Venture studios are taking off in regional cities around the country, including Buffalo, New York. Venture Studios (sometimes referred to as “startup studios”) create new startup companies from the ground up using ideas that originated within the Venture Studio itself or that come with founders who are at different stages of the development process, but frequently at a very early stage. They are gaining prominence in the startup ecosystem as a way to curate good ideas, build solid teams, leverage access to capital, recruit talent, and launch new companies quickly.
Venture Studios foster an environment of creativity while reducing risk by hand-picking founders and providing high-level services. They may have experience and contacts in a specific industry that can be drawn upon by start-ups in that industry. Often, a Venture Studio is linked with a funding source which may be a captive fund. These factors can radically expedite the learning curve, especially for first-time founders. The founder group can stay focused on the product and the operations side of the business generally as opposed to administrative and financing matters.
An established Venture Studio can create multiple companies in parallel from ideas that come from the Venture Studio’s in-house “brain trust.” That brain trust is the basis for the Venture Studio.
Venture Studios Nationwide
Probably the best-known company to come out of a venture studio is Moderna, which became a household name with its Covid RNA vaccine. What’s less well-known is that Moderna was created by venture studio, Flagship Pioneering.
Another household name that came out of a venture studio is Uber, which started at Expa. LinkedIn, Slack, Giphy, and Foursquare – all started in venture studios.
How Venture Studios Build Startups from Scratch
In the more widely known accelerator/incubator model, a founder partners with the platform to bring the founder’s vision over the next hurdle, drawing upon resources such as office space, equipment, and sometimes professionals. In the venture studio model, the genesis of the new company often begins in the studio itself. In other words, a venture studio can function more like a laboratory.
While Venture Studios can be structured in different ways, commonly, the process will be as follows: the Studio has an internal team that generates an idea and conducts the initial development/validation necessary to turn that idea into a product. Successful ideas are eventually spun out into a standalone company that is often headed by a CEO hand-picked by the studio. In other instances, founders with a proven track record serve as sort of “entrepreneurs in residence” and the studio provides such founders with money/support to test/validate ideas
In addition to being an early investor, the venture studio will often provide other support services, such as marketing, recruiting the initial management team, HR, and accounting. It continues to support the startup with strategic guidance, operational support, and access to its network and resources.
Advantages of the Venture Studio Model
Equity Funding
Venture Studios typically take equity in their portfolio companies. Additional capital may be raised from related funding sources. By providing initial seed capital, the founding team is able to concentrate on developing and implementing the company’s business plan.
Venture Studio as a “Validator”
In order for a startup to be successful, it must provide a solution to an actual problem. Accelerators typically do not do market research or have a relationship with their startup’s target customers. Venture Studios, on the other hand, conducts research. With a better understanding of the customers and the market, the Venture Studio’s ideas are more likely to meet a real need, and the startups they create are more likely to succeed. That’s good for the venture studios and good for the communities they support.
Efficiency and Risk Management
The venture studio startup process may be more efficient and less risky than startups undertaken by individuals who are new to the process of founding and building a company. A new founder on his/her own does everything for the first time.
A Venture Studio is likely to ideate and consider numerous ideas that, pursuant to a vetting process, it later decides are not viable. These less viable ideas are discarded before a company is created and funded. By creating a “survival of the fittest” process of review, the business ideas that survive the process should be strong.
This process fundamentally differs from the conventional situation where a founder(s) conceives and pursues a concept. In the conventional model, weaker companies may survive for a period but ultimately fail due to a lack of funding or business success. The Venture Studio, in concept, avoids mistakes by speeding up the process with less friction.
Further, Venture Studios will often work on multiple startups simultaneously. Their portfolio of companies can benefit from shared resources and cross-collaboration.
Equity Structure and Founder Attraction
As noted above, Venture studios typically take an equity share in their startups and coordinate initial outside investment. Frequently, both the internal Studio team who developed an idea as well as the outside management picked to run the newly spun out company will receive equity compensation. This aligns the interests of the outside investors, the Studio and management.
The 43North Venture Studio
In May of 2024, the 43North Foundation announced its establishment of a Venture Studio in Buffalo, New York. This initiative builds on the success of the 43North annual business competition in Buffalo. The creation of the 43North Venture Studio represents the next step in the cultivation of the start-up ecosystem in Buffalo. We are pleased to be involved in that effort.