The Leading Models of Venture Studios
While venture studios share certain common characteristics, each possesses distinctive attributes. Although there is limited scientific literature on the subject, our research has identified three leading models of venture studios:
Creation studios or Builders
The initial studio type, often referred to as “builders,” involves the studio’s complete creation, development, and financing of startups from scratch. These creation studios stand out by handling 100% of the ideation and validation process internally.
Unlike other players in the funding ecosystem, such as accelerators, incubators, and venture capital firms, creation studios do not accept external applications. Their primary value proposition lies in their capacity to identify opportunities, generate concepts, self-validate them, and construct their own portfolio of startups. This approach also allows them to filter out ideas that may not resonate with the market
This studio model often specializes in specific verticals, such as consumer products, software-as-a-service solutions for businesses (SaaS), FinTech, among others. Another notable characteristic is the substantial equity share they retain in their startups. Given that this type of studio assumes a significant portion of the risks associated with initial startup development, it’s common for them to hold over 30% of the equity in their startups. In Quebec, our research indicates that these studios typically retain around 20% equity.
High Alpha pioneered this model, with other prominent players including Atomic Labs, The Hive, and Gemini. In Quebec, Diagram Ventures and Momentum Ventures operate studios of this kind.
From an operational perspective, largely due to their specialization and operational framework, studios can concurrently develop multiple concepts internally by creating a platform that expedites the proof of concept and validation phases.
Here is a brief overview of the creation process of studios according to the major stages through which studio startups progress:
- Ideation: The ideation and validation stage is entirely carried out by the studio’s team. Generally, studios operate on the “Idea-First” model, meaning an idea generated internally or through the studio’s channels: partners, co-investors, etc.
- Validation: The studio creates one or more prototypes and tests them to validate that it addresses the identified problem.
- Recruitment and Commercialization: Once the validation stage is completed, a team is form around the most promising prototype and move on to the commercialization stage. When the startup begins to gain traction, the venture studio transfers the management of the startup’s growth to a new team or strengthen the existing team.
- Growth: Like any type of studio, “builders” also provide ongoing operational and strategic support, as well as the capital required throughout the development of their startups.
To facilitate a continuous generation of ideas and the creation of new startups in a cyclic manner, studios typically maintain a support platform that typically includes the following elements:
- Partners who are involved at all stages of the new business creation process. Usually, partners are seasoned entrepreneurs and/or serial entrepreneurs.
- A team of analysts responsible for identifying needs, uncovering opportunities, and crafting concepts.
- A back-office team comprising experts in various domains such as product development, marketing, legal, finance, and operations, providing comprehensive support to the startups.
- A dedicated team responsible for the recruitment of founders for the startup ventures.
- A network of experts who contribute to shaping the strategic direction of the startups.
- The necessary funding to propel startups to at least the seed stage and establish their presence in the market, with financial support typically available through Series A funding rounds.
The operational methods of commercialization studios closely resemble those of builders in terms of their support platform, network of experts, and operational framework, which facilitate the simultaneous development and financing of multiple startups. However, the primary distinction between a commercialization studio and a builder lies in the ideation and initial validation stages. Commercialization studios draw their inspiration from pre-existing intellectual properties.
The process of a commercialization studio can be summarized as follows:
- Ideation: Initial needs can originate from various sources. Similar to builders, studios often follow an “Idea-First” approach, where ideas may be generated internally or sourced through the studio’s various channels, including partners, co-investors, etc.
Upon identifying these needs, the studio’s team then selects the most promising intellectual properties that align with these needs. Subsequently, the studio engages in negotiations to secure licensing agreements with the owners of these patents, which may include universities and research centers.
- Validation: The obtained intellectual property undergoes an internal validation process, enabling the studio to conduct further tests and formulate a business concept based on it.
- Recruitment and Commercialization: Once the concept is validated, the studio assembles a dedicated team around the intellectual property and proceeds with the commercialization phase. As the startup gains momentum, the venture studio either transfers control to a new team or strengthens the existing team to foster business growth.
- Growth: The necessary operational and strategic support, as well as the capital required throughout the developmental stages, are made accessible to the startup.
This approach is primarily applied in sectors that demand substantial research and development efforts, such as life sciences, AgTech, and DeepTech. Commercialization studios benefit from not shouldering the costs associated with technology development, ideation, and initial technology validation, as these aspects are handled by research institutions. Additionally, they enjoy favorable licensing terms and long-term relationships with these institutions. Prominent players in this model include Atlas Venture, Third Rock, and Flagship Pioneering. In Canada, the Montreal-based TandemLaunch stands as a pioneering example of this model.
Corporate Venture Studio (CVS)
The Corporate Venture Studio (CVS) model combines the resources and knowledge of corporations with the agility and creativity of startups. A CVS is an entity affiliated with a corporation dedicated to creating and developing new businesses. Typically, these entities operate independently, utilizing their own resources and funding while enjoying additional support from their parent companies. Unlike traditional innovation programs, CVSs are designed to generate entirely new business models and revenue streams. For corporations, this model offers the advantage of accessing fresh ideas, cutting-edge technologies, venturing into unexplored markets, and enhancing overall agility.
For startups, the primary objective and advantage lie in harnessing the resources and expertise of a large corporation to identify needs and explore novel business opportunities. This may involve leveraging the parent company’s existing technologies or intellectual property. Startups also gain from a special rapport with the parent company, along with a well-established network of contacts that facilitate quicker and more efficient market entry than a typical startup. Consequently, startups affiliated with a CVS gain access to a diverse array of resources, funding prospects, and strategic guidance that might not be readily available to conventional startups.
CVSs can also take the form of a partnership between an independent venture studio (a creation or commercialization studio) and a large coprorations. For instance, Carrot Ventures, an AgTech-focused commercialization studio situated in Calgary, is the result of a collaboration between Farm Credit Canada (FCC) and the venture capital firm AVAC. Carrot Ventures positions itself with corporations in the AgTech sector as a vehicle for the commercialization and valorization of non-core intellectual property owned corporations in the AgTech sector.
Highline Beta is an independent pan-Canadian venture studio with activities in Quebec, collaborating closely with companies such as Colgate-Palmolive, RBC, Morneau Shepell, and Green Shield Canada (GSC). The partnership between the corporation and the studio can take various forms, including financial support, expertise sharing, intellectual property commercialization, and more. As an example, Relay Platform, a comparative-rating insurance platform, was co-founded by Highline Beta and American Family Insurance (AmFam), a Fortune 500 private insurance company.
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Why did we decide to create a dossier on venture studios?
The concept of venture studio, also known as a startup studio, startup foundry, or venture builder, is rapidly gaining traction in the world of venture capital, and Quebec is no exception. While discussing this concept with members of Réseau Capital, we recognized that this unique model, which combines both startup creation and funding, can contribute as a complementary force to strengthen critical elements within the financing value chain. These elements include deal flow, talent acquisition, the involvement of corporations in venture capital, talent circulation, and research commercialization. All of which currently significant challenges to Quebec’s funding ecosystem.
Through some research, we discovered that Quebec has a thriving community of studios, many of which, in our humble opinion, are well-kept secrets. Thus, we decided to shed light on these homegrown Québec studios. Over a series of articles, we will delve into the landscape of these organizations, explore the opportunities inherent in this model, and introduce the individuals and entities that have embraced it.
We would like to thank Gilles Duruflé and Sébastian Boisjoly from Station FinTech for their collaboration on this series of articles.