Venture Studio Business Model

Did you know that venture studio startups have a 30% higher success rate than traditional startups? If this is the case, we wonder why this business model is still under wraps.

Compared to the millions (5,044,748 to be exact) of businesses started each year, there is only 724 venture studios around the world. Surprisingly, Europe has more of these venture studio business models than North America does. While this number may seem small, it is actually on the rise.

In this blog, we uncover exactly what a venture studio is, how it operates, and the secret to why it has a higher success rate compared to traditional startups.

We also discuss why Phase One Ventures adopted this business model. Originally, our company had a very different game plan.

Read on to discover what they are not telling you about venture studios.

How does a Venture Studio Business Model work?

A venture studio, also known as an "idea factory", builds new startups by combining ideas, talent, and capital all under one roof.

Venture studios typically develop ideas in-house and then gather the necessary resources and money to bring them to life. Once an idea is deemed viable, the studio provides extensive hands-on support, both financially and operationally.

The studio's team is actively involved in the early stages to turn concepts into successful startups. The studio launches the minimum viable product creation for market testing, responsiveness, and to attract investors. This model increases the chances of success by leveraging shared resources, expertise, and networks across multiple ventures.

In return for this intensive support, the studio typically takes a decent equity stake in the companies. This stake is often higher than traditional early-stage investments due to the added value they bring. Ultimately, the studio's goal is to build successful businesses that provide substantial returns on investment.

If you are looking for an in-depth guide on how venture studios compare to corporate venture studios, venture capitals, accelerators, and incubators, check out this blog "Unlock the Secret Behind Venture Studios: Phase One Ventures' Success".

Pros

There are many reasons why venture studios are superior, here are 5 to name a few:

1. Built-in Expertise and Resources: Venture studios have a team of experts in various domains such as marketing, finance, design, data science, and product development. This in-house talent can expedite the process of turning an idea into a viable business, ensuring that startups have the best minds working on their challenges.
2. Risk Mitigation: By constantly ideating, testing, and validating business ideas internally, venture studios can reduce the chances of pursuing non-viable business concepts. They follow rigorous validation processes, including market research, customer interviews, and financial modeling, to guarantee an idea's potential success.
3. Operational and Financial Support: Once an idea is validated, venture studios not only invest in the startup but also provide hands-on operational support. This holistic approach means that startups benefit from both capital infusion and operational expertise, increasing their chances of success.
4. Diversity in Industries: Unlike other established businesses that try to monopolize one niche, venture studios benefit from working in numerous industries. They are not tied to a specific field, but can horizontally bounce depending on which spaces are profitable at that time.
5. High Involvement and Commitment: Venture studios act as "co-founders," deeply invested in the startup's success. This high involvement ensures that they are actively working alongside the startup team, offering guidance, resources, and expertise every step of the way.

Cons

While we might be slightly biased towards venture studios, we understand this cup of tea might not be for everyone. Here are some of the downsides that turn potential partners away.

1. Equity Ownership: Venture studios often take more equity stake in the startups they build. This equity percentage can be higher than what traditional early-stage investors or accelerators might ask for. While the hands-on support and resources provided by venture studios justify this higher stake, entrepreneurs may find themselves with less ownership in their own companies.
2. Diluted Ownership: With a higher equity stake comes increased influence over the company's decisions. Venture studios, due to their greater ownership, might have a more significant say in crucial decisions related to the company's direction, strategy, and operations. Also, each entrepreneur should be cautious that the venture studio's goals are aligned with the business owners' goals.
3. Potential for Limited Flexibility: Since venture studios have established processes, tools, and approaches they use across multiple startups, there might be a templated or one-size-fits-all approach. This can limit the flexibility or customization that individual startups may want or need, potentially stifling unique aspects of a business or its desired direction.

How does a Venture Studio Business Model Compare to Traditional Startups?

Origins

Traditional startups usually spring from a founder's singular vision, setting out independently to seek validation, traction, and external funding. Whereas, venture studios may invest in multiple startups simultaneously. Ideas for these startups may come from the business owner or partners.

Funding and Resources

Traditional startups often start by bootstrapping or sourcing seed capital, building their teams, networks, and resources from the ground up. You might often head about the differences between lean and traditional models. On the other hand, venture studios come with built-in support infrastructure, readily providing funding, expertise, and shared resources to their in-house startups.

Risk and Innovation

Venture studios can diversify and manage risks more effectively since they work on multiple ventures simultaneously. Their setup also promotes quick refinement, immense research, and market-responsive testing before launch.

Meanwhile, traditional startups bear higher individual risks but enjoy the freedom to pivot quickly and maintain decision-making autonomy.

Ownership and Control

In a venture studio environment, the studio usually holds a substantial equity stake in its startups, aligning them closely with their overarching goals.

Traditional startup founders often retain control, unless they give up significant equity to investors.

Growth and Evolution

Startup studios within a venture studio might experience accelerated growth due to consistent mentorship and pooled resources.

In contrast, the growth trajectory of traditional businesses can be influenced by market responses, team dynamics, and funding availability. It can take awhile for traditional businesses to launch because they spend so much time building the business model and strategy. They develop a 5 year game plan and rigidly adhere to this plan. In turn, this might affect the growth trajectory and cause slower evolution.

Why are Venture Studios more Successful than Traditional Businesses?

To put it simply, venture studios have more to offer. The abundance of resources paired with a sensitive and efficient development process far exceeds the flexibility of traditional businesses.

Some reasons why there are far less venture studios may be that it is a fairly new business model or entrepreneurs might not have access to all these resources.

