How Venture Studios Operate: Patterns From 50 Conversations

I’d like to first thank each and every person who took the time to respond to a random email or LinkedIn message and sit down to let me ask questions. People like to help people and this couldn’t have been more apparent throughout this exercise.

For anyone interested in these findings or who would like to chat about venture studios, startups, or how to make a good espresso, feel free to reach out directly to me at chris@peakproductgroup.com

Why talk to 50 venture studios?

My background is in product, primarily at early-stage startups or 0-1 projects within technology companies. Over the last decade, I’ve learned that the fastest way to learn about any new ecosystem is to simply dial up the folks who live and breathe it every day. So that is what I did. I found a list of roughly 100 venture studios across the globe, shot out some emails and phone calls, then over the course of three or so months, met with operators within different studios to learn about what makes their studio successful.

In terms of the number 50, this was simply an arbitrary number that felt like if I could talk to fifty studio leads, then I’d be able to have enough context to understand the ecosystem as well as you could without actually running a studio. The one thing I found quite interesting is that after talking to roughly twenty studios, I found that the concepts surrounding studios such as different operating models, challenges, playbooks, etc… had started to become pretty clear. In the last thirty or so conversations, very rarely did an entirely new concept surface but what became very clear is that how studios approach different concepts seemed to be one of the largest drivers of success. More on that to come.

What is a Venture Studio?

This is perhaps the most fitting place to start as many folks may or may not have heard about venture studios. Not to be confused with venture capital firms, the simplest way to put it is that a studio builds companies instead of just investing in existing ones. There is a lot to unpack in that sentence (and we will throughout this post), however, the key thing to understand is that there is no one-size-fits-all model for venture studios. After talking to fifty studios, it quickly became clear that no two studios are the same. In fact, a single studio often changes their model from inception → first batch of company builds → ongoing maturity.

For the focus of my fifty conversations, I focused primarily on studios who met the following criteria:

1. Incubate/build (primarily) software companies
2. Had tangible capital backing their operations
3. Eventually recruit an outside team to run the company

Outside of these three constraints, there was a large amount of variability in studio size, expertise, focus, capital reserves, operating model, and commercial models. We will dig into these similarities and differences in the following sections.

Why do Venture Studios Exist?

I like to focus on the why behind every problem or opportunity. When it comes to venture studios, one of the immediate things I wanted to understand is why they exist in the first place. In a world where there is no shortage of money waiting to invest in the next big startup, why were small, highly skilled teams popping up across the globe taking this new approach to building companies?

The answer to this is certainly different for every studio, however, I can sort of lump many of the answers I heard into two main buckets:

1. Competition for venture investing is getting more competitive by the day
   1. Check sizes are increasing, more firms are playing at series A → which pushes competition upstream to seed rounds → pushes competition into pre-seed. In order to be able to compete, getting increased equity early on is critical.
2. Investors see unfilled gaps in the market
   1. Those who invest in early-stage companies are able to canvas the market by seeing the types of companies, pitches, and problems that come across their desk every day. This means that opportunity areas in the market emerge naturally and that leaves investors to either (a) find and invest in a company that is operating in that market gap (b) build one themselves. Studios exist to serve option (b).

A third reason that many studios reluctantly admit is that they were started because one of their founders typically had a successful exit that led to a large amount of capital to invest. Those founders want to keep building companies but often don’t want to jump back full time into a founder role. Studios allow them to invest their capital back into the early-stage ecosystem, build companies around ideas they have, but not be a full-time founder.

A Note on Studios vs Dev Shops

In my discussions I did talk to a handful of studios that I believe align more closely with what I would consider a dev shop. This means that they typically provide services (usually product & engineering) in exchange for equity and capital. While similar to a studio, I think the key difference is the main operating and commercial model between dev shops and venture studios. Venture studios (in my definition), are not charging fees for services. They’re covering the cost of early services as part of the exchange of equity. Their primary economic model is to make their profits through exit events of the companies they incubate, not through charging founders for services. Dev shops may take some equity but it is typically not their primary commercial mechanism. They’re making their money through fees charged to the founder for performing a service. Many of these dev shops may spin out their own incubations in the form of skunkworks projects, however, I’ve noticed that these typically manifest more as projects compared to true companies. Simply put, dev shops focus on providing a service while venture studios focus on building companies.

