Analysis of 1,800+ investments in venture studio startups
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One knock against the venture studio model is that VCs are reluctant to invest in their startups given their large initial ownership (20-50%). Investors prefer this equity be used to motivate management and lay in reserve for future fundraises. They are worried about too much “dead weight” on the cap table.
At the same time, at least a thousand studio startups have raised outside funding. Reasons why studio startups still make attractive investments include:
They are generally well-dilligenced opportunities in markets ripe for disruption
Studios recruit experienced management teams passionate about the problem space
These startups have existing governance structures (board of directors, protective provisions) implemented by the studios upon company formation
Studios provide ongoing expertise, network, playbooks and support
It’s painstaking work for venture studios to articulate these benefits to investors, especially to those with no familiarity of the venture studio business model.
That’s why we collected data on every U.S. based venture studio seed and series A funding round in the past five years to find which VCs are leading the most deals.
List of VCs
More than 800 unique firms participated in a seed or series A rounds for a U.S. based venture studio startup. These firms should at least be knowledgeable of the venture studio model going forward.
Nearly 200 unique firms have led a seed or series A round for venture studio startup.
33 firms have led or invested in multiple startups from multiple studios. These firms are as follows:
These rounds span a large number of tech verticals: AI, biotech, crypto, cybersecurity, data, fintech, healthcare and software.
Strategic relationships between studios and VCs
Several VCs not only invest in startups coming out of studios, but also act as strategic investors into the studios themselves. These relationships can also be informal, where venture firm partners are LPs in studios funds. VCs create these relationships with venture studios to have proprietary access to future deals.
The data here is mixed. While most top venture studios have raised from the same VCs across multiple startups, none of the top studios have 100% of their rounds led by the same VC. Conversely, the VCs most active with venture studio startups tend to invest across multiple studios.
There’s certainly value in strategic relationships - for the VCs to generate proprietary dealflow and for the studios to have trusted capital sources - but there’s also a limit. Neither side appears interested in total exclusivity, both sides want alternatives.
Conclusions / future research
Concern around lack of VC interest in studio startups appears overblown. There is already a large number of VCs with experience investing in venture studio backed startups. I expect this interest to continue, especially as more PE firms, hedge funds and family offices enter the space. On the other hand, not all of the previously funded startups will work out and some of those VCs may not continue to invest alongside venture studios.
For venture studios, the VCs who have invested in multiple rounds across multiple venture studio startups are probably good relationships to create.
For VCs, relationships with venture studios can be a source of proprietary dealflow of startups in well-diligenced markets, with experienced management teams and good governance structures in place.
I expect to cover this topic in more detail, especially how VCs, PE firms and family offices partner with venture studios in various ways. Please reach out if you have thoughts or are interested in more data here, and subscribe if you haven’t already for future updates.