What Exactly Is a Startup Studio?
What Exactly Is a Startup Studio?
by: Pat Riley|
August 22, 2022|
Startup studios are one of the hottest topics in the startup world right now. And for a good reason—since their inception, they’ve produced some great results. Yet, most people, even those in the startup world, still have no idea what startup studios do or how they support startups.
The same was true for accelerators a decade ago. They were nascent organizations. Now they’re one of the main avenues startups use to launch their companies. You can see all that they’re doing and how they work here.
For the past ten years, GAN has supported the world’s most-respected independent accelerator programs. And just this past year, we began supporting a similar community of the world’s most-respected startup studios through GSSN.
Over the past few months, we’ve been digging into what startup studios are doing and how they’re performing. The following comes from an in-depth survey completed by 23 of the top startup studios around the world. For a quick background, the average studio in this survey is just over five years old, and 55% of them are outside of the United States, so they’re organizations that have been around for a while and already have a global footprint. These studios were started either by former entrepreneurs or investors 91% of the time and have launched 415 startups, with 40% founded by women. The average studio has created 18 companies to date, with 3.8 being the average number of companies being created every year by each studio. Here’s more of what we found out.
At a very high level, a startup studio (also called a venture studio, venture builder, or company builder) is an organization that comes up with ideas and products and finds executives to build companies around them. In other words, studios use both internal and external resources to come up with an idea for a company. After a very intentional and iterative validation process of each idea, they then hire founders (which is a fancy term for the people who run startups) to come in and run each market-tested company. Usually, the startup studios are looking for people to run these companies who also have a proven track record—startup CEOs who have experience running a company or two that have reached “exit” (more on this term later) or have had some other major success.
They also give founders funding and space for a year or two, along with pretty intense mentorship and an immense amount of support resources, at times valuing up to $1M. Out of all of the support organizations in the world, studios typically take the most hands-on approach and provide the most support out of all of the groups you see here. They also tend to take the highest amount of equity from their portfolio of companies. High Alpha, eFounders, Pioneer Square Labs (PSL), and Polymath are all some of the top startup studios in the world (and they’re all members of GSSN).
When it comes to what kinds of startups studios are launching, there is an even split between startups focused on B2B versus B2C.
Forty-seven percent of the time, startup studios said they were agnostic about the kinds of startups they’re looking to launch. They shared that they’re open to building companies focused on financial services (43% of the time); eCommerce (30% of the time); and transportation/logistics, entertainment/media/sports, and AI (26% of the time for each of those three). Rounding out the other top ten verticals are healthcare, real estate, food/beverage, retail, and fashion/design.
Startups who launch at a studio stay at the studios for a long time in comparison to other organizations like accelerators. The average company is “incubated” at a studio for a minimum of 8.1 and a maximum of 19 months. And, there are two big reasons why startups stay at the studios.
First, the average studio employs almost 12 people full-time, and another four part-time, to help launch their startups. Those team members focus on the following (from highest to lowest focus):
From this list, you can tell that studios are providing a lot of support to the startups going through their organizations.
Secondly, studios are providing an impressive amount of capital. The average studio injects an initial $232,458 in capital to each startup they create, giving them a strong cash position from day one.
In return for all of this support, the startup founders give an average of 36% equity to the startup studio. However, this number can change based on the type of support the studio provides and the experience level of the incoming CEO.
Most companies (60% to be exact) go on to receive additional capital from the studio, while others “leave the nest” and go on to raise money from other investors. The average amount of money startups raise is $2,473,906 in the 12 months after leaving the studio.
And, these startups are staying alive. Of the 415 companies that startup studios have created, only 9% have failed, 3% exited, and the rest are still active. Those companies still in business are also generating revenue, with the average company bringing in $1,117,997 a year in revenue. Because of this success, these startups have also created 2,078 new jobs that didn’t exist a few years ago.
Because startup studios are experiencing incredible attention, success, and growth right now, there isn’t much that we’re seeing change in the model. Probably the most exciting growth when it comes to studios is that many of them are creating second or third locations in cities that aren’t known as tech hubs. As of today, 26% of studios have a second location, and that number is growing. Startup studios are now being used as the way forward to catalyze nascent startup ecosystems by infusing high-quality human and financial capital to make a local impact.
We’re also seeing corporations use the model to incubate internal ideas. For instance, Mars Petcare created Leap Venture Studio and Deloitte created Makers; they opted to form startup studios as a way to validate ideas in a safe, productive, and growth-oriented environment.
This post was republished by GAN.co.