Studio Value Creation

After understanding the high level of what makes a venture studio a studio, the next big thing to understand is what they actually do. As stated before, at the 10,000-foot view a studio incubates and builds companies up to a certain point in exchange for equity, then recruits an outside team to take over and run/grow the company. The logical next question is “well what does that look like?”.

Rather than spend thousands of words describing exactly how studios build companies, I’m going to focus more on some of the unique value propositions that studios bring to the table. These are often the pitch points that studios told me they use when recruiting founders and can be considered the answer to a lot of “why you” style questions a studio might get asked. For more details on incubation steps specifically, you can read this playbook that I’ve put together from my conversations as well as experience incubating companies.

Again, ignoring the primary work that goes into incubating companies and growing them to a point of spinning-out of the studio, some of the most common value propositions I encountered for studios were as follows:

1. Networks
   1. A rather obvious but important value add, venture studios bring extensive networks to the table that can help founders accelerate the growth of their company. This could be through LP relationships, partnerships with enterprises, or simply personal networks from the studio leads and operators. These networks help unlock doors, find the best talent, get product feedback, and accelerate growth.
2. Distribution Channels
   1. Similar to networks but with more intent, many studios lean on distribution partnerships to help accelerate and de-risk product distribution. The most common method mentioned was network connections & partnerships with organizations who could be fast-tracked as lighthouse customers or design partners.
3. Recruiting Support
   1. This is perhaps not a unique value prop but one that most studios mentioned providing as a support service to their companies during and after the incubation phase. Early on it is focused (obviously) on founder recruitment but quickly shifts to recruitment of early employees. Some studios I spoke with went as far as offering recruiting services, for free, to their spin-outs for multiple years post-incubation.

Common Operating Models

One of the areas that differs most drastically from one studio to the next is what I would classify as their operating model. My definition of this encompasses how they’re operationally structured, how they make money, and the processes they follow to go from idea → investable company. In this section, we will cover a few of these key models that emerged through my conversations.

Studio Models

Throughout my fifty conversations, there was a large difference in different studio models. That being said, I believe that there are three primary models that most all studios operating fall into:

1. The Power-Law Model
2. The Singles & Doubles Model
3. The Last Check Model

The Power-Law Model

This is the model that most people think of when venture studios come to mind. The Power-Law Model means that the studio builds companies with the end goal of them having an exit event that is substantial enough to return an entire fund. Typically this is a later stage acquisition or IPO.

In this model, a studio’s goal is to build a company similar to what traditional venture firms would invest in. That means large TAM (total addressable market), strong moats, and rapid growth. Their goal is to try and match the venture power-law return profile.

The Singles & Doubles Model

This is my name for a model that came up time and time again in my conversations. It means you are building companies for quicker exit cycles (usually studios mentioned 2-5 years). In this model, a studio is making the trade off on return multiples for speed and decreased risk. Rather than go for the moon shot that might return an entire fund via an IPO, these companies may exit to PE, enterprise companies, or competing companies in a shorter timeframe and lower valuation.

The Last Check Model

This is what I refer to when a studio builds companies for immediate profitability. They’re aiming to be “the last check” that ever gets written into a company. Rather than recruit an outside team to raise more capital and rapidly grow the company, they aim to build a sustainable, stable, and profitable company that can return dividends to them or be more easily sold down the road due to the profitable nature. The profile of these companies tends to be smaller, highly verticalized, and slower to grow. They focus on profitability over speed.

