At a Glance: 5 Differences Between the Venture Studio and the VC Firm
Venture Studio, sometimes called “Startup Studios,” “Startup Accelerators” and “Startup Factories,” seem to be popular buzzwords within the world of private funding these days.
Are you someone that has heard of the venture studio model but still has questions about how it compares to a traditional VC firm?
Over the past few years, the number of Venture studios has steadily been on the rise. In major tech markets like Austin, San Francisco, and New York City, venture studios have been popping up all over the place and it seems like this trend will continue. While it seems that some companies were quick to adopt this model, others seem to be hesitant, yet curious.
As with any new model, there will be many questions, and this article attempts to answer three key questions about Venture studios:
- What exactly is the Venture Studio model?
- What is the significance within the larger investment industry?
- How does this model differ from a traditional venture capital firm?
Let’s compare these two models.
What is a Venture Capital Firm?
- Large Investment Pool: Value of Venture Capital investment in the US: $99.5 Billion
- Belief in Startups: In 2018, VC Firms invested $131 Billion in startups in the US
- Record Number of Deals: Total Number of VC deals in the US between 1995-2018: 5,536
- Negative Correlation for Investment Dollars and Deals: Experts forecast that while the overall dollar investment will climb, the total number of deals will continue to decline.
A venture capital firm is most often a large financial organization that provides valuation and funding for early-stage and emerging companies. The VC firm foresees the viability and profitability of a company’s product.
Typically the VC firm model is extremely “hands-off”, meaning that while the VC firms take a percentage of the company, they don’t involve themselves in the operations of the seed companies, and participate exclusively by providing rounds of financing based on specific targets being reached.
The goal of most venture capital firms is merely to see a return on their investment, which puts them into a class similar to traditional financial institutions.
What is a Venture Studio?
- Big Decade for Venture Model: Since 2009, there has been a 5,000% growth in the venture studio model
- More Studios by the Week: There were 80 studios in 2013, the number grew to over 200+ with new ones coming out by the week
- Double by 2023: Experts forecast the total number of startup studios to double in the next 5 years by 2023.
Different from a VC Firm and financing structure, a VC Studio often works as a structure in which the studio or a partner within the studio serves as a company founder/ advisor. The studio then provides resources (e.g., capital, marketing, event sponsorship, etc) for the company they invest in.
The goal of most venture studios is to enable entrepreneurs and teams to build a sustainable, scalable company model right from a pre-seed/ early moment in the company’s conjecture. Studios serve as funnels for startup teams, sometimes assembling entrepreneurs into startup supergroups like K-pop managers.
In August 2019, Venture Beat suggested that the venture studio model is exactly what the industry needs right now. Venture Beat stated the benefits of the venture studio model like: collaboration, pooled resources, and moving away from a corporation decision-making structure.
These values are what is needed to usher in a new era of the internet that we like to call Web 3.0.
Difference between a VC Firm and a Venture Studio?
- Same Same but Different: Do you want a capital injector or do you want someone that is active in your company?
- Studios are in the Know: VC studios’ administrative involvement affords them greater comprehensive knowledge of the seed company’s progress
While there are quite a few similarities between VC Firms and VC Studios, there are a number of important differences as well. VC Firms usually tend to operate as only stake-holders, operating in the background as somewhat silent partners. Though funding from a prestigious VC firm may attract some positive attention by adding credibility to the project, there are not many other benefits that accompany this type of structured investment.
VC studios, on the other hand, involve themselves more directly in the projects and companies from the onset, taking on executive roles and providing additional in-house resources. The direct oversight provided by the VC Studio model also allows for more flexibility regarding the timeline of achieving certain targets.
Whereas traditional VC firms are notoriously rigid regarding the necessity to meet objectives within tight time windows, VC studios’ administrative involvement affords them greater comprehensive knowledge of the seed company’s progress, allowing them to adjust target windows and better maintain the company’s successful trajectory.
While both traditional VC firms and VC studios offer viable alternatives to traditional institutional investment channels, they offer very different approaches to their method regarding their funding.
For larger, better-structured projects looking simply for investment without involvement, the traditional VC avenue may be the better option. However, for smaller, less organized projects looking for the benefits of executive involvement and resource pooling, a VC Studio might be a more effective route.
VC studios are on the rise and will continue to gain prominence in the startup world.