There are several ways for startup founders to build new companies today. They can:
- Bootstrap startup creation to bring a business idea to life without the aid of any outside venture funding.
- Find early investors to provide pre-seed funding for a strong concept with a good product-market fit and launch the company.
- Work with an entrepreneur who's already developed a compelling concept but needs help to realize their vision (build technology, raise capital, etc.).
But there's another startup-creation approach that's become more popular in recent years — a business that creates multiple companies at scale, brings in outside entrepreneurs to run those businesses, and secures investment to help the businesses grow: the venture studio.
What is a venture studio?
A venture studio is a type of business model where a company systematically conceives, launches, invests in, and scales a portfolio of fast-growing startups. Sometimes referred to as a startup factory or machine, a venture studio produces high-growth startups and succeeds by building as many startups as possible for the lowest possible operating cost per startup launched.
Uniquely, a venture studio is a startup-creation vehicle with a dedicated venture capital arm or funding source bolted onto the business.
"A venture studio is proactive," High Alpha Innovation CEO Elliott Parker shared in an interview with InnoLead. "It's designed to come up with ideas for new companies, start those companies as a co-founder alongside other entrepreneurs, and fund and scale those businesses."
Another way to define a venture studio is by looking at what it is not. A venture studio isn’t:
- A startup studio, which is a company that conceives and launches new startups in a systematic way, but does not have a formal venture capital fund attached in order to fund and accelerate the growth of those companies (whereas a venture studio does)
- An accelerator, which offers early-stage startups — usually ones that already have a minimum viable product (MVP) — a small amount of capital along with training, mentorship, and operational support through a short, clearly-defined 'program' in exchange for equity
- An incubator, which provides a physical space for pre-seed startups to spend their earliest years building their MVP before eventually launching it and securing investment
- A venture fund, which, for the most part, only invests in startups that already exist in exchange for equity
- A corporate innovation team, which focuses primarily on core and adjacent business initiatives inside a large organization
"All of these avenues for building, backing, and maturing startups are certainly worthwhile," said Elliott. "The good news is innovation doesn't have to be an 'and/or' proposition. A venture studio doesn't have to come at the expense of these entrepreneurship options. Rather, it's a complement to them."
Venture studio model benefits
The venture studio model offers distinct benefits for the three different stakeholders involved:
- Entrepreneurs can join 'in-progress' startups whose business models have already been generated and validated. They bring their unique experience and expertise to the table, take over day-to-day leadership, help evolve the company's offering, and, ultimately, bring it to market.
- Startups are provided structural advantages that other startups don't get, including early access to potential investors and customers, to put them on a path of accelerated growth from day one and achieve target outcomes tied to revenue, customer acquisition, and market share faster.
- Investors can fund and take some equity in these startups, which — based on the early advantage afforded to them before, during, and after launch — offer the potential for strong financial returns over the long run, compared to startups developed outside the venture studio model.
Since helping start and create the venture studio model itself 10 years ago, we've seen a number of evolutions around this structure. One of the biggest is the introduction of large corporations and other scaled organizations into the venture studio mix — this is how High Alpha Innovation originally came to be.
More and more corporations and large organizations were starting to turn to venture studios to help drive transformative innovation and launch new startups. This has given rise to standalone corporate venture studios and corporate venture building as a practice inside large organizations.
Below are a handful of organizations we’ve seen start to adopt the venture studio model:
Corporations
Building internal ventures (i.e., ones that aim to address adjacent business models and markets) has long been a go-to for corporations. But the venture studio — ideally operated in partnership with an external venture builder — now enables large enterprises to grow, transform, and future-proof their core business in an entirely new way.
Working with a venture builder to create a venture studio empowers corporations to build external ventures that:
- Unearth new anomalies and insights. Near term, corporations can generate learnings from startups launched through their venture studio that can improve core business operations near-term and increase business resilience long-term.
- Augment other investments. Corporate venture capital teams are great at identifying existing startups to back. A venture studio simply offers them and their companies another way to add to and diversify their portfolios.
- Tackle market gaps and opportunities. Blending their own internal customer data and research along with an outside venture builder's market expertise and analysis enables corporations to build new business models that aim to solve pressing problems and fill perceived market needs.
- Build a stronger culture of innovation. Corporation innovation initiatives often fail to deliver the desired results due to a lack of buy-in, budget, and/or patience from leadership. Building a venture studio enables large enterprises to foster an innovation culture that promotes startup exploration and creation.