Additional Models

Over my conversations there were a handful of models that I found which studios also followed. These include:

1. Co-builds
   1. This is actually a very common model that typically is a part of the singles and doubles model. Studios co-build a company with a partner (typically larger enterprises, universities, or research institutions) acting as the operational experts who can execute on the 0→1 of building a startup while the partner usually operates as the research expertise or early design customer/partner. If successful, these startups often get acquired by the partner once they hit a certain stage of growth.
2. Recovery/Re-builds
   1. This is a less common model but one that I found more studios being interested in exploring. Rather than incubate a company from the ground up, they identify an opportunity area and look for companies who operate in that space but are struggling to grow. The studio often takes a majority position in that company as well as operational control. The studio’s thesis is that they can provide the missing catalyst to growth that was holding the company back.
   2. This model often is combined with a roll-up model which a studio may rinse and repeat the model with multiple companies within a single opportunity space and merge them into a single entity. Again, this is less common and more akin to a mid-market PE model but done at the earlier stages.
3. The wealthy founders sandbox
   1. I briefly mentioned this early but I’d be lying if I didn’t say this came up in a few conversations. You often see a wealthy ex-founder who had a lucrative exit start a studio because they want to continue to build companies without committing to being a founder for the next 5-10 years. These founders have capital, expertise, and networks that help in the incubation of these companies.

Thoughts & Insights on Operating Models

This is one of the areas that I found myself talking most about with studios and also one that I found studios internally struggle with the most. Many studios that I talked to may have started with one model and ended up settling on a completely different one over time. I see this as a benefit of studios as a whole as they’re small and nimble by nature, allowing them to adapt and change with the market over time in a way that a 100m+ venture fund might not be able to.

Often the immediate question that was asked of me by studio leads when they found out that I had talked to many of their counterparts was “what do you think is the best model for a studio?”. My honest answer to that is that I don’t think there is a one size fits all model that every studio should adapt. The market is big and there are opportunities to be a highly successful studio utilizing each of the different models.

That being said, one key takeaway that I was left with is that most studios are operating in the singles and doubles model to some capacity.

Very few studios build true power-law type companies, because at the end of the day, it is just really hard to do this well. Everyone knows that, it is why the venture power-law requires placing a large number of bets to hit a small number of moon shots. This fundamentally counters one of the key components of the studio model which is fewer bets, more equity. That being said, due to the higher equity position a studio takes, one moonshot landing could result in funding studio operations for many years. The studios that play in this model know this and typically follow this model because they had one or two major exits early on in their existence.

The singles and doubles model in comparison, is typically seen as a lower risk bet by most studios. You don’t need to build a generational company that can grow at hyper speed, raise hundreds of millions of dollars, and eventually exit on the public markets to build successful companies. Especially in the modern environment where cost and time required to validate concepts, build MVPs, and test ideas has never been lower. Even the studios that shoot primarily for power-law style returns told me that they’ve either experimented with ideas that might have lower (but faster) return profiles or are considering doing so in the future. Of the fifty conversations I had, only a handful told me that they’re not exploring this model.

Profitability was also a new metric that many studios are starting to explore.

This discussion point came up especially with studios who have less capital, backing, and track record behind them. As we will discuss later on, follow-on fundraising is a huge challenge for studios and the companies that spin out of them. This pain can be mitigated if the companies you incubate don’t need to go out for follow-on fundraising. This allows studios who might not have the access to capital or networks or larger names to still launch companies, stack profits, and continue to operate. In this model, they typically are taking a much higher equity position (sometimes up to 90%) and often create an economic structure where they’re getting revenue in the form of dividends from the profit. This makes it easier to recruit founders to run the company who may not be looking to run a venture scale company but still can be highly successful as a CEO.

Team Structures

Similar to operating models, I found that there were a few common team structures that came up in discussions but that there certainly was not a “one size fits all approach”. One thing that many studios mentioned was that the team structure they started with was very different from the one they ended up at and that each year, they’re reevaluating their structures based on new learnings, tools, and shifts in the market.

