The Key Benefits of a Studio
Venture studios are a unique model for creating and launching startups which provides a controlled environment for rapid innovation and experimentation. They are designed to accelerate the trajectory of new ideas, minimize the risk of failure, and support sustained growth. In this article, we will explore some of the advantages of venture studios, such as their velocity, startup success rate, and their ability to attract high-quality talent.
1. Velocity and quality startups
Velocity is the most significant advantage of a studio. Velocity translates, first and foremost, into the speed at which studios either pivot or accelerate the growth of their concepts. Due to their unique operational framework, studios are designed to dramatically accelerate the trajectory of their creations (success or failure). The trials and errors occur in a controlled environment, and the timeframes between the birth of an idea and the decision to implement or discard it are short. Studios operate on the principle that quickly discarding or pivoting a concept even before it becomes a startup improves the quality of startups emerging from the process and significantly reduces the risk of future failures. Sustained and continuous strategic support also accelerates the growth of incubated startups and positions them toward a successful exit strategy from their inception.
Velocity also translates into how quickly startups secure funding and achieve their exits. Several venture studios have dedicated funds to support their startups financially. Additionally, studios generally have close relationships with investors, making it easier for startups to access additional funding sources and expand their network of potential investors. In Quebec, Dialogue Ventures is an excellent example of the velocity achieved with a studio. Dialogue was created by Diagram and Cherif Habib in 2016. Its initial public offering (IPO) took place in March 2021, just 5 years after its creation. According to Réseau Capital data, the average time for a Quebec-based life sciences startup to go public is 10.44 years and 9.20 years in Canada. Thus, Dialogue’s IPO happened 50% faster than the Quebec average and 44% faster than the Canadian average.
A recent American study conducted by Max Pog provides further evidence of the benefits of venture studios. The study found that startups from venture studios reach seed funding rounds twice as quickly compared to conventional startups (1.49 years versus 3.03 years). Specifically, they reach Series A funding 41% faster, Series B 44% faster, and Series C 47% faster (4.59 versus 8.67 years). This data underscores the significant advantage that venture studios offer in terms of speed and financial success.
As for exits, the findings of Max Pog’s study also support the thesis of faster exits for startups originating from studios compared to conventional startups. Based on a sample of 182 acquisitions of startups from venture studios and 22 initial public offerings (IPOs), the study shows that, on average, startups from venture studios take five years to be acquired, which is 33% faster than conventional startups, and 7.5 years for an IPO, which is 31% less time.
2. Startup success rate
A study by the Global Startup Studio Network (GSSN) in 2020, covering 23 leading venture studios, revealed that out of the 415 companies they created, only 9% failed, 3% exited, and the remaining 88% are still active. According to the same study, startups from venture studios have a success rate of 30% higher than traditional startups. Moreover, 84% of startups from a venture studio secure seed funding, and 72% reach Series A (compared to 42% of traditional companies). Ultimately, 60% of companies created from studios reach Series A. It’s important to note that despite promising preliminary results, the model is still young, and research on the subject is limited. It’s, therefore, too early to draw firm conclusions about the model’s performance.
3. Quality of team and talent recycling
Venture studios operate on the premise that success attracts talent, and talent leads to more success. They are typically organized by serial or seasoned entrepreneurs who have had previous success. Offering them an environment where they can focus solely on the initial phases of startup creation while working on various concepts is a unique aspect of venture studios. A unique aspect of venture studios is that they offer entrepreneurs an environment where they can focus solely on the initial phases of startup creation while working on different concepts.
One of the main benefits of a studio is the rapid injection of high-quality talent into an environment where risk-taking and boldness are valued. It lies in its ability to quickly introduce top-tier talent into an environment that encourages risk-taking and daring innovation. The studio model somewhat mirrors the phenomenon known as the ‘PayPal mafia,’ which is particularly effective in attracting talented individuals to join as founders and managers for the studio’s startup projects. It can also serve as an essential talent-recycling mechanism. Additionally, some studios have a significant impact on ecosystems by retaining and centralizing the most skilled local talent. In Quebec, Diagram Ventures embodies this advantage with an impressive alignment of successful entrepreneurs on its team as partners, such as Pierre Donaldson (nGUVU, Aheeva Technology, Planora), Frederic Latreille (Garda Background Screening Solutions, SkyMotion), and Steve Schultz (Check). Another Quebec example is Michael Mee, General Manager of Pre-Amp, who has five years of experience as an associate at Flagship Pioneering.
