What is a venture studio?
The Venture Studio Model
In essence, a venture studio is a pre-seed and seed-stage organization that builds, finances, and accelerates the growth of startups within its own platform.
The venture studio landscape is diverse, with each studio often possessing its distinct characteristics. However, there are certain shared characteristics that can be discerned. Typically, studios follow a four-stage operational framework that cycles through ideation, validation, commercialization, and growth:
The studio identifies needs, evaluates different opportunities, and develops a concept (a value proposition) around them. Studios often operate on an “Idea-First” model, meaning an idea is generated internally or through the studio’s channels: partners, co-investors, etc.
During this stage, the concept is refined by defining product specifications (Proof of Concept or PoC) and testing it to ensure it addresses a real problem. The financial model and profitability of the product are also assessed. The term “go/no-go” is often used to describe this stage.
Recruitment and Commercialization
This is the stage where founders come into play, and the startup is constituted as its own entity. Studios themselves recruit the future founders of the startup. The fact that studios recruit founders themselves is a major differentiator from other concepts in the ecosystem. Once founders are found, the new team turns the concept into a Minimum Viable Product (MVP), which is tested in the market to strengthen product-market fit.
During this stage, the startup focuses on growing its market share, exploring new market opportunities, implementing management systems, and developing new products. This is the final stage before an exit, which typically results in an acquisition or, occasionally, an initial public offering (IPO).
Distinguishing the venture studio model from other entities within the funding ecosystem, such as incubators, accelerators, and investors, can be a challenging task. In essence, a venture studio takes a project from inception to fruition, encompassing the identification of an idea, the creation of startups, the team assembly, financing, ongoing management support, and acceleration of growth by using its own resources to transform a concept from 0 to 1.
Therefore, an organization solely dedicated on accelerating or creating startups without providing funding is not a studio but rather an accelerator or an incubator. Venture studios source business ideas from their own network and assign in-house teams to develop these idea into startups, involving a diverse range of experts like engineers, advisors, business developers, and sales managers. The relationship between a venture studio and its startups is long-term; they are deeply involved with the startups they develop until their exits.
If an organization provides funding but does not create startups, it is an investor. Some venture capital funds have expanded their support over the years by allowing founding teams to access support platforms, which may include key experts (entrepreneurs in residence) or administrative resources (back-office). However, despite the development of these support platforms, the primary responsibility for execution for startups funded by traditional venture capital funds largely falls on the shoulders of the startup founders. In contrast, studios share a substantial portion of that responsibility along with the associated risks. .
Studios are, in a way, “startup factories” that consolidate all stages of development within a single platform. They conceive and refine concepts, create the team, shape the growth strategies, actively participate in operations, and provide the capital needed to expedite the startup’s expansion.
BUSINESS MODELS OVERVIEW
DIFFERENCES BETWEEN VENTURE STUDIOS AND OTHER MODELS
In summary, the differentiating elements that distinguish a studio from other comparable concepts in the investment ecosystem include:
- The original idea for the future startup comes from the studio.
- Studios create startups from scratch and provide funding to them.
- Studios recruit founders or management team themselves to lead the startups (Founder flow).
- Studios do not have a fixed timeline for accelerating their creations, while accelerators generally operate on a cohort-based system that lasts an average of six to twelve weeks.
- Studios assume a significant portion of the responsibilities and risks associated with the ideation, validation, and launch phase of their startups.
- Studios continuously involve themselves in the operations of their startups, improving it gradually through co-innovation.
- Studios are usually niche-focused in a specific sector (B2B, B2C, etc.) or a specific vertical (DeepTech, FinTech, CleanTech, etc.).
According to Enhance Venture, 36% of venture studios focus on a single sector, and another 36% focus on 2 sectors. However, studios that specialize in a single sector represent 67% of all investments made in venture studios at the international level.
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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.