The types of roles that were prevalent among the studios I met with include:

1. Product Roles
   1. These usually are called product leads, venture builders, studio leads, etc…
   2. They focus on idea generation, incubation, founder recruitment, and product strategy among other things
   3. This is not a “product manager” type role. It is a highly entrepreneurial role that requires doing whatever it takes to formulate ideas, de-risk them, and incubate companies up to the point of building the founding team.
2. Technical Roles
   1. These usually are called CTO, engineering lead, or technical leads
   2. They focus on technical validation and building MVPs
   3. I’ve noticed that these folk often are also building internal tools and systems to help the studio run more operationally efficient
3. Growth Roles
   1. These are usually folks who can drive early revenue growth including pilots, securing design partners, or going from 0 to a few hundred thousand in ARR
   2. I found these to be pretty rare within studios as stand-alone roles. The larger and more capitalized a studio was, the more likely they were to have some type of dedicated growth role
4. Design Roles
   1. These are usually UX designers who most often are working across the entire portfolio of companies at once.

At a high level, the two most common structures that I encountered within studios were:

1. The Pod Structure
   1. This is a model that most anyone who has built software companies in the past will be familiar with. You organize your team as an independent “pod” that in theory, can run the incubation process end to end. This typically means that the pod has a product type role, engineering/technical role, and then a mix of design and growth roles (often shared).
   2. This structure seemed common with studios who may only incubate 1-3 ideas per year and typically assign one pod to one idea at a time.
2. The Director Structure
   1. This is a model where you typically have a studio lead who is running 3-5 ideas in parallel. They’re typically responsible for all stages of the incubation process from inception → validation → formulation and have a team of shared services they can tap into as needed. A studio may have 1-3 leads all running similar playbooks but across different thematic focus areas
   2. While this seems to be very common, these studio leads shared with me that this can be a difficult structure to scale as they become the blocking factor to speed, decision making, etc…
   3. This is also a common structure in smaller studios that may not have the capital for in-house operators. They then typically outsource items such as design, engineering, etc…

I’ll note that these were the two most common structures I saw but there are many variations of these two structures as well as ones vastly different that studios were utilizing.

Economics and Incentives

After the operating model and team structure of a studio, the economic structure is perhaps the most important criterion to understanding how studios run. Within my conversations, the economic model varied primarily based on the operating structure and objectives of a studio. Some of the common economic mechanisms that studios mentioned utilizing include:

1. Equity
   1. The most common mechanism used by studios, this is when a studio retains equity in the companies they build. The amount of equity retained by studios drastically varied from 10% upwards of 90% depending on the operating structure and how much time and resources were put into de-risking of an idea.
   2. Of the studios canvassed, I would say that a typical range of cap table retention was roughly 10-40% for most studios. Those that were shooting for profitability from day one seemed to take a higher percent, usually 40-90% based on structure while those who were looking for power-law returns typically took a lower percentage as to not hinder future fundraising.
2. Management Fees
   1. Another common structure, this includes retaining a small percent of the overall fund size for studio operations. Typically a percent of fund raised or a set dollar amount per year for evergreen funds.
3. Chargebacks
   1. A much less common (and more controversial) mechanism, this involves charging founders for the studio services performed. Only a handful of studios mentioned ever using chargebacks but those that typically operated more similar to a dev shop than a true venture studio.

One interesting takeaway from the conversations was learning more about how studios approach DPI and secondary sales compared to traditional venture funds. Multiple studios mentioned being very willing to sell shares on the secondary market to return capital to investors earlier on. This seemed to be a more common mechanism than I would have originally thought and when I probed studio leads on this, multiple mentioned wanting to prove to investors that they can return capital to them due to having less of a track record operating. My assumption is that over time, studios tend to hold more equity to get better IRR on their investments once they have a track record to help them back up their decisions. This is my personal opinion based on observations I’ve seen.

Sourcing Ideas

Moving on from operating models, one of the main areas that studios told me their time was spent was on idea sourcing and generation. To be honest, one of the big surprises came from talking to studios on this topic. About half of the studios I talked to mentioned that they have too many ideas to ever run through their validation criteria while about another half told me that they struggle to generate really high quality ideas. To pull on this thread some, one of my insights is that of the studios who told me they struggle to generate high quality ideas, most also touted being agnostic to vertical or company type. The studios who told me they had too many ideas to validate tended to be much more focused thematically. My hypothesis here is a simple one; focus leads to insight which leads to inspiration. Just like I stacked fifty conversations over a few months to better see the insights and themes emerge, studios that stack their efforts within a specific vertical tend to see more focused problem areas which leads to opportunity which leads to solution ideation.

