Venture capital firms vs. Venture studio

Over the past few years, the number of Venture studios has steadily been on the rise. In major tech markets like Austin, San Francisco, and New York City, venture studios have been popping up all over the place and it seems like this trend will continue. While it seems that some companies were quick to adopt this model, others seem to be hesitant, yet curious.?

As with any new model, there will be many questions, and this article attempts to answer three key questions about Venture studios:?

• What exactly is the Venture Studio model?
• What is the significance within the larger investment industry?
• How does this model differ from a traditional venture capital firm??

Let’s compare these two models.

What is a Venture Capital Firm?

• Large Investment Pool:?Value of Venture Capital investment in the US: $99.5 Billion?
• Belief in Startups:?In 2018, VC Firms invested $131 Billion in startups in the US??
• Record Number of Deals:?Total Number of VC deals in the US between 1995-2018: 5,536
• Negative Correlation for Investment Dollars and Deals:?Experts forecast that while the overall dollar investment will climb, the total number of deals will continue to decline.

A venture capital firm is most often a large financial organization that provides valuation and funding for early-stage and emerging companies. The VC firm foresees the viability and profitability of a company’s product.?

Typically the VC firm model is extremely “hands-off”, meaning that while the VC firms take a percentage of the company, they don’t involve themselves in the operations of the seed companies, and participate exclusively by providing rounds of financing based on specific targets being reached.?

The goal of most venture capital firms is merely to see a return on their investment, which puts them into a class similar to traditional financial institutions.?

How will a VC help you??

If you win the investment of a VC, they won’t leave you in the dark. They’ll network for you, give you the financial means to secure the expertise you need, and will likely advise you on financial matters.

However, they’re not pulling up their sleeves deep in the trenches with you. Likely, they’ve done a little research on what you’re doing, but by no means are they deeply involved in your product’s evolution. These are brilliant business people, but they’re not engineers, designers, or chemists.

They’ll support you, and they want you to succeed, but how much support they give depends on the likelihood of a good return and less on the brilliance of the product. If you look at it from their perspective: their investment is a gamble. And if the odds are no longer in your favor, or if you’re just not moving as quickly as they want, chances are they’ll say goodbye.

What is a Venture Studio??

• Big Decade for Venture Model:?Since 2009, there has been a 5,000% growth in the venture studio model?
• More Studios by the Week:?There were 80 studios in 2013, the number grew to over 200+ with new ones coming out by the week?
• Double by 2023:?Experts forecast the total number of startup studios to double in the next 5 years by 2023.?

Different from a VC Firm and financing structure, a VC Studio often works as a structure in which the studio or a partner within the studio serves as a company founder/ advisor. The studio then provides resources (e.g., capital, marketing, event sponsorship, etc) for the company they invest in.?

The goal of most venture studios is to enable entrepreneurs and teams to build a sustainable, scalable company model right from a pre-seed/ early moment in the company’s conjecture. Studios serve as funnels for startup teams, sometimes assembling entrepreneurs into startup supergroups like K-pop managers.

In August 2019, Venture Beat?suggested?that the venture studio model is exactly what the industry needs right now.?Venture Beat stated the benefits of the venture studio model like:?collaboration, pooled resources, and moving away from a corporation decision-making structure.?

These values are what is needed to usher in a new era of the internet that we like to call Web 3.0.?

What can you expect when a startup studio invests?

When a startup studio invests in you, the return on investment is important, but that’s not the main focus. The team focuses on the product, the constantly evolving business plan, and the product-market fit. Thus, your conversations with these investors will take on a different tone. There will be less explaining, less presenting, and much more doing. Your business isn’t a gamble as much as an action item.?

Launching with startup studios

After you’ve partnered with a startup studio, hired your independent team, and are starting to gain real attention, your relationship with the startup studio doesn’t end. Maybe you’re out of their day-to-day office, but they will provide you guidance on next steps along with the financial know-how on what kind of investment you may or may not need next.?

The best part? At this juncture, VCs and other investors might be even more interested than they would’ve been before. You’ll be coming to the table with much more power because your business will likely have a stronger outlook. After a startup studio, you look much more like the 30% of startups that succeed.