I worked at something like this. It was an interesting experience but I'm ultimately sour on the idea after it.
We would have 'idea meetings' and decide to make a startup. Then we'd recruit founders preferably from the industry we wanted to make a startup around. And then we'd group those few people together with a developer hired by the incubator to launch a (most of the time SaaS) business.
This went on for a quite a while and I think they still exist but without any big successes or much of any success. But that was alright, they explain, as most startups fail anyway. I think their biggest success was from investment in a company that wasn't created by them.
So the big failings with the model I found were this:
1. Idea meetings by experts in 'startups' - whatever that is - does not often find good product ideas. They just follow on whatever is popular so they find themselves in an inevitably crowded market.
2. The startup incubator had more interest and more control of the companies than the puppet founders which lead to odd dynamics. The founders recruited were, in a way, working for the incubator and not their own company. There seemed to be a lot of 'playing house'.
I think the model attracted people from all sides that just wanted to be in the startup culture for its own sake. They weren't hungry to make the thing they were making. They were hungry to participate in startupism.
I’ve met a few people who have fallen into this. They spend most of their time hanging around at coworking spaces chatting to other “founders” trying to come up with startup ideas. Never seen one make any progress yet.
I somewhat recently met people like this and their many "business ideas" and ideational style of speaking was strange to me. I couldn't put my finger on it, but they were talking about business as if it were a matter of "The Idea" and not, say, a business plan and market analysis.
iirc, I watched a video diagnosing gen-z as being caught-up in a culture of entrepreneurialism -- which may be more common in previous US generations, but is somewhat new here amongst europeans.
It seems the last two+ decades have saturated gen-z culture not with celebrities or film stars but with Bezoses, Zuckerbergs, and the like. This seems to have produced this strange climate of "startupism".
I would guess that if they provide a framework/playbook along with the idea, then a first time young founder could get value out of it? Like a trial run on someone else’s dime?
For any would-be founders who are considering finding a ‘venture studio’ to apply to after reading the post, beware of this:
Lately many dev agencies have been repositioning themselves as ‘venture studios’ as a way of differentiating themselves from the plethora of generic agencies out there.
These agencies don’t develop ideas or de-risk anything (despite their claims). Rather, they will build your idea in exchange for fees and a significant chunk of equity under the guise of being a ‘venture studio.’
They have you ‘apply’ with your idea and then give you a proposal to build it for a mix of cash and equity. In reality it’s just another dev agency under the guise of a hip new ‘venture studio.’
I’ve seen proposals asking for six figures in dev fees upfront plus upwards of 40% in equity. And I’ve seen founders actually take those deals out of desperation to play the startup game.
They often target first time, non-technical founders who have extensive domain expertise and networks, although they also go after younger talent.
One owner of a ‘venture studio’ near me even took a job as an adjunct professor so he could take advantage of early talent with crappy deals before they get their bearings in the real world.
Not to discredit actual venture studios because I think it’s an interesting concept that has shown some success, but just beware of dev agencies trying to capitalize on the cool new thing by simply rebranding themselves as a studio…
If anything, this is how a good dev agency business model should have always looked like. I am not sure the thing you described is likely to actually work, but if it can work, it's fantastic.
> I’ve seen proposals asking for six figures in dev fees upfront plus upwards of 40% in equity. And I’ve seen founders actually take those deals out of desperation to play the startup game. They often target first time, non-technical founders who have extensive domain expertise and networks, although they also go after younger talent.
Is this a bad thing? These founders bring value to the table but have no ability to build product, or to identify a technical cofounder who can. Seems like 60% is reasonable for them to own to get a team that can ship.
The term 'venture studio' is pretty loosely defined, and could mean anything from a development shop to something that looks more like a venture fund.
I started one (micro.com) after exiting my startup, but I'm still not a fan of the term. It makes the startup process sound soul-less. I'd like to think we're building something more akin to an 'art studio' than a 'factory'. There's still some magic to the early days of a startup and getting the right founding team in place. Incidentally, YC, as the preeminent accelerator, has gotten this right to edge out other ones.
From my standpoint, I enjoy early-stage company building, have been operational in starting and scaling a startup very recently, enjoy the dynamic of co-creating, going-to-market and scaling with a co-founder or two (with a fair split), and working across a small portfolio.
Happy to trade notes on this or connect if you're a builder, email in bio.
