Startup studios, also known as startup builders, startup foundries, or venture builders, have seen a Cambrian explosion of growth in recent years. According to Enhance Ventures, there are around 560 studios operating across the globe, contributing to 625 percent growth in the category since 2013.
In a nutshell, startup studios are creating the next generation of companies by matching problems (that turn into business ideas) with entrepreneurs who are dedicated to solving those problems. The venture studio model is a new model for entrepreneurship that combines company building with venture funding in order to compress time, iterate quickly, and scale more ambitiously than would otherwise be possible. High Alpha is a venture studio, a startup studio combined with a venture fund, but both studios share many common traits that make them attractive to founders.
Idealab, founded in 1996, is commonly referred to as the original startup studio. Much of Idealab’s work has paved the way for subsequent studios like High Alpha, Science, and Human Ventures. Over the last two decades, Idealab has launched more than 100 companies (think: Tickets.com, CarsDirect, NetZero). Five percent of the companies that Idealab has built have become unicorns, with a value of more than $1 billion. Compare that to the average unicorn success rate, where just 1.28 percent of companies hit unicorn status, and you have to acknowledge that something is going right.
Unpacking the Startup Studio Playbook
The magic of the startup studio playbook is that while founders focus on building a product, the studio supports them in other ways. Day-to-day operations are taken care of by the studio’s experienced operators: marketers, designers, finance experts, recruiters, and more. At High Alpha, by the time a company raises a seed round, the company idea has been validated a number of times — via our Sprint Week process, through countless founder-led interviews with industry experts and potential customers, a number of paying customers, and with studio-led experimentation. Startup studios surround their fledgling companies with all of the ingredients needed to launch and raise venture funding successfully.
According to the Global Startup Studio Network (GSSN)’s 2020 Disrupting the Venture Landscape report, startups that launch from studios see 30 percent higher company success rates. Almost every company launched from a startup studio raises a seed round, and 72 percent of those that raise a seed round go on to raise Series A financing.
Some of the most successful companies have launched from startup studios, further proving that the startup studio model works. Those companies include:
- Dollar Shave Club (launched from Science)
- Zylo (launched from High Alpha)
- Reserve (launched by Expa)
- Bitly (launched by Betaworks)
- Aircall (launched by eFounders)
- Hims (launched from Atomic)
Many of these startup studios focus on specific industries or types of companies. At High Alpha, we build only B2B SaaS companies, which is where our team’s experience lies. Zylo, a High Alpha Studio company that focuses on SaaS management, launched from the studio in 2016 and has since raised more than $35 million in funding.
Benefits of the Startup Studio Model
At the end of the day, startups co-founded by venture and startup studios are able to scale faster and provide better returns to investors. Startups created by studios have a 53 percent internal rate of return (IRR) on average. Compare that to the average for non-studio startups, which sits at 21 percent. Startups created by studios go from creation to seed round in an average of 10.6 months — less than a third of the time it takes for non-studio startups to raise a seed round. Studios accelerate the speed to funding for startups.
The most successful studios have systemized company building, creating systems and processes that streamline the venture building workflow. From the ideation process to company launch, steps are clearly defined and roles are assigned. Efficiencies abound in startup studios simply because they build companies over and over again.
According to the same GSSN survey, the average startup studio takes a 34 percent equity stake in the startups they co-found, with the highest equity percentages hovering around 80. Since studios have skin in the game, they take an active role in founder recruiting, mentorship, fundraising, and more.
One key differentiator between venture studios and startup studios is monetary: venture studios often provide the founding capital needed to get the company off of the ground. Operational expenses become less of a barrier to building, allowing founders to focus on building a fruitful company. Once a startup gets its bearings, venture studios often make follow-on investments in their own companies.
Networks are everything in company building. “Knowing someone who knows someone” can open doors, and startup studios magnify that effect. Often, the founder or founders of a studio are successful builders with their own networks. At a venture studio like High Alpha, our partners are well-connected in the SaaS and enterprise cloud technology space, having previously founded or led companies there. In turn, they are able to connect studio co-founders with potential partners, mentors, and investors. They’re able to leverage existing networks to build their own, accelerating company growth.
As more studios continue to enter the scene, the benefits of the venture studio model will only continue to shine through. Scalable processes are enabling founders to focus on what they do best — what they’re passionate about — while studios manage countless other moving parts. If you’re a SaaS veteran interested in founding a B2B software company, learn more about High Alpha’s venture studio or get in touch with our team here.