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How do venture studios work?

A venture studio is a company that builds several startups at the same time. Venture studios usually have a team of experienced entrepreneurs, experts who work together to develop and launch new startups.

Historical background and statistics

Since Bill Gross launched Idealab in 1996, the venture studio model has been in decline. Venture studios have proven to be more efficient and effective than other forms of venture building, and are gaining popularity among entrepreneurs and investors. Venture studios have a higher success rate: the exit rate from them is 34%, which is almost twice as much as that of accelerators (19%), and several times higher than that of startups themselves. But what are venture capital studios and why are they becoming more and more popular?

Idealab has tried out more than 5,000 ideas, 150 of which have been brought to life. This figure of 3% may seem low, but among 150 enterprises, 70% of them are successful, which is more than 2 times higher than that of startups funded by venture capital. In fact, the average startup launched by a venture studio returns an average IRR of 53% versus 21.3% for a traditional startup. If you look at the total value of paid investments, venture studio startups are 3.7 times larger than traditional startups. They also receive seed funding and Series A funding 2.2–3.3 times faster.

Advantages of venture studios

  • Accelerated Market entry: By controlling the entire process, venture studios can launch new startups much faster than traditional venture capital firms.
  • Improved control over the results. With full control over the entire process, venture studios can better control the results of their startups and ensure that they are designed in exact accordance with their specifications.
  • Cost reduction. By controlling the entire process, venture studios can reduce the costs associated with the development and launch of startups and transfer the resulting savings to their startups.
  • Stronger partnerships. Venture studios work in close proximity with their startups, fostering a close partnership that allows them to launch stronger and more successful startups.

Examples of companies that have emerged from venture studios include Overture, Twilio, bitly, aircall a and the most famous Moderna alum. 

  • Technology transfer studios such as America's Frontier Fund work with companies and/or government labs in search of ideas and intellectual property. Then they transfer the intellectual property and create a startup inside the venture studio.
  • Corporate studios such as Applied Materials draw ideas and intellectual property from within their own company. Then they create a startup in a separate corporate venture studio within the company.
  • A niche studio is a separate venture studio that generates its own ideas and intellectual property in a specific industry and area — for example, Flagship Pioneering, which is focused on healthcare and has grown LS18 — the company that became Moderna.
  • An industry independent studio such as Rocket Internet is a separate venture studio that generates its own ideas and intellectual property and is independent of the industry and market.

In conclusion, venture studios are the future of startup ecosystems, and they are equipped with the speed, experience and control to develop and launch the next generation of successful startups, thereby shaping the future of innovation and entrepreneurship, which ultimately is the trigger for economic growth. Therefore, if you are looking for a new way to participate in the startup world, it would be wise to explore the field of venture studios and find out what they have to offer.