What is a venture studio & how does it work?

Daniel Saunders

Chief Executive Officer

Venture studios offer a relatively new tool in the innovators’ toolbox. First used in the 1990s, venture studios are gaining significant interest from business leaders looking to disrupt the market and venture capitalists looking for attractive new asset classes. 

But what is a corporate venture studio? There’s no hard and fast definition, and venture studios can often go by different names, such as; startup studio, parallel entrepreneurship, co-creation, or corporate venture building. As a general definition, a venture studio is a company of experienced entrepreneurs that build multiple startups, often simultaneously. 

What does a venture studio do? 

Venture studios provide startup expertise, a lean approach and resources to identify and validate the product-market fit of new ideas and grow them into businesses. Typically a venture studio will either work independently creating a portfolio of startups or, as is the case at L Marks, operate as a partner to in-house innovation teams looking to develop new ventures.

But why would you partner with a venture studio when you could launch new startups in-house or invest in already established startups? There are several reasons why this strategy isn’t wise, but the main reason is the low odds of success. Most startups fail. 

According to research by CB Insights, startups fail due to a lack of need for their product (42%), lack of capital (29%), wrong team for the project (23%), and superior competition (19%). Venture studios allow you to mitigate many of the above reasons, giving you much higher chances of success than traditional venture-building routes. 

The venture studio business model  

We’re seeing venture studios operating in several different structures. Below are the key areas of variance between approaches;

• Who’s involved: one of the main differences between venture studio models is who’s behind the startup. Some venture studios build startups on behalf of established businesses. Others are independent and develop their own portfolio of startups.
• Equity: how much of the company is owned by the studio, founders, or partner company? This, again, varies between studios. 
• Agnostic or specialist: Some venture studios focus on specific business formation stages, e.g. only the ideation and initial validation stage; others might focus on the growth and commercialisation stages too. Additionally, some venture studios are industry agnostic regarding the type of startups they will build. This approach allows for the transfer of innovative ideas from other fields or industries. Venture studios that will only create startups in a particular niche tend to specialise in highly technical or science-based startups. 

How do venture studios work?

As mentioned above, some of the processes and approaches will differ between venture studios, but generally, the following phases are covered; 

Discovery 

The venture studio starts by building a team around the idea and working to understand and refine the brief. Is the starting point to identify opportunities in the market and develop ideas, or is there already concrete research, problem identification and a specific concept for the startup? 

Design & preparation 

Once the startup idea is established, the studio will identify all the assumptions for the concept to be successful. For example; 

• Who would the customer be for this new product or service? 
• What would be the business model? 
• What does the market landscape look like?

Experimentation & iteration

Once the startup’s assumptions or “hypotheses” are established, the studio will run lean experiments designed to test those assumptions. Running lean experiments allows the studio to validate assumptions quickly on a relatively low budget. 

The experiment method will differ depending on the nature of the assumption. For example, an ad campaign driving people to a landing page explaining the startup proposition could measure interest and establish whether the proposition resonates with potential customers.  

Venture studios often go through many agile iterations of an idea, learning which assumptions were valid and tweaking the concept based on the data. Once completed, the venture studio is at a decision gate where it’s time to decide whether to continue with the startup, pivot based on data from the experiments or start on an entirely new idea. 

Learning & growth

If the startup idea is validated, the venture studio will develop an initial launch plan and go-to-market strategy and establish all other aspects of running a startup from operating processes, finance, targets and team development.

Depending on the venture studio, the startup might continue to be run and owned by the studio, sold or acquired to a third party or managed by a corporate partner/parent company as an independent brand or assimilated into the broader organisation. 

Why should businesses partner with a venture studio? 

Here are the top reasons corporations and in-house innovation teams partner with a venture studio.

Keep ahead of the competition 

Instead of playing catch up or engaging in bidding wars to acquire innovative startups, partnering with a venture studio allows businesses to keep ahead by continually exploring new ideas and revenue streams. 

Higher success rates 

According to Global Startup Studio Network (GSSN) research;

• 84% of startups coming out of studios raise a seed round. Of those, 72% make it from seed to Series A. 60% of all companies created out of studios make it to Series A.
• For traditional startups, only 42% of ventures that get to seed make it to Series A. 
• The studio approach performs 30% better than traditional startups in terms of reaching and securing investment rounds. 

Given the expertise, resources, finance and approach of venture studios, it’s no surprise that startups out of studios do better. The top reasons for startup failure— lack of product-market fit, wrong team or lack of financing— are mitigated.

Access to startup veterans and their networks 

While large companies can excel at incremental innovation of their core business, startups require different skills and experience. One of the advantages of a venture studio is working with a team that has built many startups. Venture studios are not consultancies looking to advise but rather hands-on venture builders. They know what it takes to get something from the back of the napkin into a functioning venture. 

Some venture studios also have access to extensive networks of experts across various industries. Such networks provide advisors, specialist partners or mentors who can share insight, specialist skills and tacit knowledge, which is otherwise hard to access. 

Maintain resources and focus on your core business

Businesses that choose to develop startups in-house need to hire or divert resources from existing teams to work on an idea that has a high risk of failure. Such projects can be pretty distracting to core business operations and growth. This is why corporations partner with a venture studio where venture creation is fully resourced externally and done quickly, iteratively, and on a low budget. 

Gain new skills or ways of working 

While not all venture studios operate in an agile, lean approach, many do, including L Marks. Working with such studios allows you to observe how the lean process works, in contrast to the waterfall development that many large corporations use. Following such a process can help your internal team pick up new working practices they can apply inside your organisation to improve operations. 

Looking to partner with a venture studio? 

L Marks runs a venture studio to support in-house innovation teams. Get in touch to discuss how our venture studio team can help your business develop new ventures. 

04/11/2022