I run a dev shop and did some work for a vc studio. They want to bring me in house to CTO a bunch of the companies they are building. Offer was much lower than expected: 1% carry & $150k salary. I’ve worked @ FAANG, and also got a startup to a successful exit. I was hoping to shut my dev shop down and join this studio, but now don’t know what to do.
I just hate the sales/marketing grind. Like if I probably have enough bandwidth to support 3-5 clients at any one time. I can’t source that much work though my network, so I end up with 0-2 at any given time.
If my sales/marketing game was stronger, I could probably be doing $750k/yr as one guy. Unsure if this is just the market- things definitely tightened up over the past 3-4 months.
There are fractional sales people with skill in this game who would get you absurd deal flow. It’s a win-win on incentive alignment. Feel free to email me if you need help finding one.
I feel like I'm in the same boat as you. I'd love to chat and exchange notes or just discuss challenges. My email is in my bio. Would love to hear from you if you're open to it. It's hard to meet agency owners who run small/solo agencies.
fyi - i'm based in the bay area.
I've been thinking about starting some kind of studio - not to work on other people's ideas [1], but to develop a few different concepts that I've been working on for a few years, which are mostly proven (have very happy, paying customers) but now need dedicated teams for proper build-out and scale.
The obvious response is that I should just pick the most promising one and focus on that, and put the others to one side.
Reasons not to do that are:
(1) all are quite important (addressing significant problems for important industries or consumer groups), but for different reasons,
(2) I actually enjoy the working on different things - each has appeal for different reasons,
(3) I'm an older founder with a family/mortgage, and see it as more prudent to spread my risk across a few different bets than go all in on one (which I've done before when I was younger), and
(4) though the concepts are quite different in terms of industry/product functionality/technologies required, I can see some commonalities in the types of people that would be interested in working on these ideas (for the same reason that I like working on all of them), but also some differences in the fun-vs-importance/impact of each, and I feel like there's some advantage in being able to rotate team members from one project to another every few months, spending some time on the more fun things, and then some time on the more "important" projects - or whatever they prefer.
But I'm still wrestling with the pros and cons of going this way vs just focusing on one thing. I'd be happy to hear thoughts from people as to whether this kind of thing could work, and what pros/cons I might not have considered.
[1] Several years ago I worked as an employee for an agency/studio that did "we'll build your startup for you" kind of work (not for equity, just cash); we had some solid wins, but for the ones whose startups didn't work out it was hard to see all that money (usually founder savings) go to waste, and I would never want to do that again.
I’ve done quite a bit of work in and around venture studios and without knowing who you are I’d suggest:
-Do you think you can attract world class founders to work on them? Do you have the credibility to do so? (See the heuristics blank suggests in the OP link)
-Can you provide sufficient capital in one of the worst environments for fundraising in recent memory?
If the answer is yes to both of these, go for it!
I think the failure mode for studios is “moderately successful person with moderate conviction in a bunch of ideas brings good-not-great people in to build them. Lot of motion, no progress”
Whatever you do, it should be intense and excellent. If you feel like you can do that, the world needs a lot more good companies!
Many thanks for this great answer. It hits on some of what I've been thinking over but raises other important considerations.
Re your questions, the best answer is maybe - I'll only really know when I get more public about it, which I plan to do soon, but I have some promising signals. I'm well aware funding is a major issue at the moment, but some or maybe all the concepts are very relevant to "current things", and I'm happy to focus on what I can get funded in the short term and put the other concepts on the backburner till later.
FWIW, I have a lot of conviction about all the ideas I have in mind - hence having already put a lot of time/money/learning into them over several years wanting to work on all of them rather than just one.
I'd love to connect if you're interested to know more, share any more detailed input, perhaps be involved in some way.
My email is in my bio and I can easily be found on LinkedIn, so feel free to get in touch.
Curious what peoples thoughts are on this. One particular studio I have seen does extensive research into the idea, vets the candidate, and then gives 1-2M capital. Issue is the cofounders (there are 2) only get 15-20%. Which does sound decent given you start right away with capital, but is terrible relative to raising that money yourself.
What do people think about such a deal?
As someone else said, this works for people that cant readily raise money, gotta wonder about the outcomes in such cases. But they take so much equity, hard for the fund to lose.
So you do all the work of a founder, for way less equity, and the venture studio basically gets a huge stake for what amounts to a small seed investment.
