The Venture Studio Business Model Explained
How do venture studios earn revenue? Get a look at the venture studio business models that are most successful.
As entrepreneurs strive to reduce the inherent risk of new business formation, they increasingly partner with organizations known as either venture studios or startup studios. These companies provide emerging businesses with the resources they need to bootstrap their operations, including technology professionals, marketing assistance, and crucial business expertise. In many cases, these partnerships pair startups with studios with experience in the business sector the new company hopes to target.
Founders of startups enjoy a major advantage working with a venture studio compared to a traditional provider of venture capital. Essentially, the entrepreneurs ultimately retain a higher ownership percentage of their new business. Venture studios focus on providing technical talent, mentorship, and useful insights to help ensure a successful business launch.
Still, any venture studio boasts a unique business model compared to other companies operating in the VC or entrepreneurial space. Notably, the number of new venture studios continues to grow, revealing the potential lucrative aspects of this business approach. So let’s take a closer look at how these organizations survive and thrive in the current marketplace. Perhaps it provides a roadmap to build your own venture studio to help new businesses thrive?
What Benefits do Venture Studios Provide Entrepreneurs?
With the number of venture studios seemingly on a perpetual increase, understanding their business model becomes easier when analyzing the benefits they provide new businesses. Let’s look at three of the top ones.
- Access to Experienced Technical and Business Professionals: Any new business needs its leadership to focus on running the company, not engaged in a costly and risky staffing process. Venture studios provide startups with the software engineering, design, marketing, and business analyst talent they need for a true chance of success.
- Focus on Managing The Startup: Again, partnering with a venture studio lets entrepreneurs focus on running their emerging business. The studio team helps with technology and marketing functions, while the startup owners work on building an organization able to survive and thrive. It’s a similar reason companies regularly work with other managed service providers for a variety of business functions.
- Retain More Equity in The New Business: Venture capital providers typically want a significant ownership stake in return for providing funding. However, venture studios are open to working for a fee. This approach provides entrepreneurs the flexibility they need to both manage their new business and retain a higher ownership stake in the startup.
So with all these myriad benefits, how do venture studios actually make money beyond the fees they earn from partnering with a startup? Read further to learn how the venture studio business model works for both studio owners and their entrepreneur partners.
The Revenue Streams Used by Successful Venture Studios
Without a focus on providing capital resources to the startups they support, how do venture studios actually make money? Notably, some studios do accept a percentage of equity in return for the services they provide new businesses. This approach works well for emerging businesses lacking the necessary capital to hire talent or pay third-party service providers, like startup studios. However, other potential revenue streams exist for studios not interested in equity.
An ownership stake provides revenue whenever a startup is sold or goes public. Wise venture studios typically use these financial resources for internal operations or to grow the studio. Note a measure of risk exists in this scenario if the startup ultimately fails. Still, from the standpoint of the new business, offering equity motivates the studio to provide an exceptional level of assistance as they effectively become stakeholders.
The other major revenue stream for venture studios involves receiving a fee from the startup for any services rendered. Obviously, this approach reduces the risk of only being paid in ownership equity. However, many startups lack the venture capital to hire startup studios using this payment model, so studios need to work harder to find startups with enough financial resources for a fee-based approach.
Some venture studios also operate as agency builders, performing fee-based project work for established businesses, so only being paid in equity by startups isn’t as large of an issue. In addition to the fees, this type of revenue stream provides other benefits to a studio, like keeping their technical staff busy throughout the year. It also garners experience in different business sectors, informing the studio’s ideation process when considering new startup concepts.
In the end, this type of project diversification offers a measure of operational flexibility to studios following the agency builder model. Of course, venture studios only working for startups also benefit from operating in different business sectors. It ultimately expands the studio’s knowledge base, making it easier to provide services to startups in multiple industries.
We Wrote The Book on Venture Studios
A venture studio also working as an agency builder, NineTwoThree boasts a robust knowledge base on the concept. In fact, we also wrote a guide on the topic, the Digital Venture Studio Playbook, providing a mix of advice and best practices to help your own emerging studio thrive. Feel free to connect with us with any questions or if you want to discuss a potential partnership.