Words Founders Factory
January 10th 2024 / 12 min read
Accelerators, incubators, and now the Venture Studio—the latest popular model for supporting founders and creating innovative new businesses. But what is a Venture Studio?
Venture Studios are organisations that create startups. From forming and testing the very initial idea, to assembling the founding team, to investing early capital, the Venture Studio model is an iterative way of building ventures in a considerably de-risked environment.
Here, we’ll explain what the Venture Studio model is, how the process works and the sort of support founders can expect, and how successful it really is.
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The term ‘incubator’ has become widely recognised in the last few years; Venture Studio, meanwhile, is less well known.
The key difference is where the business ideas actually come from. At a startup incubator, founders bring early concepts or ideas to the organisation, where they are then nurtured, supported, and grown with the help of an in-house team. You’ll often find these at universities, aimed at supporting aspiring student entrepreneurs.
At a Venture Studio, ideas are developed and nurtured at a much earlier stage, in-house. These are based on external insights and internal research by the Venture Studio team. At Founders Factory, we accept both studio-led (developed in-house) and founder-led (brought by the founder) concepts, as long as the latter meet our investment criteria. With founder-led concepts, we bring founders in at the concept validation stage, often helping them flesh out certain proof points (e.g. product features, user demand, pricing, business model, etc) to bring them to that level of validation that would usually expect.
The Venture Studio model is defined by being iterative. To date, the Founders Factory Venture Studio has spun out over 70 ventures. The process is adaptive: we constantly review and refresh our approach depending on changes in the wider market, internal factors that impact how we operate, as well as past successes and failures. Throughout the journey, the central question is: “How can we improve?”
Key aspects of iteration are:
Retrospectives—held with the Venture Studio team and founders to capture observations on both the venture and the process
Experiments—actions from retros, to hypothesise how certain changes or behaviours might have yielded a better outcome
It’s also worth highlighting one of the key features of the Founders Factory Venture Studio, what we dub our ‘unfair advantage’. These are our joint ventures with leading corporations, including Aviva, Fastweb, and Nesta, who partner in the venture building process. Often, areas of opportunity are identified through these partnerships. Founders also get access to these corporates on a number of levels, ranging from advice to pilot programs.
A key part of the iterative design is having a clearly defined process that all ventures run through.
This is the first phase of the Venture Studio process, when concepts and ideas are hatched, tested, and validated. This involves much external research, including identifying market conditions and existing competitors. The venture design team will work on a number of concepts per sector at a time. If concepts are founder-led, founders are brought in at the concept validation stage.
Once ready, the venture design team will prepare pitch decks for each idea, which are then submitted to an Investment Committee (composed of members of our team and the relevant corporate partners) for approval.
Once approved by IC, ideas move into the main part of the program—the build phase. As the name would suggest, this is where we invest time and resources into building the idea into an actual business, as well as onboarding a founder into the business.
Concepts kick off with a Studio team around them, often before a founder joins. This includes a Studio Lead, who is the primary guide for the business through the programme (someone from our senior leadership team), as well as a Venture Builder, a person who will offer most of the hands-on support you’ll receive at this stage of the programme.
At this stage, depending on the business, you may also get support on the following:
Growth—acquiring and onboarding your first customers
Data Science—helping design and progress AI and data strategies
Fundraising—rarer at this stage, but possibility to start fundraising conversations with investors
Talent—making your first hires (potentially a co-founder)
Brand & PR—understanding your positioning as a business, and opportunities for media coverage
Legal & Finance—setting up the essential foundations for your business
It’s common that concepts will change quite a lot during the Build phase. There is a constant fine tuning throughout the process in order to find product-market fit, with founders often bringing their own experience to find their own approach to the business.
Launch Investment Committee
Ventures are taken to a Launch IC. Similar to the initial IC, the FF team and relevant corporate partners will vote on whether to deploy further capital into the business, and for it to proceed into the Founders Factory Accelerator programme.
Spin Out + Scale
If successful at Launch IC, the business proceeds into our six-month Accelerator programme.