Why even bother when you as the fake founder can just...go out there and do this yourself? All the value is in execution, even an AI can spit out startup ideas
Part of "execution" is having the right strategy, and presumably/hopefully (I doubt it) that is being provided as part of that vetting process; like, one could even imagine that vetting being sufficiently deep that the result is a nigh-unto turn-key product roadmap.
Does much of the $1-2M that is invested get paid back to the studio, in dev fees? I could see some founders falling for a trap like that, where it looks like you're getting a bunch of investment, but most of it is predestined to flow back into the studio's pocket.
I've been approached by a company like that. They invest in "vertical SaaS". The deal was similar, they would have paired me (as CTO) and someone with business experience in the vertical as CEO.
The starting equity of each cofounder would be about 20%. Salary, I'm not entirely sure but you're a founder right? Are you _supposed_ to worry about salary at this point?
Anyway it didn't make much sense to me. I think I would be a bit unmotivated to get ready to rock as a "founder with 20%". Just feels weird you know?
It’s very hard to align venture building with investability.
The more equity the venture builder takes, the less attractive the business. If the venture builder may need to be washed out, it puts early investors at risk of being washed out with it.
The less the people signing as exec founders on the investment agreement did to actually found the company, the less attractive the team. Evidencing the hustle to start the company is part of what sets a good founder apart.
It’s not so much that 20% of something is worse than 80% of nothing. It’s that the vehicle is compromised from day one.
You can mitigate this with traction but the model is a bit like trying to do a startup with one hand tied behind your back.
There's a theory I have heard by the venture firm I am mentioning, which is that young smart and talented people are commonly locked inside some management consulting firm/elite career. They dont have the proper skill set (tech/startup) to start a company, but are highly capable. Funding those people (elite under grad, few years experience at McKinsey) can have a good outcome, and providing them a framework can lead to success.
But what you're saying is the very act of hustling to get a business off the ground is a positive indicator, and without it, makes the idea/company non investable. Furthermore, the equity breakdowns make it less of an attractive investment in future rounds??
Appreciate your comment, trying to read between the lines of it
There are no absolutes but normally fundraising is hard and you need to get 99 ticks out of 100. So starting with `x`s built in makes it tough.
There’s definitely good people in academia and industry who could be great founders but need help cracking the “I can’t start a startup because I have money/life responsibilities” catch 22.
But ultimately if the people who really hustled the company into existence are not the people in the founding team, what confidence do you have that the founding team will raise the next funding round and the one after that without needing their hands held?
And if they have the personality to jump into other people’s vehicles then who’s to say they won’t jump out of this one when the going gets tough?
In my experience VC Studios have been a great deal for founders that want to be a founder no matter the financial or career outcome of the deal. Usually on the younger side with a few years of industry experience. They can't raise money without the help of a VC Studio so it works for them.
But if you're doing startups just to have a "founder" in your LinkedIn profile, you're doing something wrong.
They employ you and take all the risk away. If the idea fails, you move to a new one. If it succeeds, you get a large cut of equity.
Think about it more as an alternative to working at FAANG as it sits closer to salaried employment, but with much more tangible benefits should you succeed.
Rather than shotgun every idea that walks in the front door, studios deeply think about what will work and set off to build those ideas and staff them with good teams relevant to the problem domain.
They don’t really take the risk away. The startup can easily fail, leading to having to find new employment, probably the founder was making less than in a corporate job. Also there’s the risk of being replaced if you do succeed
This. I've seen multiple sad stories around of me of studio-incepted ventures, whose founders were replaced once the company started to be successful and the higher hand decided that they were no longer needed; obviously this part of the journey is not advertised on the brochure.
We would have 'idea meetings' and decide to make a startup. Then we'd recruit founders preferably from the industry we wanted to make a startup around. And then we'd group those few people together with a developer hired by the incubator to launch a (most of the time SaaS) business.
This went on for a quite a while and I think they still exist but without any big successes or much of any success. But that was alright, they explain, as most startups fail anyway. I think their biggest success was from investment in a company that wasn't created by them.
So the big failings with the model I found were this:
1. Idea meetings by experts in 'startups' - whatever that is - does not often find good product ideas. They just follow on whatever is popular so they find themselves in an inevitably crowded market.
2. The startup incubator had more interest and more control of the companies than the puppet founders which lead to odd dynamics. The founders recruited were, in a way, working for the incubator and not their own company. There seemed to be a lot of 'playing house'.
I think the model attracted people from all sides that just wanted to be in the startup culture for its own sake. They weren't hungry to make the thing they were making. They were hungry to participate in startupism.