Venture builders have become an increasingly popular model for creating and developing start-ups in recent years – and for good reason. This method of start-up development provides several advantages for the investor, the venture builder, and the entrepreneur themself.
Even though venture builders are a relatively new phenomenon, they have quickly become an important part of the start-up ecosystem – both for investors and start-ups.
One area where venture builders can be particularly impactful is in their ability to increase investor returns.
Why are venture builders important?
Venture builders provide the resources, and expertise that start-ups need to grow. By pooling resources and sharing risk, venture builders can help start-ups scale quickly and achieve success – proceeding through to scale up quickly.
Venture builders help entrepreneurs validate their ideas and business models. By working with a venture builder, entrepreneurs can get feedback and advice from experienced professionals daily and on an operational basis.
This helps entrepreneurs evade costly mistakes, which can easily be avoided.
So why are venture builders so important? Because they can help start-ups grow quickly and achieve success. If you’re reading this and thinking about starting a start-up, consider working with a venture builder.
What makes venture builders unique?
As mentioned, venture builders have a unique approach to building start-ups. Unlike traditional VC firms, which invest in pre-existing companies, venture builders create companies from scratch. This allows them to have a guiding hand over the direction of the company, the product development process, as well as building a good start-up operational team.
Venture builders have expert teams working alongside an entrepreneur on a continual basis, which gives the entrepreneur a leg up when it comes to creating a successful start-up.
This is business model is vastly different from the traditional accelerator/incubator model.
Venture builders also have a wide network of resources and contacts that they can draw upon to help the entrepreneurs succeed.
So, what makes venture builders so unique? Their ability to build companies from the ground up, as well as leverage a deep understanding of specific industries through the knowledge that the entrepreneur brings. Together, this makes a powerful force.
How do they increase institutional investment returns?
While the traditional venture capital model focuses on investing in a small number of companies with high potential returns, venture builders take a different approach. Venture builders build and invest in a large portfolio of start-ups, with a more consistent RoI.
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Of those start-ups [through venture builders] that make it to the seed round, 72% of those ventures make it to Series A. Compare this figure with traditional start-ups [through non-venture builder structures] where only 42% of ventures that get to seed make it to Series A.
The Venture Studio Business Model Explained
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So how do venture builders increase institutional investment returns? By investing smaller amounts in many start-ups, venture builders mitigate the risk associated with a more concentrated, high-value, investment strategy.
The venture builder industry is very operationally intensive, as each start-up needs a substantial amount of work. However, the model adds value to both the entrepreneur, the investor, and the ecosystem as a whole.
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“According to Global Start-up Studio Network, start-ups that launch from studios [venture builders] experience 30% higher company success rates. “
The Venture Studio Business Model Explained
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Venture builders add continual value by working with the entrepreneurs and providing mentoring and external content exposure – venture builders focus on building entrepreneurs’ skills. By doing this, venture builders avoid 3 issues (identified by Tapio) that face start-ups, outlined below:
- The entrepreneur not evolving with the business
- The entrepreneur making operational mistakes (i.e., mismanagement of cash flow)
- Improper product-market fit, ill-validation of products with the market, and product which is uncommerciable and unproductive
How is a venture builder an investor’s advocate?
Venture builders have professional operational teams taking a hands-on role in developing start-ups. This operational team brings a myriad of skills and experience with a focus on entrepreneurship. This operational team uses their knowledge and networks to support the entrepreneurs and to help their start-ups flourish.
Venture builders typically invest alongside their investment partners – ultimately aligning interests. Conversations between investors and venture builders are clear, and venture builders see investors as they are – partners.
In many ways, venture builders are the ideal institutional investment vehicle when investing in start-ups by reducing risk in two different ways:
- Venture builders provide expertise, supporting entrepreneurs
- Offering investors a diversified portfolio
As venture builders focus on start-ups from the ideation phase, the returns for investors are substantially higher.
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The industry average for a traditional investment to exit is about 6.6 years, while start-ups created in studios [venture builders] showed that the average age of a company at exit was 3.85 years.
The Venture Studio Business Model Explained
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Based on shorter average time-to-exit, and high success ratios, venture builders are (based on market data above) over 200% more effective than traditional investment models in the start-up space.
In conclusion, venture builders have several strategies they can use to increase institutional investment returns. By focusing on high-growth sectors, leveraging their networks, and providing value-added services, venture builders generate higher returns than traditional models.
If you’re interested in learning more about how venture builders can help your investment strategy, get in touch with us today.