Software Developers, Technology Architects, and Project Managers / Legal, Finance & Accounting Staff & Domain Experts on Contract-Consulting mode.

A Shared Services Factory — For mass-producing Unicorns at 'affordable' cost

Further:

• The start-ups need not bring-in or hire a tech-team when they come to an Incubator. They can simply contract with SSC for building the “MVP”, and choose to pay for the “services” either in “cash, or in equity”
• SSC may build, own, and license — a library of “components of code” that can help bring-down the cost & time to build and MVP.
• Since SSC charges only for the actual time spent on each start-up, the burn-rate for the start-ups would come-down substantially and the MVP gets built in a fraction of the time it normally takes and at a fraction of the cost.

Prerequisites

• Global Standard Operating Procedures: Clearly laid out Shared Services Protocols for SDLC, Protection of Intellectual Property of each Start-up, Designing & Pricing the Services
• Compensation Model (cash & equity) for Developers, Architects, Marketing Professionals, and Mentors, along with exit plans.

Here is what differentiates a Shared Venture Builder…. from plain vanilla-venture builders.

Can a Shared Venture Builder ensure higher success rate?

A first rate Product-development team being paid market-salaries working under best of Architects and Scientists, will ensure a world-class MVP within shortest possible time; since the Startup gets charged only for the time spent by each of the shared resources, the investment required would be a fraction of what it would be otherwise. A good number of Startups share the same customers and cater to the same market-segments, so a centralized shared-marketing-team helps in significant reduction in the time-to-market & cost-to-market.

All that SVB needs to do is to carefully filter the Startups ideas, and prioritize those Startups with world-changing ideas and a potential for Billion $ valuations,?even if,?such Startups ideas come from a founder with little to offer as investment, and has no team other than himself!

Who can set-up a Shared Venture Builder?

Setting-up an SVB as a part of an existing incubator or as a greenfield venture is an excellent method for State Governments to attract potential entrepreneurs as a?short-takeoff startup destination.?

Since SVBs ensure a higher success rate, each of such Startups (Unicorns or otherwise) can potentially create jobs for tens of thousands. An odd Super-Unicorn can create employment for millions.

In reality, Governments have very few alternative methods for creating jobs other than investing into a set of Public-sector enterprises themselves; a model redolent of the Nehruvian India, inspired by Soviet-era Socialism.

Any State Government that funds & builds a shared-venture-builder will be laying down the foundation for millions of jobs and a super-growth economy.

Shared Venture Builder can be an attractive business opportunity, not just for VCs and PE funds, but also for Hedge funds looking for higher-than market returns. The added advantage is, right from the seed investment to complete exit, the SVB could choose to retain complete control over the operations of the Startup.

Business Model & Investment

Like Rocket Internet, or Le Studio, the “shared venture builder” can be an independent Pvt. Ltd. company, or can be a division of the company that owns the incubator. The essentials of the ownership-structure & the business-model below:

Alternative revenue-streams for Shared-Venture Builder:

The primary revenue-streams for SVB would be from the equity shared and investments brought in by the Startup founders, fees collected for different services delivered to Startups enrolled, and from the all-important returns from successful exits. However, the SVB can potentially earn additional operating revenues from a range of other revenue-streams illustrated below, and perhaps even operate with positive cash-flows right from the year-one.

One of the alternative revenue-streams is explained in greater detail below:

Partnering with Global Accelerators & Incubators

A good many of the US/Europe-based Startups struggle with relatively high-cost of developing the MVP on boot-strapped funds… assuming they survive till they receive seed-funding, and then the funds so received need to be stretched till the next round or till the revenues finally pick-up. Many Startups with Indian connections outsource a part of the work to smaller companies or freelancers in India, while a not-so-lucky-others silently suffer and fade away when they finally run out of funds.

Stretching funds longer, or get more out of every $ could potentially help Global Startups survive till they succeed. They however need a reliable offshore partner, who can deliver the world-class quality at a fraction of the cost. The SVB in essence, can become the Offshore partner for the well-funded Startups from US and Europe; the engagement models can be a mix of cash or equity or both.

An open proposal

Building a startup ecosystem has become a survival necessity for Governments to create jobs and build a healthy economy; a Shared Venture Builder can make the difference between incubating Startups, and breeding Unicorns. For those interested in exploring the idea further: my email below.

? Krishna Pera / [email protected]

Also Read:

1. The need for breeding Unicorns
2. A model for breeding Unicorns - Shared Venture Builders - Part 2

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