Let's Talk Venture Studios (Again)
Issue 43: Why I believe this studio model works for radical innovation
Venture studios are on my mind again. I can't stop thinking about it and am very bullish that it works. This concept is not a new idea. People have tried it before and failed, but some have succeeded. Jules Ehrhardt, Creative Capitalist at FKTRY and former owner of usTwo wrote a great article about The Origin and Evolution of the Startup Studio (I recommend reading it as a primer).
The history of studios
Let’s discuss the value of the general studio environment and go back to the 19th century, where vocational practice in the arts was common. These places were known as ateliers (the French word for workspace/studio). Art apprentices would spend years working with experienced artists learning the ins and outs of the craft in hopes to spin out their own studio. It’s similar to the associate learning the ropes of venture.
I majored in visual arts during college, spending much of my time in the studio while friends were out YOLO’ing it up. The studio space served as a community and forged friendships I have that last today. The studio was the place not only for our painting classes but where you gathered to be around other artists. I’d independently work on my art, though if I ever felt stuck, a peer would be a few easels over to tap on the shoulder in order to receive feedback and gain a different perspective. In some instances, we’d come up with new collaborations together taking it in a radically different direction. If I needed guidance on how to build something with plaster, I headed downstairs to the sculpture studio to discuss with other art students.
At the core, the concept of a studio is a gathering of talent to maximize each other independently or collaboratively while pushing infinite possibility. As much as I enjoy being an independent worker, the studio is the most powerful experience for individuals and collaborators.
Successful spinouts from venture studios
Success here is defined as the ability to secure funding and spin out of as its own company:
Current spun out of Expa
Mmmhmmm and Carrot Fertility are both ideas from All Turtles
Dollar Shave Club started as a Science Inc incubation.
Him & Hers spun out of Atomic
Glow spun out of Pioneer Square Labs in Seattle
There are so many more examples of this that I didn’t list (apologies for this being so US-centric as it’s the space I know best).
Ingredients for disaster
Don’t get it twisted. There are more failed startup studios and ideas than successful ones, and even successful startup studios put in a lot of hard work to make it sustainable. Some of the common pitfalls startups run into:
Startups and founders in the studio become dependent on studio members to run operator aspects of their company instead of learning how to do it themselves
The problem of over-building instead of focusing on getting quick feedback and learning
Ideas take too long to get killed off, burning valuable time and resources
Studio members not having the right skillset or desire to be a directly responsible individual.
There are ways to mitigate these challenges. Despite the diversity of projects, keep the focus and work lean. Bring on people who can stretch as generalists. Hire product designers who do end-to-end product design and engineers who are deep product thinkers.
The Value of Venture Studios
It's bizarre how startups form and what founders are expected to do. They get initial funding, perhaps run through an accelerator program, and are sent out in the wild. This is not a criticism of accelerators as they provide tremendous value. I think there is a longer-lasting way though and venture studios have more sustainability of working daily together for a longer period of time.
Resident operators to accelerate scale
The majority of startup founders are not great at running companies. I don't think we should expect them to. Their focus was manifesting a loonshot idea to become a company in the first place. Seasoned operators in ops, recruiting, product and design, marketing, and sales are capabilities that can set a team up for success and help them scale.
Pioneer Square Labs articulates this well on their website about the studio model:
"Building a great startup is hard. Really hard. It requires domain expertise, uncommon talent, great execution, great timing, and a little luck. It also requires the ever-elusive great idea. Our team has developed the playbook on how to rapidly validate, refine, and build new businesses."
Creating your own deal flow
As much money there is in venture capital, there is a lack of companies to invest in. This is not a pipeline problem rather a quality of startups and desire to do so. By having a venture studio, you have the opportunity to build your own deal flow in hopes to spin out the company while training and growing people to do the same.
Collaboration and Founder Matching
Founder matching can feel like speed dating to a fault. An entrepreneur with an idea has to hastily find a co-founder who can help them. Often they go on AngelList and recruit a founder on the job board. Co-founder relationships are the most complex and need to form a tight bond. In a venture studio, you can collaborate with other ideas to get a sense of how you can work together.
Ultimately the greatest value in venture studios is the mission and focus the team has. When you form a studio, you’re building for the long game for decades. For me, it’s my dream to help build companies with emerging founders until my career is over.
How I’d structure it
I’ll share some raw ideas on how I’d approach structuring the venture studio. Keep in mind this is very low fidelity ideation and not a proposed thesis. Like anything in life, establishing principles is the foundation of how something will evolve.
Founding members (General Partners): full-time
Studio members (Principals): full-time
Resident operators: could be full-time or someone taking a sabbatical between roles
Startup founders: people who bring their company into work in the studio with the goal to spin them out as a company
Studio members would have the opportunity to join startup founders in the company if there is mutual interest. Imagine two founders lacking technical chops having a studio member with a well-versed engineering background join as their CTO.
Forge new talent, diversity of thought, and background in the beginning
Value the mission and work, not the startup lifestyle
Kill ideas early to foster focus, but revisit them later
There are no designers, engineers, and product managers, only studio members who are all builders
The ideation process is simple, build a portfolio of bets and ruthlessly prioritize which ones to focus on. Imagine A-F are different startup ideas being internalized in the studio. As mentioned in one of the disaster areas for venture studios, it’s hanging on the idea and not killing the idea off soon enough.
Validate ideas rapidly to identify if there is potential traction. Success isn’t holding on to the startup forever and graduating them externally. The beauty of the venture studio is letting other funds looking for deal flow invest in the studio startups. I’d give the initial fund LPs have first dibs on deals as they are the foundational funders of the venture studio.
I’m a proponent of smaller and scrappier teams so would choose to begin the studio with a small group of trusted individuals off the ground and raise a small initial fund. There’s no reason to induce sunk cost in the very beginning. The team would work in a hybrid office and remote model to tap into the global talent and keep operating costs low. Naturally, I’d strongly encourage founders coming in to build scrappy as well, perhaps starting with no code tools to build their business idea before investing a lot of money into engineering costs.
I believe a venture studio needs to be a multi-year commitment to build momentum. Don’t count the studio itself out too soon.
Venture studios in The Roaring 20s 2.0
Mark Andreesen had a point in 2020, it really was time to build. It was really hard to imagine this during the beginning of the pandemic but we saw a huge resurgance in startup funding, particularly in the world of consumer applications.
Hybrid work models might change how the studios operate. I love remote, though I truly believe it's nearly impossible to replicate the in-person collaboration in the studio.
As much as I believe in the venture studio, it doesn’t take away the reality that working this way is really hard. People with decades of experience and fast networks in VC have failed at it, and that's why I believe it's worth pursuing. The allure of it calls many people to keep trying it—validating that many believe this can really work.
The model works, it's a matter of getting the right team powered by serendipity, and a lot of luck. It'll be interesting to see how the concept of venture studios plays out in the 2020s and beyond. I certainly plan to be a part of it.
Andreas Klinger’s thread that includes his take on venture studios becoming en-vogue again
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