Are Startup Studios and Venture Capitalists Competitors?
Startup studios, venture studios, accelerators, and VCs all help new businesses gain a foothold in a competitive economic world. But how do they differ?
When entrepreneurs hope to transform their great idea into a thriving business, they typically find a host of different terms and concepts that might seem unfamiliar. Startup studios, venture studios, startup accelerators, and venture capitalists all serve to help new businesses gain a foothold in a competitive economic world. However, they generally perform different functions; although startup and venture studios are effectively two names for a similar concept.
The startup studio made a relatively recent appearance in the entrepreneurial space, essentially serving as a “factory” for forming new businesses. As such, they continue to disrupt the traditional investment model for new companies. Startup studios provide access to development talent, established processes, market research, and may also provide venture capital. Experienced studios also boast meaningful experience, helping reduce the inherent risk in incubating businesses.
But are startup studios and venture capitalists inherently against each other? Do these newfangled studios actually compete with venture capital firms? With a goal of informing your partnership efforts, let’s provide a high level analysis of both.
What Functions Are Performed by a Startup Studio?
As noted earlier, startup studios are a relatively new business concept within the entrepreneurial sector. They leverage well-honed processes around technology and market research to help new businesses gain a foothold within their industry sector. Additionally, startup studio leadership typically takes an active role in the operations of the fledgling business.
Assuming the new business is based on a digital venture – mobile app, interactive website, etc. – the studio’s technical team usually performs the design and development of this software solution. The studio also helps with the research of the target market for the new business. This becomes critical as a compelling app or website makes little impact without an interested market.
Any mature startup studio also boasts well-honed processes for the technology and research functions already mentioned. Additionally, many studios also provide entrepreneurs with support in marketing, legal, and HR. Some may even serve as a source of venture capital, but we go into more detail on that topic later.
In the end, a mature startup studio essentially functions as a “factory” for creating new businesses. A focus on continuous improvement and process maturity helps entrepreneurs reduce the risk when forming any new business. It remains the main reason for the burgeoning popularity of the startup studio concept, which continues to disrupt the traditional model for investing in emerging businesses.
How Do Venture Capitalists Help Startups?
Venture capitalists remain a traditional part of startup creation, and continue to play an important role in the industry. After all, any new startup needs funding to hire tech talent, research target markets, and perform the other critical tasks involved in forming new businesses. Venture capital organizations manage the funds allocated to promising startups to assist in their operations.
VC firms try to avoid risk, so they typically perform a deep analysis on each startup before deciding on an investment. Their ultimate hope involves exiting from the startup after a few years and earning a significant return on their investment. As such, financial considerations tend to drive the decision making for many venture capitalists.
Some venture capitalists focus in narrow verticals, possibly bringing personal expertise to their analysis. Others fund startups in a wide range of industries. In fact, startup studios also take a similar tact, with arguably a higher percentage serving multiple business sectors, especially studios using the agency builder model, where they also work on projects for external companies as an alternate revenue source.
Do Startup Studios and Venture Capitalists Actually Compete?
If startup studios are currently disrupting the investment model for new businesses, this must mean they compete with venture capitalists? In fact, both studios and capitalists actually serve complementary roles within the entrepreneurial space. VC firms typically stick to providing financial support, as noted earlier. On the other hand, startup studios significantly contribute to the operations of the new business.
Notably, many startup studios also include a separate arm that functions more like a traditional venture capitalist. So these studios invest in the startups they incubate. Other studios without a separate VC group also provide access to venture capitalists through their professional networking efforts.
Additionally, agency builder startup studios earn revenue doing project work for third-parties, as noted earlier. This capital is able to be used for startup investments in addition to providing operating funds for the studio. These studios gain experience in new technologies while also expanding their market expertise into different business sectors.
If you are an entrepreneur with a compelling idea for a new business, or if you want to learn more about the startup studio concept, connect with the experienced team at NineTwoThree. Since we operate as an expert development agency builder, we provide a unique mix of technical chops and business understanding. Contact us to discuss the possibilities of a future partnership.