Comparison of the Venture Studio business model to traditional forms of Startup-creation

Venture studios aim to revolutionize the startup creation process. AzureSea is one of the fastest-growing Venture Studios in MENA. Located in DIFC, Dubai.

Comparison of the Venture Studio business model to traditional forms of Startup-creation
Article by
Amil Karner
Article Date
April 25, 2023

Comparison of the Venture Studio business model to traditional forms of Startup-creation

When thinking about newer business models in any industry one of the most crucial things to take note of is their performance and benefits they can deliver over the traditional and well-established business models. In the startup environment venture capitalfunds and accelerators can be considered the standard business models for thecreation of new businesses. The Venture studio on the other hand is still arather novel approach that tries to shore up short comings of the twoaforementioned models while also bringing in an innovative approach to startupcreation. In this blog post, we will explore the differences and benefits of venture studios compared to venture capital funds and accelerators.

The 3 different Models

Let's start by discussing the venture capital (VC) fund model, which is the largest and most established in thestartup industry. VCs are investment firms that pool money from investors intoa fund focused on early-stage, high-growth companies. The primary objective isto build a diverse portfolio of companies and achieve a return on investmentthrough an exit, typically by IPO or acquisition. VCs can be specialized in afew specific industries or be generalist funds that invest across varioussectors. The key benefits of VC investment include extensive experience inidentifying and nurturing high-potential startups, an extensive network ofresources to support portfolio companies, and a range of investment optionsthat allow for customization to meet the needs of the startup and its founders.

Next let’s look at accelerators, the secondtraditional model in the startup space. Accelerators are programs that providementorship, resources, and funding to early-stage startups in exchange forsmall equity stakes. They offer support to founding teams in the early stagesof their venture, where mistakes and pitfalls are common, especially forfirst-time entrepreneurs. Typically lasting a few months, acceleratorsculminate in a demo day where founders can network and pitch their ideas topotential investors. The major benefit of accelerators is the access toresources, information, and networking opportunities they provide in exchangefor equity, which is particularly valuable for young startups which generally lackfunds but require support. Additionally, they provide structured programs withclear steps on how to refine business models and prepare for scaling.

Finally, let's talk about venture studios,which aim to revolutionize the startup creation process. They create and launchtheir own startups internally, using a core team of experienced entrepreneurs,designers, and developers who take a hands-on approach in validating,prototyping, and scaling ideas. When the initial idea succeeds, it's spun outas its own company, and a venture team is recruited to run it in exchange foran equity stake, while the studio keeps the majority stake. The key benefit ofventure studios is their experienced core team that can leverage theirexperience in every new project, helping them avoid typical pitfalls whilebeing able to validate and scale ideas quicker. Additionally, studios offermore support during all stages of the startup creation process.

Comparison on Advantages of Studios

Compared to venture capital firms andaccelerators, venture studios have several distinct advantages. They typicallytake a more hands-on approach to investment, providing ongoing support andguidance to their portfolio companies. They also typically invest in a smallernumber of companies, which allows them to provide more focused attention andresources to each startup.

Finally, venture studios have the ability to createtheir own startups in-house, which can lead to a more diversified portfolio anda higher success rate. Meanwhile VCs and accelerators also bring severaldrawbacks with them that venture studios avoid. For VCs the biggest drawback istheir hands-off approach, which leads to a significantly lower support andguidance for the founding teams they finance.

Adding to that their largeportfolio also means that their attention, resources and expertise is dilutedacross the large number of companies in their portfolio. Accelerators on theother hand suffer drawbacks due to their comparatively short time horizon,which means they can’t offer the same level of ongoing support as studios.Adding to that the rather small equity stake they take leads to a relativelysmall profit margin.

Seeing these points, it is to be expected that studios should outperformtraditional startup creation when looking at different key metrics like returnsor time to scale and the data also supports this view.