Is the time right to set up venture – studios in India?

A venture studio is an alternate model of launching startups. It creates a platform which creates and supports multiple businesses by pooling in resources but keeping the core of each business separate.

The activities (stage-wise) in a venture studio are:

• Validation of an idea brought in by a founder or developed by the venture studio
• Identifying founders, co-founders &key 2-3 people
• Initial funding till building a minimum viable product (MVP)
• Support in developing the go to market (GTM) plan, and
• Managing the process to get next funding and get independent of the venture studio

A venture studio is typically run by experienced entrepreneurs, investors and managers who have superior skills, industry knowledge and network to better evaluate ideas, help the founders scale up, help the portfolio companies raise external capital and eventually branch off as fully independent entities. Access to experienced human capital of venture studio, initial funding and centralized non-core functions (such as legal, accounting & finance, HR) allow the founders to focus on the core of creating a business till it achieves a certain success and scale. Various surveys have pointed out that the founders are able to spend less than 1/3rd of their time on the core business and dissipate rest of it on fund raise and non-core activities; the venture studio model takes care of this problem by its very design.

The concept though is quite old and one can say that Idealab was the first one to be launched in 1996 but the pace of launching venture studios is picking up globally now. There are close to 400 studios globally with half of them being launched in the last 5 years.

Three drivers for this trend are:

1. Increasing interest of corporates to invest in innovation related to the core business: the corporates can provide idea validation, backend support and initial funding for preferential access to the new technologies. The venture studio model also allows the corporates to exercise a degree of control, and provide mentorship to the new businesses.
2. Relative ease of launching a new business: many aspects of creating a new business are now available in the market in a modular way e.g. SaaS products for managing the business, distribution companies, last mile delivery companies etc.
3. Attempt to reduce the likelihood of the early failure of a startup: the brutal power law applies to the success of startups and less than 10% survive the first 3-4 years; allowing the founder to focus on the core product/ business and taking care of everything else may better these odds.

The detractors of the model say that the founder is the core to the business and she cannot be hired later on (as some venture studios have done in the past). I agree, and therefore suggest that idea validation and founder association go hand in hand to have a strong sense of ownership or strong selection process for founders incase the idea is created by the studio. If the idea is owned by the founder when the venture studio gets associated then in any case there is no issue.

Jon Borthwick, founder of Betaworks, believes that the venture studio model is especially good for an emerging market as there is a lot of friction in doing business. Add to this the large amount talent available in India and the associated huger to create a business, I think time is ripe for the venture studio model to take off in India.