We continue the conversation in this blog "How you can Avoid These Mistakes of Failed Businesses" which confronts the startling fact that 90% of businesses fail.

Keep reading though to learn why the venture studio model has been the key to success for Phase One Ventures.

The Phase One Ventures Business Model

The Phase One Ventures experience is different and unique compared to other venture studios.

Phase One Ventures has developed a 5 phase model for onboarding new partners and conducting business. Every prospective partner that is interested in working with us goes through this process.

Since each project is completely unique, requires different features and pain points, and costs thousands of dollars, this is an extensive process. Ultimately as a venture studio, we care that both parties are the right fit since we invest our time, money, and resources. It is in our best interest to make sure that the venture has potential for massive gain.

Phase One Ventures did not initially start as a venture studio. In 2020, Founder Jonathan Diaz, started a marketing agency that eventually evolved into the software development company it is today. As a marketing agency, Diaz noticed the industry was heavily saturated and corrupted. These main reasons sparked the journey towards a venture studio business model.

For a unique inside peek into the Phase One Ventures' transition, read about the first company our team built that affirmed this transition.

Keep reading for a breakdown of what each partner experiences while launching a market-leading SaaS.

Phase One: Discovery Call

Phase One is the discovery call. This phase is all about alignment and understanding. Typically the prospective partner will have a SaaS idea and industry to pursue. If they do not, this phase provides time for brainstorming and creating a business plan for a SaaS.

By diving deep into the vision behind the SaaS idea, both the partner and our team can gauge compatibility and set clear expectations. If we can establish the right fit at the beginning, this will reduce potential friction or misalignment down the road.

Once a business idea has been established, each department begins extensive research into the industry. Most importantly, pain points of the target audience are laid out. This part is crucial because Phase One Ventures develops an entire SaaS that addresses these pain points.

The designers and product managers will conduct research into the features the SaaS should contain. These features will solve the audience's pain points and give the development team a launchpad to start coding.

For a more technical explanation into how software-as-a-service is built, read this blog "Phase One Ventures Reveals how SaaS Platforms are Built" that translates developer talk into layman's language.

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Phase Two: UI/UX & Product Development

As you can tell, there is a lot to discuss and research to be analyzed in phase one. After we have decided if we are a good fit for one another, we transition into phase two.

This step is foundational for transforming an abstract idea into a tangible plan. This is where the build out of the platform and initial testing occur. Prioritizing user experience (UX) from the outset is important because user interface and functionality significantly impact market adoption and retention rates.

Collaborative planning confirms that the final product reflects the founder's vision and meets user needs. In this phase, samples of the software will be distributed to control groups for testing.

Phase Three: MVP Launch

The MVP is essential for early-stage startups.

This is what sets venture studios apart from traditional startups. It allows the software to be tried and tested on the market without putting everything on the line.

It enables entrepreneurs to quickly validate their idea in the market, gather feedback, conduct research, and adapt without huge investments. An MVP focuses on core features, providing value to early users while leaving room for future iteration based on real-world feedback. This is when we determine if the platform is market-responsive and user-centric.

The partnership does not end here, this is just the beginning.

Phase Four: Go-to-Market Strategy

Launching a product is just the beginning. An effective go-to-market strategy considers branding, marketing, pricing, sales, and more. This orchestrated approach ensures that once the product goes live, it reaches its target audience and gains momentum in the market.

A key factor and requirement of all potential partners is that they must have an established network and audience. This plays into the go-to-market strategy since we leverage the partner's audience to build anticipation, raise awareness, and push the platform.

Our marketing team is skilled at collecting and creating materials like interviews, case studies, and social media posts to release at this time.

Phase Five: Continuous Growth & Acquisition

After the platform is launched and tracking, we usually repeat phases two through five for further launches like the beta and alpha release. Each launch will contain a new set of distinguished features that solve more pain points.

All experienced entrepreneurs know that long-term success requires continuous adaptation and improvement. In this phase, ongoing engagement helps the SaaS platform evolve with user needs and market trends. Furthermore, by aiming for growth and potential acquisition, there is a clear long-term vision that can motivate and guide the development and scaling processes.

The overarching goal is for each SaaS to achieve a $5-6 billion exit within approximately 5 years of launching.

Portfolio Companies

We have rinsed and repeated this process with successful venture studios many times. Our average valuation for startups like Cellyce, Visitor Pixel, and App Bravo reach 7 figures within 90 days of launching.

Portfolio company, Cellyce, is an e-commerce aggregator that helps both business owners and consumers find their products. To learn how Phase One Ventures built this market-leading SaaS, read the complete case study on Cellyce.

Although this startup is not a portfolio company, we have helped Dispute Panda, an AI-powered credit repair software, reach an 8 figure valuation inside 8 months. Read the case study here.

Conclusion

The venture studio model stands out as a compelling alternative to traditional startup methods that offers a unique blend of expertise, resources, and collaboration. While it might not be the perfect fit for every entrepreneur, it addresses many of the uncertainties and challenges startups commonly face.

With a 30% higher success rate, this model is globally gaining traction.

Phase One Ventures exemplifies the power of the venture studio business model, showcasing its capacity for success and industry-leading innovation. For entrepreneurs beginning their journey or looking to invest, the venture studio model may be their future blueprint for success.

Through a detailed approach, Phase One Ventures crafts SaaS solutions that are unique, responsive, and built for substantial growth. The success stories of our portfolio companies serve as testament to the effectiveness of this approach.

If you are interested in partnering with Phase One Ventures, fill out our partner application. Let's start a conversation.

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