How Do Studios Like Venture Studios Fund New Ventures?
One of the biggest misconceptions about venture studios is they function much like incubators or accelerators - but they fund their ventures differently.
Venture studios are the newest risk-averse business model to take off alongside the likes of startup accelerators - but they differ in several important ways. While accelerators speed up existing projects, venture studios get their hands dirty from ideation all the way through to completion.
You can think of it this way - instead of just investing money, venture studios are more involved by also providing resources, mentorship, and expertise to help their portfolio companies grow.
Many venture studios are launching their own startups and app projects simultaneously, shifting their team from internal to external projects and vice versa. But how can they afford to offer this approach to business building without accepting venture capital? Do studios even collaborate with venture capitalists?
We’ll dive deeper into how venture studios fund new ventures below.
What Venture Studios Do To Earn Money
As mentioned above, venture studios work on internal and external projects. This means they will build their own projects while also taking on outside client work. How they make money from these projects will depend on the terms of their agreements, but typically you’ll find their methods fall into one of a few categories.
Venture studios typically make money in two ways: first, by taking a percentage of the equity; and second, by charging fees for the services they provide to their portfolio companies. Taking equity in the startups they launch gives them an intrinsic incentive to succeed, making them a real partner in the business regarding growth.
If they’re not taking equity, venture studios charge fees for the work they do for clients. The funds earned from client work are then returned to internal ventures, and the cycle continues. Every venture studio operates in a specific profit space - for NineTwoThree, our projects usually fall between 100k and 500k for a 3-5 month build.
This income in turn allows us to work on our own ventures like Altar Live, a live-streaming platform for religious communities. Altar Live as a digital venture went from $0 to $92,666 annual revenue in less than 1 year.
How Venture Studios Differ From Accelerators
One of the biggest misconceptions about venture studios is that they function much like incubators or startup accelerators.
To start with, not all venture studios work exclusively with startups. Many studios do, on the other hand, work with funded and established tech brands to launch their proof of concept in a market they have already found a fit in.
A startup accelerator is a program that provides resources and support to early-stage companies, typically in the form of funding, mentorship, and networking opportunities. Accelerators are usually focused on a specific industry or technology, and they typically run for a fixed period of time, usually a few months. The goal of a startup accelerator is to help companies quickly validate their business model, build a product, and prepare for scale.
Incubators and accelerators fulfill much of the same intentions: they provide space and shared resources to startups, but their income is based on membership fees or equity in early-stage projects and lasts for a limited timeframe.
A venture studio, on the other hand, is a firm that helps entrepreneurs build and launch new companies, but it does so by taking a more hands-on approach. Venture studios typically provide entrepreneurs with access to a team of experienced professionals who work closely with the entrepreneurs to develop and launch their businesses. This can include everything from product development and marketing to sales and operations.
Venture studios are often more flexible in terms of their focus and timeline, and they may work with entrepreneurs over a longer period of time than a startup accelerator. And while venture studios do sometimes take equity in the projects they work on, they usually prefer to work from fee-based compensation.
Where Do Venture Studios Find New Ventures To Build?
Launching any new business venture is a path fraught with pitfalls and potential failures. As a startup, that first year of existence can be the most challenging (and lethal) as many startups fail in their first few months of business.
This is where venture studios can avert a lot of the risk thanks to the repeatable processes these businesses hone over time. These businesses tend to be in industries the studio has previously done work in so that they can draw from their existing knowledge in order to make the project more successful out the gate.
But what are these industries and how do venture studios draw ideas from them?
Some studios take advantage of opportunities arriving on their doorstep from interested entrepreneurs looking for a studio partner. Other organizations take advantage of a robust internal ideation process. Many also leverage both methods.
Partnering with Passionate Founders
Venture studios will oftentimes attract founders that already have a product-market fit and just need a technical team to deliver the proof of concept. The founder gets to focus on sales and marketing while the studio takes care of the technical and project management aspects.
The startup studio offers advisors and execution through full end-to-end development, to bring the idea to market. These studios do generally have a well-established vetting process to focus on businesses that have the best chance of success.
Launching Internal Business Ideas
Some venture studios create a list of pain points they see in various industries they know, and this is where they will start when looking for new ideas to build. Of course, this means they first have to validate the idea - this can involve calling prospective customers, talking to founders in the space, and paying for interviews from an expert network of advisors.
Once the idea is validated, the team will continue to do market research until it’s the right time to start looking at funding.
The Best of Both Worlds
The ability to launch multiple projects using the same tried and tested model of business is one of the biggest advantages of this approach, particularly important in an environment where failure is so common.
The Advantages of Working With A Venture Studio
Venture studios tend to be more profitable and failure-proof than the average startup because they:
- Diversify their projects to be in multiple industries
- Are built by experienced developers and professionals
- Have the funds from portfolio companies to see them through crises
These are just a few of the reasons why founders get excited about the venture studio model and why you are likely to see more venture studio-based projects take off in years to come.
Whether the ideas are generated internally or externally, startup studios can leverage past startup experience, market research, and industry connections to test and develop an idea and reach the strongest iteration possible.
Building With NineTwoThree Venture Studio
We build mobile and web apps for funded startups and tech brands as a venture studio that learned what worked from building fourteen internal startups and fifty client apps to one billion dollars and can do the same for your app.
We specialize in machine learning, IoT, and other leading technologies. We help established brands iterate like startups and startups scale like established brands. Partnering with industry leaders and visionary entrepreneurs we focus on profit-producing applications that are a delight to use.
Reach out to us today to ideate your next project with a leading venture studio!