The significance of this asset can vary depending on the location, mainly when top-tier talent is scarce within an ecosystem. Additionally, it can be leveraged to entice and keep talent within specific verticals like FinTech, biotechnology, or DeepTech.
4. Technology transfer and research commercialization
The acquisition of intellectual property by foreign firms is a well-known issue in Canada. Commercialization studios based on intellectual properties can be effective channels for technology transfer from public research. Although specific research on the effectiveness of venture studios in commercializing intellectual property is limited, the inherent benefits of the studio model, such as access to resources, expertise, and networks, suggest that commercialization studios can play a positive role in technology transfer. In Quebec, studios are an effective model for financing and commercializing intellectual property from universities but also from colleges through college technology transfer centers (CCTTs) and research centers.
Moreover, this model seems effective for valuing our intellectual property and can also be used as an importer of promising intellectual properties from other jurisdictions. TandemLaunch is a perfect example, as their search for university intellectual properties knows no boundaries. Indeed, partnerships established over the past decade have not been limited to Quebec and Canadian universities but have also included prestigious institutions in the United States and Europe. It will also be interesting to follow the activities of Sherbrooke’s QV Studio, which aims to import and develop intellectual properties in the quantum sector.
5. Risk mitigation
According to a 2021 study by CB Insights, here are the top 5 reasons often cited to explain the failure of a startup:
Lack of capital (38%)
Lack of market need for their product (35%)
Superior competition (20%)
Deficient business model (19%)
An ill-suited team for the project (14%)
Venture studios provide startups with a support platform that grants them access to a wide range of resources, such as initial funding, infrastructure, administrative support services (back-office), dedicated founder recruitment personnel (founder flow), expert advice, and contact networks. This allows startups to focus on their development and growth while minimizing funding and operational management obstacles. Thus, the operational framework of studios is designed to mitigate many of these causes of failure.
6. Collaboration, networking, and iteration
Venture studios create a collaborative environment where startups can interact, share ideas, and collaborate with other entrepreneurs. Additionally, many venture studios specialize in a specific sector or vertical. These two elements foster opportunities for collaboration, knowledge sharing, and the exchange of best practices, which can lead to strategic partnerships, synergies, and mutual growth opportunities.
Another asset of studios is that they allow serial entrepreneurs to focus on what they do best: imagining, iterating, prototyping, and testing new products.
In short, studios distinguish themselves by continually formulating and testing hypotheses. This parallel and iterative system of creating startups that operate in the same space allows the studio to reduce the risk of failure, accumulate knowledge and experience, and pool resources.
7. Founders
Venture studios are well-suited for experienced entrepreneurs looking to develop a new product. The venture studio team has already identified a need, developed a product, identified a market, and often identified initial customers, consequently eliminating a sizable portion of a new startup's initial risks. In return for this reduced risk, the venture studio occupies a significant place on the capitalization table (cap table).
8. Return on investment (ROI)
As mentioned in the previous point, having mitigated initial risk typically allows the studio to take a preferred stake on the capitalization table as founders or co-founders of their startups. According to the Global Startup Studio Network (GSSN), venture studios own from 15% to 80% of the initial capital of startups. The average participation of studios stands at 34%. Individual founders typically secure an average of 50% of the capital, with the rest used for employee stock options. The same source states that the average internal rate of return (IRR) is 53% for a startup created in a studio compared to an average of 21.3% for a traditional startup. According to several sources consulted, during Snowflake’s initial public offering (IPO), Sutter Hill Ventures (the venture studio that created Snowflake) held 20.3% of the company’s outstanding shares. Sutter Hill’s participation amounted to 12.6 billion USD, a remarkable return on investment for a total investment of less than 200 million dollars.
All these reasons give before an edge in the startup creation process
In conclusion, venture studios represent a unique and efficient model for creating and launching startups. From their ability to accelerate the trajectory of new ideas, minimize the risk of failure, and support sustained growth to their capacity to attract high-quality talent, venture studios have proven to be an effective tool for those looking to build successful and innovative companies.
If you are interested in exploring the possibility of helping us launch new startups or want to know more about how venture studios work, don't hesitate to reach out to us. Whether you are an expert in your field, an investor or want to become a founder, our team is always ready to help you take the first step toward your entrepreneurial journey. Contact us today, and let's start building your dream startup together!
