Do venture studios have a higher success rate?

innovation HQ
4 min readOct 31, 2022

From the outside, everything appears to be simple. In his twenties, an entrepreneur with cutting-edge technology and venture financing becomes a millionaire. Building a new startup from the ground up is a tough challenge.

However, emerging evidence is emerging that venture-backed startups fail more significantly than the sector reports.

A lot can go wrong, especially if you’re a first-time entrepreneur, from assembling the right team to raising money. However, with 90% of businesses failing, it’s critical to identify where we’re failing — and how we might improve.

While venture funds and angels play an essential part in the venture ecosystem, they are not the best answer for every problem. Instead, we must investigate new methods to establish successful businesses, and approaches that apply to structural difficulties in the startup life cycle.

Enter Venture Studios. The approach, often known as a startup studio or venture builder, was pioneered by Idealab in 1996.

For the last ten years, the Venture studio model has been quietly developing — and dominating. If you’re wondering what venture studios are and why they’re garnering the attention of senior entrepreneurs and established businesses, let’s dive into the blog and learn what a venture studio is and how they are achieving higher returns than a VC.

What exactly is a Venture Studio?

A venture studio, like IHQ, is an organization that help build successful companies. Whether their teams or part of a bigger corporate innovation division, studios use internal and external resources to strategies execution, pair them with seasoned team, and assist them in success.

But a lot going on behind the scenes makes studios so appealing. In exchange for stock in the future business, these internal resources encompass anything from tech stack or sales knowledge to marketing resources, HR infrastructure, and legal advice. It could be a terrific deal for the startup, the studio, and the investors.

What distinguishes Venture Studios from Venture Capital?

Venture Capital firms often act only as stakeholders, acting in the background as relatively silent partners. Though money from a prominent VC firm may draw some good attention by lending legitimacy to the initiative, this form of structured investment has a few additional advantages.

On the other hand, Venture Studios are more involved in projects and enterprises from the beginning, taking on executive roles and offering additional in-house resources. The VC Studio model’s command also allows for greater flexibility in meeting certain milestones on time.

Do venture studios have a higher success rate?

The venture studio is not a new concept, but it has renewed interest, and it is due to the company’s sustained performance over the last few decades. According to a report, just 9% of the 415 firms incubated by startup studios have failed, 3% have exited, and the rest are still operational, and companies that are still in operation generate income, with an average typical revenue of $1,117,997 in a year. As a result of their success, these firms have produced 2,078 new positions that did not exist just a few years ago.

Veteran entrepreneurs and venture studio supporters attribute the success of venture studios to their early engagement in the firm life cycle and their high-touch management style. Rather than focusing on already-established businesses, studios only invest in startups that have defined their idea, undertaken market research, confirmed customer demand, and adjusted their plans accordingly.

The surge in interest in studios is also closely linked to developments in the venture environment. Startups and corporations must discover more effective methods to compete as platform giants employ their near-limitless resources to disrupt sectors. The studio model provides them with experienced leadership, simplified resources, and market validation, making success accessible and repeatable.

Why Investors should invest in Startup Studios?

Startup studios have repeatedly been shown to be the winning approach for developing successful startups with high returns on investment.
The most important reasons why investors should invest in startup studios:

1. Lower Risk

  • 60% of studio-created businesses make it to Series A.
  • Compared to the usual startup-building strategy, startups that come from a studio are 30% more likely to succeed.

2. Increased Profits

  • Studios retain an average of 20% stock in the firms they bring to market, giving investors a cheaper valuation with higher equity multiple.
  • The average IRR of studio-born businesses is 53%, whereas standard VC-funded startups have a 21% IRR.
  • Studios build venture-scale businesses rapidly and precisely. They give portfolio firms a strategic advantage at every step of their growth.

End Note

Studio-based companies are more likely to succeed than traditional startup development because they use established procedures, deep subject expertise, solid networks, and pooled resources. Furthermore, studio-born companies have been shown to exit faster with greater returns than typical startups. Studios build venture-scale companies with speed and precision.

Originally published at https://ihqventures.com on October 31, 2022.

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innovation HQ

We are Innovation HQ! An early-stage VC, building and investing in ventures through iHQ Studio & iHQ Capital.