On the topic of sourcing ideas, there were four main areas that studios mentioned pulling ideas from:

1. Internal Research
   1. Every single studio that I talked to mentioned pulling a high percentage of their idea inspiration from internal research. This typically means internal team members seeing problems in the market and research opportunities within them. Many studios mentioned having a shared backlog of ideas, often hundreds of items deep. Of these studios, most mentioned having a lightweight incubation process that they could run ideas through to gut check them before investing more time.
2. Partners
   1. As previously mentioned, many studios discussed having partnerships with public enterprises, research institutions, universities, or other types of industry partners who may struggle to commercialize or innovate on new 0→1 ideas. These partners become a natural funnel of ideas to studios, often rooted in a real market problem OR an opportunity to commercialize new research.
3. Potential Founders
   1. Founder sourcing is something that we will cover in depth later, however, it is worth noting here that many studios have pipelines set up for founders with ideas to come to them. This could be an EIR program or even just an idea portal where the studio will offer equity if they build your idea. Of the former EIR’s that I talked to, it was interesting to hear that most didn’t end up building the original idea they came to the studio with. They either killed it after going through the incubation process or pivoted it to another idea they felt was stronger.
4. AI Systems
   1. This is a really interesting concept that I’m pretty keen to follow over the next few years. I’d say that at least ten of the studios I talked to mentioned investing a significant amount of time and capital into building AI systems for idea generation and validation. The concepts I was shown ranged from random idea generators to in-depth market analysis tools. Candidly, I had yet to hear of an idea that actually was built from one of these AI generators to date, however, I’m pretty confident that will change in the next few years.
   2. Of these, the studios that had years of documentation on their idea generation and validation process seemed to be using internal AI systems the most effectively (for sourcing). One studio mentioned training an internal system on all of its prior ideas (1000+) each which contained a one page style investment memorandum and scoring matrix.

Overall, when it comes to the sourcing of ideas this seemed to be a secondary issue compared to effectively validating them and sourcing the right founders to grow the companies that stem from each.

Founder Sourcing

When it comes to challenges studios face, sourcing high quality founders was almost always the first challenge mentioned. To me, this is no surprise. One of my startup mottos has always been that the hardest part of a startup is finding the right founder…and the second hardest is finding the right cofounder. **To anyone who has been a part of true early-stage startups, you know the outsized impact that the founder has on the overall success. Even the best team in the world cannot overcome a founder who just isn’t the right person to run the company. Ask anyone who has done 0→1 their experience with this and I’m sure they’ll have a good story to tell.

With studios, it is no surprise that this is a challenge that has to be overcome each time a company is spun out. Not only does a studio need to source the right founder but they run into the challenge of doing so when the founder might not have come up with the idea. This is what I call the founder goldilocks challenge. Not only does a studio need to find the right founder but they need to bring them in at the right stage. Too early and you could burn a relationship on the wrong idea. Too late and the idea might never become the founders “baby”, something that leads to early burnout. This is the goldilocks challenge.

A final note on sourcing founders is that in order to find the right founder, you need founder market fit. This isn’t a new concept but one that many studios mentioned being a big challenge. For example, if you’re building a software for dental hygienists, you probably want a founder who has experience with dental hygiene. They speak the language, they know the problems first hand, they have the founder market fit. But how do you find a founder who can both run a software company and has experience in the field? This is the challenge that every studio has to overcome….

