Startup Studios

Three Operating Models for a Venture Studio

by: Steve Hayton & Pat Riley|

November 2, 2022

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Articles | Startup Studios | Three Operating Models for a Venture Studio

Venture Studio Models

The studio model is growing exponentially. In fact, according to Enhance Ventures, over the last three years the number of studios has grown by 480%, from 171 to 824 in November 2022.

Along with that growth comes many questions on how to operate a studio, specifically what models studios use to launch ventures.

To date, there have been numerous articles describing various studio models. We set out to describe the three most highly utilized methods for managing studios – in the most simplistic way possible. 

Without a doubt there will continue to be many venture studio models, but the three frameworks listed below are the overarching models our research shows are used by most venture studios today.

For founders and investors, understanding these models will help you comprehend what kind of studio you’re most interested in partnering with.

For studio operators, these will help you better articulate your model internally and to your stakeholders.

And for emerging studios, these will provide inspiration for how you build your studio.

Model 1: Studio Holding Company

This startup studio structure favors operators without a venture capital background or established connections. It also favors regions that don’t have General Partner (GP) / Limited Partner (LP) legal structures. The reason for this is that these kinds of studios hold all the common stock in their holding while they work and invest off of their balance sheets. This is similar to running any other business, but the assets are ownership stakes in NewCo’s.  

The biggest upside to this way of working is that you can prove that you can be a successful studio operator and let your investors join in at the management company level. In addition, you will also enjoy the flexibility to test your ideas since you’ve raised capital upfront with fewer expectations than if you were accepting capital into a fund. If in the end, you are less successful, the investors still own the common stock with you and have founder-level economics and voting rights. Investment is done firstly at the holding level for the operations and incorporation investments.

If and when an investor does invest, the deal is either structured as direct participation in the holding company or as a special purpose vehicle (SPV) that invests in the studio holding and holds preferred shares. Using the SPV route gives the studio familiarity with this way of working which can later be deployed for NewCo investments.

Seed investments are mostly organized deal-by-deal in an SPV, and have to come from the network of the studio operator or co-founder. One of the critiques of this model is that in the absence of a fund structure, studio partners and LPs give up some of the potential upside that comes with investing in venture scale businesses. This is solved with a Holding Co + SPV model for new investments.

Model 2: Studio Enterprise Partnership

In this model, studios work directly with corporate enterprises to develop products and services, mainly, but not exclusively, for the benefit of the corporation.

The relationship between studios and corporate enterprises usually boils down to the following relationships:

Design Partners

This is where Studios engage enterprises either formally, through a design partner program, or informally to obtain validation for the problem, solution, market size, minimum viable product, etc. 

Pilot Participants

This is a reasonably straightforward arrangement in which an enterprise agrees to participate in the pilot program of the studio’s venture. 

Enterprise Investment

It is not uncommon for the enterprise to invest directly into a studio venture. This is particularly true when an enterprise has an established corporate venture arm.  

Enterprise Co-Founder

In some cases, a studio will invite one or more enterprises to join a specific venture as co-founders. This typically arises when the idea behind the venture was originated by the enterprise or in situations where the enterprise can bring extraordinary strategic value to the venture in the form of resources, unique knowledge, market, early funding, or a combination of the foregoing. 

Enterprise Studio

Perhaps the most advanced way in which studios engage with enterprise is through the creation of a dedicated studio. An enterprise may contract with an experienced studio to help them build a studio of their own. In such cases, the studio is generally providing best practices, processes, and other advisory services. The second theme is a joint venture studio between a studio and an enterprise. In these arrangements, a new studio is created, with an experienced studio providing services and the enterprise providing capital and other resources.


Model 3: Dual Entity Studio

The Dual Entity model reflects the reality of a studio being both an asset allocator and a co-founder in its legal structure. As such, this startup studio structure is a combination of a traditional VC fund structure and a studio entity that operates as a co-founder. When a NewCo is formed, the studio receives common shares (for the co-founding function) and the Fund LP receives preferred equity (for the investment). 

For the capital used by the studio during pre-company formation, investors receive a portion of the common equity in the NewCos. This is the only model that will offer investors a piece of the founder level equity and preferred investor equity.

While the cost to implement can be a significant impediment, this structure, when kept simple, has been implemented by experienced lawyers much more cost-effectively than traditional fund formation. All that being said, this structure is more complex and costly to establish than a typical holding company structure but has significant advantages including:

  1. Having clearer structural delineation of various funds (ie. Fund I, Fund II, Fund III).
  2. Accessibility to investors who are investing in other funds versus holding companies (most family offices or institutional investors have standard fund investment approaches).
  3. Comparability to other investment products (the Fund can publish standard return metrics like MOIC, etc.).
  4. Improvements in tax treatment with flow-through entities.
  5. Uses Fund structures to address the terminal value problem.
  6. More flexibility to adjust the model over time.
  7. Aligns incentives (no win for management without a win for investors and without a win for the NewCo)

Within GSSN we define these three models as the gateway to the studio world, these are the models you need to know about to get your studio up and running but this is the tip of the iceberg. In total there are around seven models that are currently in operation and being discussed within the community. 

This data comes from the GSSN community, the global community for venture studio leaders who create and innovation with startups.

Disrupting the Venture Studio Landscape

Why the Startup Studio Model is Where Investors Find Capital Efficiency

In a world where “startup studio,” “venture studio,” “company builder,” and “venture builder” are all terms used interchangeably, the conversation with investors and entrepreneurs about this innovative form of company building begins complicated and only digresses from there.

Morrow's Global Startup Studio Network (GSSN) released this white paper to help educate startup communities on the growing startup studio model and the advantages it presents to its stakeholders. Read our White Paper: Disrupting the Venture Landscape