I am in love with venture studios - and if you are a founder, you should be too! (Updated Oct 2019)

Look. Up in the sky.

It’s an accelerator?

No, it’s an incubator?

No, it’s a hackathon?

No, it’s a bootcamp?

No, it’s a venture studio?

What’s a venture studio?

Before we answer that question, let’s define a few things to avoid confusion. Per the above, there is a broad range of labels for businesses that provide startup or new venture collaborative events and services. Hackathons and accelerators, below, are relative points of reference on the venture risk continuum.

A hack-a-thon is an event in which computer programmers and others collaborate intensively over a brief period of time (1-2 days) to deliver a demonstrable prototype.

According to a recent Forbes article, accelerators have the following attributes:

• Fixed-term (6 to 20 weeks)
• Cohort based (a group of individual companies)
• Mentorship-driven (quality of mentors and ecosystem access impact outcome value)
• Culminate in graduation (including pitch deck and a demo)

A venture studio (also called a start-up studio) is not a new concept. But it has been gaining popularity over the last few years. A venture studio invests capital and resources into a small, concentrated number of ideas, fostered by experts and internal resources, to create strong businesses.

Unlike incubators and accelerators that run competitive programs and founder-bootcamps, venture builders work alongside existing products or business ideas from founders, iterate those ideas, and assign internal teams to develop them (e.g., engineers, advisors, business developers, etc.). Venture studios often see an idea through from conception to a successful company.

From my experiences, the best venture studios have well-developed ecosystems. This provides their early-stage companies with direct, access to willing customers and partners. Included as part of the relationship, venture studios can provide office space, IT and systems infrastructure as well as legal, accounting and HR services.

While some studios also create companies based on their own ideas, others target specific opportunities. For instance, the IP Group builds companies through relationships with universities and government agencies. Others select companies, similar to a venture screening process, with a focus on a specific industry or technology (e.g. Rocket Wagon Venture Studios (RWV Studios/IoT). Even one of the big-name accelerators, TechStars, recently started their own studio.

To visualize the process, the graphic below from Attila Szigeti is what he calls “start-up as a service.” It is one of several approaches to a venture studio – but hopefully, you get the gist.

Why should you care?

The most exciting aspect of a venture studio is the outcome value. The success or failure of your new venture is based on how quickly and how well you can take the risk out of your business (usable and valuable product, proven customer engagement, paying customers, demonstrated scalability, etc.). So, picking the resource, activities, events, and groups that can help is of utmost importance.

The studio model provides tools to reduce the most risk. It enables maniacal focus on product-market fit over an extended period.

Once you get the itch to start a new venture, there is no shortage of help offered. Accelerators can be very helpful, but their impact on reducing new venture risk is still unclear. But, the top ones have reported around a 10% exit rate. There are also differences between accelerators, so not all provide the same value.

Obtaining start-up capital (debt or equity) is always a challenge. Less than 0.2% of companies pitching venture companies get funded. And other non-institutional sources (e.g. friends and family, angel groups, crowdfunding platforms), are also increasingly competitive.

But getting initial funding is just an early win and not a guarantee of success. 70% of upstart tech companies fail — usually around 20 months after first raising financing (with around $1.3M in total funding closed).

Vinod Khosla of Khosla Ventures has said, “95% of traditional venture capitalists add zero value to startups” while “70–80% may even add negative value” when providing advice to their portfolio companies.

Promised support and value-add from traditional and non-traditional funding sources are minimal at best. With all good intentions, not being involved in the day-to-day business makes it hard to contribute.

Venture Studios Directly Address The Key Reasons for Failure

This brings us back to the outcome value of the venture studio.

Besides funding, lack of market-fit (42% according to CB Insights) or no market need is by far the most cited reason for failure. Poor market-fit is typically the result of many compounding factors:

• Focus on product and technology without a compelling value proposition. (Not uniquely solving a problem that is both urgent and important.)
• Lack of a whole product solution. (The gap between value proposition and the ability of the product to fulfill that promise.)
• Ineffective sales and marketing based on a poor understanding of target customer opportunities
• Limited product engagement due to lack of product management discipline

Cultural and leadership deficiencies are also major contributing factors:

• The founding team lacks commitment, motivation, and passion
• Founderitis, hubris, and other cultural maladies
• Poor decision-making

Lack of organizational, functional, industry and process expertise are also a big contributor. But the final straw is the lack of direct (frictionless) access to customers as well as partners (technology and distribution).

The Datatribe Venture Studio Example

Over the last year, Mike Janke and the team at Datatribe (a cyber and data science venture studio near Columbia, Maryland) have been extremely generous with their time and wisdom. (Thanks also to Tony Surak, and John Funge. And best of luck to Maurice Bossier who just joined the team).

Getting up-close and personal provided a behind-the-scenes perspective. Creating a venture studio, like other new ventures, took time, iterating and learning from mistakes. Their model, from what I have seen, is a great blueprint:

• Provides funding for a fair share of equity (not looking for a majority or to try to screw the founders)
• Great services and support from a world-class team (product, technology, marketing, legal, IP, etc.)
• IT infrastructure, hosting and office space as part of the package
• A phenomenal ecosystem of advisors (CISOs at major corporations around the world) who are also potential customers
• Significant bench strength (CxOs) to bring into ventures as needed to round out a specific portfolio company’s team

The Future of Venture Studios Is Bright

While not as well known as accelerators, the growing number of venture studios is great news for entrepreneurs. While there is limited success data for the current crop of venture studios, the risk reduction approach is right on target.

“The venture studio is the model we need right now…The world needs big, audacious thinking to solve the thorniest problems impacting humanity…It takes a team of seasoned experts and entrepreneurs to build these new dynamic businesses…Until now, these challenges have been approached either by…in-house… programs, or by dwindling government programs.”

(Venture Beat, Aug 2019)

Find one that fits your profile (industry, product, stage, etc.). Getting in will improve your odds of success.

Update

As of October 2019, I am the Managing General Partner at New Urbana. It is a co-innovation foundry that provides outsourced innovation Co-Lab) and new venture investments (Venture Studio) by leveraging disruptive technologies, new business models and our Common-Sense approach to help change the form and function of critical, physical, and digital infrastructure.

By improving the lifecycle management and operations of these assets, New Urbana helps ensure that businesses, residents, and governments thrive. The solutions and ventures we support target sustainable economic, environmental, and societal value in underserved markets and resourced limited communities outside of mega-urban centers.

Good luck.