The Profile of Great Studio Founders

I’m going to heavily generalize here based on what I’ve seen first hand and talked with other studio leads about. The challenge with that is that there is certainly no one size fits all shape to a good studio founder (or a good founder in general). Startups are hard and being the founder of one is even harder. In general, traits that were mentioned to me of good founders include:

1. Experience
   1. There is no substitute for experience. Very few studios mentioned being willing to work with first-time founders unless they’re just a unicorn among unicorns. The sentiment was that it introduces one more risk that needs to be mitigated
2. Founder Market Fit
   1. As mentioned above, good founders can speak the language of their market. At the end of the day, a founder is selling more than anything. They’re selling their product, their vision, and their company…. speaking the same industry language as their customers helps reduce risk here among other things.
3. Curiosity
   1. This is something that I’ve added based on my personal experiences in startups. To be successful at any role in true 0→1 you have to be highly curious. Things change fast and adaptation comes from the ability to be curious, learn fast, and never settle. I personally think this is only compounding in the age of AI where feedback loops are shrinking exponentially fast.
4. Willingness to work with a studio
   1. At the end of the day, this has to be a non-negotiable. You need a founder who sees the value in the studio as a partnership, not a one-off. This is the only way to ensure that it is a win-win situation and that everyone is aligned long term.

Founder Sourcing Channels

To overcome this challenge with sourcing founders, studios mentioned that they primarily source founders through the following channels:

1. Networks
   1. This is the number one channel that was mentioned to me for sourcing founders. Studio leads mentioned using their personal networks, their LP networks, and their partner networks to source high quality candidates
2. Recruitment Partners
   1. Roughly 80% of the studios that I spoke with mentioned having a recruitment partner either in-house (full or part time) or on retainer externally. These partners primarily source founders and early operators for spin-out companies.
3. LinkedIn
   1. Yes this sounds simple and it is. However….I was absolutely shocked at how many studios told me that they source a majority of their founders through LinkedIn, either via direct postings or candidate search.
4. Entrepreneur In Residence (EIR) Programs
   1. Most writing on venture studios would lead you to believe that EIR programs are highly common and how most studios source their founders. My discussions with different studios actually leads me to believe the opposite. To run a highly effective EIR program takes a large amount of capital and bandwidth that most studios just don’t have. Of the studios I spoke with, mostly the large, highly capitalized studios mentioned having EIR programs. Of those, very few mentioned high success rates with EIR’s actually becoming the CEO of a company. My hypothesis again goes back to the fact that it’s just really hard to find the right founder to lead a company so it shouldn’t be a surprise that EIR programs are not the magic bullet but rather another tool in the toolbox.
5. Operator in Residence (OIR) Programs
   1. These are less common programs where studios bring in operators who are highly skilled and have a lot of startup experience to join their team on a temporary basis. The thought process being that they can help incubate companies during their time there and most likely will become an early employee (or even founder) of one of the spin-outs. This ensures that the studio gets the most ROI on the operator, both while they’re in-studio but also after. Sourcing effective operators who can thrive in true 0→1 environments was the most common challenge mentioned here.

Common Traits of Successful Studios

I again am going to generalize pretty heavily based on what I learned talking to fifty studios. I’ll preface this section with saying there is no one path to success in startups and studios don’t escape this reality. What one studio does successfully might not work for another. With that in mind, some commonalities that I found talking to studios with a track record of sustained success (i.e. exits and returns) included:

