In this day and age, the writer of this article might take for granted that the reader is familiar with the concept of ‘venture capitalism’(VC), private equity financing for early or emerging companies, but in recent years ‘venture building’ (VB) has arguably become more voguish. ‘Venture studios’ or ‘venture building’ goes beyond the scope of accelerators, incubators, or traditional venture capitalist firms, because it actually establishes brand new companies from the foundations up. The concept was coined in a blog post by the self-pronounced “leading technology futurist, serial entrepreneur and angel investor”, Nova Spivack. Back in 2011 he wrote a blog post titled ‘What I’ve Been Up To: The Venture Business Studio Model’ in which he discusses “startup studios” before they were known by that name, and described a roughly 50% exit average, versus only about 10% for VC models. Spivack used this model to build dozens of ventures and almost 100 patents and in turn generate billions in market value.
Lars Buch, CEO – Russia and MENA of Startupbootcamp and partner at Rainmaking.io suggests that venture building is a model for the future.
In short, unlike venture capitalist firms which can often have extensive and diverse investment portfolios of hundreds of startups and seed-stage companies, a venture builder is generally much more picky with its portfolio. Moreover, venture builders seek to source all resources from inside their own ranks to inspire growth, be it coders, advertisers, lawyers, or any other agent.
This has many advantages over traditional models. For starters, venture builders will often exclusively work with startups that demonstrate an ‘unfair advantage’ or competitive edge, which could be anything from access to talent or to the market or a specific user understanding. In the early days of venture builders this may often come down to the personnel and may involve surrounding an industry domain leader with a tight, supportive team. This ‘unfair advantage’ often goes hand in hand with much better industry insight, as venture builders may be involved in a startup from seed to market and have specialised knowledge of every stage. As a result, VBs are often far more streamlined and quicker to market due to greater efficiency and specialised knowledge, and in turn may be 15 or 20% cheaper than an equivalent corporate consultancy firm’s fee. In summary, whilst accelerators develop ecosystems of entrepreneurship out of which ‘gems’ may be mined, venture builders work directly with business heads to exploit known strategies or expand beyond the current scope of the enterprise and explore new revenue branches.
Some venture builders grow out of more traditional venture capitalist models. One such example is Rainmaking.io which gave rise to the wildly successful startup accelerator Startupbootcamp. Rainmaking was established in 2007 by a group of Scandinavian entrepreneurs and the venture builder now has over $5bn of Assets under Management (AUM) with over 900 global investments. Moreover, they boast a number of success stories, including the Industrial Internet of Things (IIoT) powerhouse Relayr which uses AI-based analytics and achieved a $300m exit in 5 years under Rainmaking’s wing.
Another well-known venture builder is Obviouscorp, which was responsible for both Twitter and Medium in recent years. Unbeknownst to many, Twitter has an unusual history; stemming from a side-project of Odeo, which was originally founded in 2005 by Evan Williams and Hugh Glass, the podcast publishing and aggregation received funding from Charles River Ventures. River’s interest was subsequently bought out by Williams and the company re-formed under the name Obvious Corporation. Twitter was merely a side-project for six months of Odeo but a year after its conception it branched off leaving Obvious to work on new projects. A blog post by Williams in March 2011 titled, ‘An Obvious Next Step’, describes how he returned to Obvious with Twitter’s Jason Goldman. It is the possibility of a venture built startup to completely outgrow its mother company that is key to venture building! What begin as separate startups can all become flexibly subsumed into the most successful venture with all the added benefits of shared accounting, legal teams, and the rest, allowing economies of scale and avoiding negative synergies often associated with angel-invested startups.
Garrett Camp, co-founder of Uber, is yet another entrepreneur who clearly believes in the venture builder model. He set up Expa, in 2013, which is an early stage and seed stage investment fund. Albeit a self-declared accelerator, Expa dedicates $500,000 and over 6 months of industry-specific office space to each startup they foster in exchange for 20 percent equity stake. Their offering lies in the fact that Expa was set up by a team that consists of operators and builders, who can provide expertise in several areas, such as product and design and also help source talent. It invests in businesses across multiple industries and one of the companies that it has helped grow is the fintech, Current, which bagged $131m in its Series C funding round.
Founders Factory, set up in 2015 is a UK based venture builder with global ambitions, which fosters 200 companies, with more than 35 of them built from scratch. Currently investing in Beauty, FinTech, Home, Healthcare, Media, Retail, Travel & AI & Big Data, Founders Factory is unique in having both an accelerator and a venture studio. Whilst the accelerator brings together capital, operational support, and corporate partners, the venture studio is like a deluxe service from pre-seed to Series A, and in addition to leveraging their global network of entrepreneurs,
will also guide startups throughout their journey. Founders Factory is involved in helping entrepreneurs flesh out their ideas, build and test the MVP, sell, scale and hire talent.
Amongst its roster it counts co-founder Brent Hoberman, who sold lastminute.com for $1.1bn back in 2005, and co-founder Henry Lane Fox who was previously CEO of Founders Forum Group where he co-founded Founders Intelligence, Smartup.io, and Grip. Indeed, venture building is seen as a panacea for corporate innovation as well. Founders Factory has a heady list of partners, including but not limited to Easyjet, L’Oreal, Holtzbrink Publishing, M&S, and GMG Ventures. In turn, venture builders like Founders Factory will provide ‘proprietary deal flow’ or ‘right of first refusal for investment opportunities’ to corporate sponsors. Benefitting both the partner and the builder, the model is lucrative as builders may charge millions to run a programme, and may partake in the equity and upside that is realised by the startups making their way through the programmes.
What is the future of venture capital, and does it lie in the models of venture builder firms? Investors would have you believe so, as Asian firms follow the success of American venture models. Lars Buch, CEO – Russia and MENA of Startupbootcamp and partner at Rainmaking.io suggests that venture building is a model for the future. With newspapers declaring the death of the working week and the 9-5, 2021 is looking poised to be a year of increasing work flexibility. What is important, then, is the growth of entrepreneurship above all else and the development of unique intellectual property in the efficient way only a venture builder may.