Using balance-sheet capital to build companies via a venture studio and creating governance and incentive structures to attract world-class entrepreneurs and investors enables corporations to build a sustainable way to launch several advantaged startups over time — possibly even multiple startups in a single year.
Universities
The venture studio model has also proven attractive to research universities.
We have seen Purdue University, the University of Notre Dame, the University of North Carolina, the University of Wisconsin, and many others convene leadership, faculty, students, and alumni to create venture studios that unlock innovation in their ecosystems:
- Purdue created DIAL Ventures, in partnership with our team at High Alpha Innovation, to launch technology startups in the food and agriculture space. To date, we've co-created six advantaged startups that intend to solve issues facing ag producers, retailers, manufacturers, suppliers, and other value chain members.
- The 1842 Fund and Studio were developed by Notre Dame and High Alpha Innovation to build companies that align with the university's mission. Close collaboration with the school's faculty and leadership have helped us land on a venture-building theme of solving health equity issues.
- Eshelman Innovation at UNC Chapel Hill built its own venture studio, which we partner with to launch healthcare startups. Specifically, we're aiming to create companies that address different challenges tied to the opioid crisis, with one such startup, Goldie Health, already launched.
"Developing an on-campus venture studio unlocks the power of universities to nurture and commercialize ideas into thriving businesses," said High Alpha Innovation General Manager Matt Brady.
Public sector
Arkansas Development Finance Authority (ADFA) partnered with High Alpha Innovation and the Walton Family Foundation to build a venture studio that will create startups tied closely to the state's 'right-to-win' industry, retail.
VentureWell, a nonprofit that supports innovation programs nationwide, used a $5.75 million grant from the Walton Family Foundation that was matched by the state of Arkansas using SSBCI funds to help establish Fieldbook Studio.
By creating Fieldbook Studio, which is comprised of venture-building experts based in Arkansas who are attuned to the trends in the retail value chain there and across the country, the state can reap a number of rewards:
- Bolster itself as an entrepreneurial ecosystem and startup hub. No city or state transforms into a robust startup environment overnight. But a venture studio enables public-sector organizations like ADFA to help build companies that bolster their already-strong, right-to-win industry. As Fieldbook Studio Managing Director Joshua Stanley noted, the creation of the Arkansas-based venture studio "[sets] the stage for us to maintain our position on the retail value chain throne for decades to come."
- Attract top talent and VC investment interest nationally. Many entrepreneurs looking for founding team roles at early-stage startups won't just consider New York and San Francisco anymore. Now, they'll view Arkansas as a potential fit, as will countless tech workers looking for interesting software jobs. Similarly, VC firms that tend to pay most attention to Silicon Valley startups will examine Arkansas-based startups as potential investment opportunities.
- Gain a regional advantage and drive economic development. Whether they realize it or not, states are competing with one another for best-in-class entrepreneurs and tech talent. By luring leaders, expert engineers, and other top talent to their areas to join studio-created startups, states can generate wealth for startups and their workforce and kick off an economic flywheel effect.
Venture capital firms
While known for investing in existing startups, some venture capital firms are also exploring venture creation.
Consider DNX Ventures. The VC firm, which specializes in building B2B SaaS startups, recently launched DNX Studio to accelerate the creation of new software companies in Japan and advance the country's startup ecosystem.
High Alpha Innovation Managing Director Ryan Larcom noted building companies is historically 'off-thesis' for VCs. But that isn't stopping many like DNX Ventures from forming venture studios and exploring new business models.
Building a venture studio
Having implemented the venture studio model at established businesses and leading research universities and with the aid of a state government, the common traits of successful venture studios have become clear.
“When we think about the environments in which a venture studio works well, you need three primary ingredients: ideas for new companies, people who can be helpful to these businesses being formed or who can actually be brought in to run the companies, and access to capital to fund the company’s growth,” said Elliott.
More specifically, the best-run venture studios have:
- A dedicated source of financing to fund studio setup
- A strong network of founders, investors, and advisors
- Defined systems and processes to guide execution
- Thoughtfully developed structures and incentives
- A carefully chosen venture studio theme (North Star)
Arguably the most critical factor to venture studio success, though, is having an expert venture-building team in place to co-create startups with — one that has a lengthy history of helping organizations of all kinds build companies that solve big, bold problems in a scalable, cost-efficient manner.