1. Typically launching 3-5 companies per year
   1. This is perhaps the biggest generalization I’ll make. You can find example of successful studios who launch one company and others who launch ten plus a year. That being said, it seemed that of the studios with a history of above average returns tended to launch 3-5 companies per year. When I asked why, the most common answer I got is that once you cross the five per year threshold, your studio team has to grow pretty substantially to support the growth meaning you need to devote more of your bandwidth towards activities that fall outside of the incubation process such as fundraising, internal hiring, internal support, etc… Sticking to 3-5 allows small teams to be highly focused and intentional.
2. A small team of experienced 0→1 operators
   1. Anyone who has been a part of a 0→1 company knows the skillset is much different than even a 20 person or 50 person company. Incubating is different than growth and requires a much different skillset and experience. The studios who I talked to that had a portfolio of healthy, growing companies tended to have a very lean but skilled team of internal operators who were either ex-founders or ex-early employees at multiple 0→1 startups.
3. A clear thematic focus
   1. This doesn’t need to be a hyper focused niche but practically all the studios with healthy return profiles that I spoke with could very clearly articulate to me their focus. This could be B2B healthcare company co-builds or B2B verticalized technology enabled services. The focus didn’t seem to matter as much as just having one (perhaps with the exception of NOT focusing on consumer).
4. A willingness to pre-sell
   1. I am a pretty firm believer that one of the best ways to validate an idea is to sell it. This belief was held strongly with studio leads that I spoke with who had successful track records in the B2B space. This is another reason that many studios mentioned doing more co-builds as you have built in lighthouse customers (or at minimum easier access to them).
5. A clear path to first funds
   1. Another generalization but typically outside of founder sourcing, the most commonly cited challenge studios mentioned was securing the first post-studio check. There are many reason for this including some investors not wanting to lead rounds in studio companies and studios taking outsized positions on the cap table, however, studio founders that had a clearer path to securing that first check were able to spend less time fundraising and more time finding market fit. Typically, these studios either had a venture fund arm that would lead the first post-studio round or they had a strong network of investors they could bring to the table. Runway is king in early-stage startups and this is no different with studio companies.
6. B2B Focus
   1. The fact of the matter here is that there are very few examples of studios that have success in consumer apps, especially if they’re not going for the “last check” type economic model. Consumer is tough, distribution challenges are amplified, and scale is needed much faster. I personally don’t think studios are well suited to solve consumer challenges and if you look at the market landscape, that is reflected in the focus of most studios.

My largest takeaway with studios is that the challenges they face are not too different from the challenges that all startups face, mainly because they’re building startups just like every other founder. Yes the approach is slightly different but at the end of the day, startups have a lot of challenges to overcome and studios don’t have the magic wand to make them disappear. Their advantage is in their team, experience, networks, and systems that can help speed up the incubation process.

The Big Challenges

Throughout this post I’ve discussed a handful of the challenges that studios face at different points of their operating cycles. I’d like to touch on a few of these challenges that came up in most, if not all of the conversations that I had. For the sake of length, I’ll stick to four primary challenges:

1. Finding the right founders
   1. This was most always the first challenge that studio leads mentioned to me when discussing items that inhibit the success of their studio. As we previously discussed, it makes sense that the biggest challenge studios face would also be the biggest challenge that startups face.
2. Securing the next check
   1. Capital in some form is required to scale and grow companies. Startups that have to spend all their time fundraising lose valuable time, bandwidth, and resources that could be devoted to finding market fit, expanding distribution channels, or exploring new ideas. The faster and more efficiently that a company can secure investment and build up their runway, the less time is lost to fundraising. Studio companies have all of these same challenges and this issue was typically raised as the second most impactful challenge studio companies face. As mentioned in the previous section, studios that can help ease the path to securing investment after the studio not only provide a large value proposition to the founders but de-risk their initial investments. This typically manifests as the studio having a seed fund attached to it or having deep connections through their networks and LPs that can help companies streamline fundraising.
3. Knowing when to step back
   1. This is an interesting point that I discussed with many of the studios I met with. What became clear is that very few had a specific criterion they followed for when to proverbially “kick the company out the door”. Many mentioned sourcing a founder and building the initial team as their milestone, others mentioned a certain ARR point, while some mentioned it was strictly based on feeling the company was ready to run on its own. What was interesting to me is that even studios with some criteria said that it was very loosely held and often fluctuated. In addition, many studios mentioned the risks not only associated with “underbaking” a company before spinning it off but also “over-baking” it. With the latter, the risk is not only spending additional studio resources and capital that could be devoted to the next project but that founders may not feel empowered to run on their own if the studio stays involved too long.
4. Operational capital
   1. Venture Studios are startups in their own ways and often share the challenges that what we might consider “traditional startups” face as well. This includes having to be cognizant of operational capital. Studios spoke to me about running very lean teams with tight operating budgets. This means that each internal hire has to be right or you risk burning capital that could be devoted to a company. The same goes for fundraising where depending on the structure (fund vs evergreen), studios can get caught in the same cycle of spending large amounts of bandwidth on raising their next fund compared to executing on the current one. Larger funds typically mean more fees and thus more operational capital, so studios have to be strategic about what the ROI on their time spent fundraising is.

