A venture studio, also known as a startup studio or venture builder, is an organization that creates multiple startups simultaneously. The core idea is to leverage shared resources - such as capital, talent, and infrastructure - to systematically create new companies with a hands-on approach from the very beginning. Unlike incubators, accelerators, and investors, studios create companies from generally internally generated ideas and play an active role in development, execution, and management prior to spinning the successful ideas into new, independent companies. Studios will retain an ownership stake in these new companies, and may additionally invest in the new companies alongside venture capital investors.
For more details on venture studios process, structure, and analysis of venture studio and studio startup success, start with Big Startup Studios Research 2023 by Max Pog, as well as a great explainer on venture studios by High Alpha
Venture studio economics
Venture studios employ a range of engineers, product managers, designers, marketers, and more to discover, validate, create, and grow ideas into new companies. Studios may budget $200k to $1mm to launch companies to the point where they can attract external investment and operate independently.
More on the math on the expenses of creating companies at The Math Behind Our Startup Studio
In return, studios will take an equity stake in these new companies, ranging from 20% to 80% depending on the studio and the startup's stage of development; 20-40% is typical for a studio that takes an active role in cofounding a startup from the beginning and aims to launch it as a standalone company, whereas 50-80% reflects a different model where the studio will continue to invest in the new company's growth, perhaps as the near-sole investor or owner.
Studios typically earn revenue from the sale of the new companies they launched (IPO, M&A, etc.), and potentially from revenue sharing, dividends, or billing for services provided to those companies.
Startup studios differ from holding companies in that the goal of a startup studio is typically to launch the type of high growth companies that will benefit from venture investment, whereas holding companies would look to companies that can be profitable, self-sustaining companies without requiring the same level of investment in advance of profitability. So where a holding company would expect to earn revenue as an operator (from operating their multiple businesses), studios would expect to earn revenue as an investor (from the exit of their investments.)
Studios may also earn revenues from managing external capital used to invest in their new companies, but that can depend on the structure of the studio and the investments they make in their new companies.
Studio legal and economic structure
Max Pog highlights three primary structures for a startup studio:
- Holding Company: a single entity that creates startups and takes equity stakes in them, raising money from limited partners that invest in the holding company. The holding company owns the shares from incubating the companies.
- Fund: a dual entity that raises money from LPs with a normal fund economic model (management fees and carried interest, perhaps under the typical 2/20 model), and uses the management fees paid to the management company that manages the fund to operate the studio. The fund owns all the shares from incubating the companies.
- Dual-Entity Model: a holding company + fund model where the studio and the fund are separate entities, the fund can invest in the studio (but the studio can also raise money from independent LPs), the fund owns preferred shares from their investment in the new companies, and the studio owns common shares from their cofounding of the new companies. The fund will still pay the management fees to the holding company for managing the fund. In this model the fund is an investor in the new companies once they are spun out of the studio.
John Carbrey of Futuresight details more structures plus goes deeper into the pros and cons of each structure at Understanding Startup Studio Structures. He does deeper into how studios use angel syndicates, SPVs, and other structures for initial and pro-rata follow-on investments.
Financial models for venture studios
Foresight's free Venture Studio Model is built for the dual-entity model. Building upon the Venture Capital Model, Annual Forecast, the Venture Studio Model adds on a Studio sheet for modeling the operational expenses involved in building the new companies, the ownership stake in the new companies and proceeds from exits, and the annual cash flow needs of the studio accounting for the revenues from managing the fund and optional investment from the fund into the studio. The Get Started and Forecast sheets models the investment fund, and the Forecast sheet includes the proceeds to the fund from (a) investments in the new companies and (b) any investments into the fund, and aggregates the returns and performance metrics for limited partners in the fund.
Download the venture studio model for free (donation requested) at Venture Studio Model.
Read more about modeling venture funds at How to model a venture capital fund