The venture studio model has emerged as a powerful alternative to the traditional startup ecosystem, offering founders and co-founders a unique opportunity to build businesses with greater access to resources, minimized risks, and accelerated growth. In this post, we’ll explore the different types of business setups a venture studio can utilize and highlight how these setups benefit the founders who partner with studios. Additionally, we’ll discuss how partnering with a venture studio can lead to more substantial financial outcomes upon exit. Let’s get into venture studio benefits!
What is a Venture Studio?
A venture studio is an organisation that builds companies from the ground up, often in partnership with co-founders and entrepreneurs. These studios provide funding, operational support, and a team of experts to guide startups through their early stages. Unlike traditional startup incubators or accelerators, venture studios co-create startups, taking an active role in every aspect of the company’s development.
Venture studios have grown in popularity due to their high success rates. According to a study by GSSN, venture studio-backed startups achieve seed funding twice as fast and exit 33% faster than their non-studio counterparts (Inniches) . These accelerated timelines are a result of the studio’s resources, industry connections, and experience in building businesses.
Types of Business Setups in a Venture Studio
Venture studios utilise different business structures to create, fund, and grow startups. The most common models are the holding company model, the fund-based model, and the dual-entity model. Each of these offers distinct advantages to founders and co-founders.
- Holding Company Model
In a holding company model, the venture studio acts as a parent company, holding equity in each startup it helps create. The studio provides centralized support and resources, including legal services, marketing expertise, and financial backing.
Benefits to Founders:
- Access to Resources: Founders can leverage the studio’s infrastructure, reducing initial startup costs significantly.
- Operational Focus: The studio handles much of the operational and administrative work, allowing founders to focus on product development and scaling.
- Better Exit Outcomes: Founders in venture studios typically benefit from faster exits and higher valuations at exit compared to startups launched independently.
- Fund-Based Model
In a fund-based model, the studio operates similarly to a venture capital fund, raising money from investors and deploying it across multiple startups. This model offers a consistent stream of capital to the startups, providing stability and scalability.
Benefits to Founders:
- Financial Security: A steady stream of capital allows founders to focus on innovation without worrying about immediate funding needs.
- Accelerated Growth: Access to early-stage capital and industry expertise helps founders scale faster.
- Reduced Risk: With the studio acting as both an investor and operational partner, founders share the risk with the studio, reducing the personal financial burden.
- Dual-Entity Model
The dual-entity model combines the benefits of both the holding company and fund-based models. The studio holds common shares in the startup, while the fund takes preference shares, providing founders with the best of both worlds—access to capital and operational support.
Benefits to Founders:
- Shared Risk and Resources: The dual-entity model allows for both equity and capital-sharing, reducing the overall risk for founders.
- Strategic Scaling: Founders gain access to the studio’s network and resources, accelerating their company’s growth .
- Stronger Exit Potential: The involvement of the venture studio from inception to exit ensures founders can achieve higher valuations and retain more equity .§
The Financial Benefits of a Venture Studio for Founders
One of the primary reasons founders are drawn to venture studios is the potential for larger financial returns upon exit. Studios help startups avoid significant equity dilution in the early funding rounds, enabling founders to retain more of their company’s equity as it grows.
According to a 2020 study by Mamazen, startups supported by venture studios achieve higher valuations at exit compared to traditional startups, thanks to the studio’s operational and financial support . Another study by PitchBook highlights that venture studio-backed startups reach Series A funding 41% faster than independent startups, positioning founders for quicker exits with fewer funding rounds .
Why Founders Make More Money with Venture Studios
Partnering with a venture studio not only increases the likelihood of success but also leads to better financial outcomes at the exit stage. Traditional startups often dilute their equity significantly to raise capital. In contrast, venture studios provide funding throughout the startup’s lifecycle, allowing founders to retain more equity and benefit from a larger payout upon exit.
For example, Dollar Shave Club, which was built within the venture studio Science Inc., was acquired by Unilever for $1 billion. Founders in venture studios often see similar success stories, with faster exits and more favourable terms.
Conclusion: Venture Studio Benefits
The venture studio model is revolutionizing the way businesses are built, offering founders significant advantages, including reduced risk, accelerated growth, and larger financial returns. Whether through a holding company, fund-based, or dual-entity structure, venture studios provide the resources, expertise, and capital needed to bring a startup from idea to exit. For founders, the benefits of partnering with a venture studio far outweigh the challenges, with faster timelines and higher payouts becoming the norm.
As venture studios continue to grow in prominence, more founders are likely to turn to this model to increase their chances of success and maximize financial outcomes.