So Where is the Market Headed?

This typically was the question posed to me towards the latter half of my fifty conversations. Naturally, studios were curious about what insights I had gathered from conversations with their “competitors” and where I thought the market was headed based on them. At the end of the day, this question really was “How do you think AI is changing the studio landscape?”. This is the question that studio leads really were curious about. How is AI going to change what they do and how are their competitors using it to get ahead.

The biggest takeaway I have from my conversations is that time to de-risk, test, and build 0→1 companies is shrinking by the day. This shouldn’t come as a shock to anyone but with the new rapid prototyping tools , “vibe coders”, and plug and play software products, a true MVP can be built, tested, sold, etc… in a fraction of the time that once was. This means that studios can validate faster, increase the number of ideas they test, and go further down the incubation lifecycle with fewer resources.

This means that in an age where building is cheaper, focusing on what to build becomes the driving factor…

So what does this shift actually mean for studios?

Well, from my conversations it became pretty clear that many studios were looking at these shifts as allowing them to “do more with less” which fundamentally changes the operating and economic models that they could utilize. In essence, this means that more studios look at the singles & doubles model as a highly lucrative option. As time to incubate, de-risk, and form companies shrinks, so does the operating capital required to incubate them. Less capital and less time naturally leads to being able to take more swings at the plate and stack the exits for singles and doubles. This shift allows studios to look at niche industries/verticals that might not have made sense prior from an ROI perspective but has an immense amount of white space to be addressed through technology. It also allows studios to look outside of traditional SaaS with many noting to me that they’re launching tech-enabled services companies under this model.

My prediction with all this in mind is two-fold:

1. The age of building with AI should enhance the studio model in the next 3-5 years
   1. Less capital required, faster time to de-risk ideas, and the ability to enter niche markets naturally suits the studio model. Those who utilize new technology will see their studios rapidly expand and I have no doubt that we will see the industry grow in the next few years in terms of total studio count and companies launched from studios.
2. Fewer studios will focus on power-law type returns
   1. This isn’t to say that the model doesn’t work but I believe that the model is inherently harder to succeed at. Those who do will drastically profit but the rest of the industry will look at the return profile of studios going for singles and doubles and see the opportunity in that space.

Final Thoughts and Takeaways

As I look back at this exercise, I found myself wondering if talking to fifty studios was actually necessary. To be honest, after about twenty, the patterns and themes more or less had presented themselves. Like most things in life, it was less about the number and more about setting a big goal to chase towards. What I discovered however, is that once the themes had emerged and the patterns become clear, I was able to focus less on the details and more on the big picture. The last thirty or so conversations I was able to dig into vision, where studios see the future, what keeps them up at night, and why they do it. One thing that became obvious in every conversation is that studios are for builders. They’re for the people who want to be building from the ground up instead of driving incremental changes on mature products. Studios naturally bring highly ambitious, curious, and “get shit done” oriented people together to tackle problems that others might ignore. These builders wear many hats, aren’t afraid to say “I don’t know”, and look for reasons something might succeed — not just why it won’t.

I bring this up because I personally think we are entering the age of the builder (if we haven’t already reached it). Each day new tools pop up that could accelerate a part of your workflow drastically, half the challenge is just knowing they exist. Those who are curious will continue to find these tools, learn to use them, and accelerate their work exponentially.

This is one of the reasons I’m so excited about the studio model.

By bringing this type of talent together, focusing them on a specific problem, and allowing them to chase it at hyper speed will result in highly impactful and successful companies being created. Studios amplify this opportunity through repetition and many of the challenges that have hindered studios in the past are being solved through new tooling. The age of the builder is here, and studios are the communities of builders who will excel in the next decade of innovation.