What is a Venture Studio?
A Venture Studio is an organization, often with an associated fund, that creates new startups. The studio serves a co-founding role, investing significant, strategic resources and manpower at the outset and self-performing the majority of the initial activities to stand a company up and begin running it.
Where Venture Studios Fit into the Ecosystem
Understanding the difference between players in the venture capital ecosystem can be nuanced. For the sake of oversimplification, we think about it this way:
- Venture Capital firms are in the business of picking winners.
- Incubators and accelerators are in the business of mentoring winners.
- Venture Studios are in the business of building winners.
You’ll notice that each of these players end up producing winners.
It’s important to note that this is not a competition. There’s not a right or wrong choice — the ecosystem needs all players in order to thrive. It’s a matter of style and finding the right fit for both the founders and the investors.
Firms vs Studios
To oversimplify, think about the process of buying a used car. Potential buyers do a ton of research — understand the entire realm of available vehicles, determine their needs, their vibe, their budget, figure out which car will not break down and has the best chance of holding its value over time. But buying a car is still picking from a limited number of existing options. You must inevitably sacrifice something because you’re not capable of manufacturing your own, perfectly ideal ride. In this instance, the potential buyer here is the traditional venture capital model.
Conversely, Venture Studios are designing and building new, bespoke cars.
Traditional VC firms build sophisticated market maps and conduct an immense amount of research and analysis to understand where the world is heading. They review hundreds of companies in an effort to identify one that will be the most successful at solving a problem. They apply their expertise and their gut — but ultimately, they have to choose from the existing pool of options.
Venture studios conduct these same kinds of research, with similar goals of understanding where the market is heading, where the unsolved problems are, and where large opportunities exist. However, instead of selecting an existing company to invest in, studios create the criteria for the exact company they believe should exist — and then build it.
Venture firms are betting on people and processes that already exist. They’re picking up whatever baggage has accumulated during the first, often messiest, phase of standing a company up and taking an ownership stake and typically a board seat to steer the company toward success. There are undoubtedly advantages to this approach — namely the ability to make many such bets. In this approach the theory goes: the more cars on the lot, the higher the likelihood that you’ll find a winner.
The Venture Studio model inherently necessitates fewer total investments. While studios are constantly vetting concepts and deeply identifying market problems, the time and manpower required to build companies from scratch means that it’s nearly impossible to work at comparable volumes to traditional firms. Studio process and experimentation, married with a systematic process for building, rather than going to the largest dealership and finding the best car from a sea of many, a venture studio is more like hiring Henry Ford himself.
Despite the limitations of scale, there are many advantages to building this way.
Advantages of Venture Studio Model
Venture Studios build bespoke market solutions.
Studios don't wait for the right fit to come along — once they have identified a market opportunity, they build the company that they believe will succeed. This means sourcing and hiring the ideal talent, building the MVP, and gaining market traction. This role allows studios to steer organizations toward success with much more control than a VC firm would typically be able to exert through a board seat.
Venture Studios have deep in-house expertise.
Because the internal studio teams apply their time and effort toward identifying market opportunities, the organization builds a deep wealth of knowledge about the intricacies of different industries, business models, and solution sets. Moreover, serial entrepreneurs are at the helm of the studio, rolling up their sleeves to reduce time and risk, leveraging existing relationships, and administering the day-to-day — the tactical aspects of formation, back office, and future fund-raising.
Venture Studios own more of the companies that they create.
Venture studios begin investing serious resources at the origination stage and self-perform nearly every aspect of constructing the business architecture of a company from zero to one. Because of these in-house capabilities, venture studios serve as co-founders, owning a larger stake than a typical VC at the outset (stakes eventually right-size with follow-on and leadership incentives).
Venture Studios can build platforms, not just singular companies.
In the case of 1870, we are a thesis and platform driven studio. As such, the institutional knowledge built up by the internal studio team creates an incredible opportunity for identifying adjacent opportunities and creating platform companies around a theme and thesis. This can include creating greenfield newcos and faster, better leverage on other newco opportunities.
1870 Ventures' Unique Approach
1870’s Studio Model is especially differentiated because it is centered around commercializing intellectual property. In this way, we’re further enhancing the market competitiveness of the bespoke businesses we’re creating.
Building around intellectual property affords us a competitive moat in the market. Besides the peace of mind that’s provided by third-party validation, there’s the simple advantage of a head start — often many years and hundreds of thousands of dollars worth of research have gone towards establishing feasibility of a deep-tech solution. This allows us to focus immediately on market application, like product market fit, while any competitors would have to start back at square one in the lab. In the case of patented intellectual property, we have the advantage of a guaranteed amount of time where we are legally reassured that no other company can execute on a market problem by applying our same solution.
Furthermore, because of the depth of our relationships with institutions we’re able to direct world-class research towards emergent areas of opportunity through SRAs (Sponsored Research Agreements). If we determine, through the process of building the company, that there are other potential applications for the technology or adjacent problems ripe for solving, we’re able to aim world-class science towards those goals. This research apparatus helps us continually get smarter and further ahead on particular areas of interest widening our moat in the market even further.
The 1870 Venture Studio model provides unique value for all stakeholders. Investors benefit from the studio’s disproportionate ownership stake and control over the companies we build. Universities benefit from the increased volume of successful commercialization resulting from their large R+D expenditures. Researchers benefit financially from the ability to commercialize their work through the framework of a structured process alongside serial entrepreneurs. Studios also afford researchers faster access to capital and the ability to maintain involvement with the company created around their technologies. Other ecosystem players benefit from the increased development of new opportunities with deep competitive advantages entering the market for Series A investment and beyond.