Read about Richard Dana's experience with Tembo in the Venture Studio
At Founders Factory, we use a Red-Amber-Yellow-Green (RAYG) system to assess the progress and health of the business. Ventures must meet a clear set of criteria before passing to the next level. Reaching Green is not necessarily a ticket for success, but it is a good indicator of business development. We assess this across five categories which define the core workflows of the Venture Build programme: team, product, vision, customers, and revenue.
These are monitored and updated through fortnightly studio team meetings, team standups, and retrospectives. These categories also provide high level goalposts for spin-out.
Objectives are set for 30 days, 90 days, and six months. For each milestone, we’ll set three to five objectives, which must be measurable and verifiable—for example, ‘Acquire 25x waiting list sign-ups via organic marketing channels’, or ‘Finalise MVP features’. This is also tied to our RAYG status: broadly, businesses should be at Amber by 30 days, Yellow by 90 days, and Green by spinout.
Studio meetings happen every two weeks, involving the Studio teams and founders. Key focus is on actions, issues, and objectives, rather than updates. Any updates should be submitted as part of a ‘pre-read’ beforehand so that the rest of the team can catch up on your actions, and create an agenda accordingly.
Challenge sessions happen halfway through the programme. The Studio team comes together with certain other stakeholders (partners, our leadership team) to check the overall progress of the project and see if it is on the right track to reach its spin out goals. We’ll use this as an impetus to identify areas for improvement, start developing an investor narrative, as well as formalise feedback to the founder.
Retrospectives happen off the back of the halfway challenge session. This is a collaborative process for the Studio team to assess what is and isn’t working well. We’ll set goals—both what is realistic for the six month mark, as well as some stretch goals—as well as spinout objectives. This may also be an impetus to start empowering the founder to identify what is missing and where they can leverage more value out of our team and network.
Lower risk (at least in theory). The aim of the venture design process is to uncover, analyse, and de-risk opportunities at a very early stage, usually before a founder joins the process. This avoids, or at least limits, the risk of finding out that your idea is not venture backable at the most crucial moment—when you are fundraising.
Opportunity to divert attention to underserved opportunities. By working alongside category leading companies, we’re able to understand gaps in the market that could be ripe for innovation. Rather than following ‘hype’ waves, our venture studio is instead drawn to tracking trends and trying to predict the next waves. This can be particularly powerful in impact and mission-led areas, which are often underinvested in.
Hands-on approach to venture. There is certainly a trend towards support-heavy forms of investment, which see the real added value of an investor not in the capital they deploy (which is fundamentally the same from whoever you take it) but rather in the advice they can offer you. Venture studios embody this, with a lower capital offer in return for more hands-on support.
Bias towards diversity. By derisking ideas before founders join, venture studios open up opportunities to founders typically underrepresented by the venture ecosystem (particularly those who can’t financially afford the risk, or who lack access to the support network that can assist you in starting a business).
Compounding experience and knowledge. The benefit of the iterative venture studio model is that knowledge and experience compounds with each business that passes through the studio—successfully or unsuccessfully. Experiences are recorded and fed back into future processes, in theory making each new business more likely to succeed.
Having only launched our Venture Studio eight years ago, it may be too soon to judge the success of the mode both in terms of return on investment and survival rate. More than other forms of venture capital, venture studios have a long payback period. That means the overall return on our investments will take longer to realise.
Statistics from the 2022 Global Startup Studio Report indicate the strength of the venture studio model in terms of startup survival:
Venture Studio startups have a 30% higher success rate than traditional startups
84% of startups coming out of studios go on to raise a seed round
72% of those ventures make it to series A (compared to 42% of traditional ventures)
The time from founding to series A is 25 months for venture studio startups compared to 56 months for traditional startups
We continue to increase the number of businesses we're building and spinning out each year, with growing portfolios across our key sectors of fintech, climate, health, and deeptech. Businesses we’ve built include:
Tembo—intergenerational mortgage sharing. Tembo has raised £7.5m to date, including a £5m Series A in 2023.
Acre—end-to-end on-chain mortgage platform. Acre has raised £11.5m in seed funding to date.
Again—supply chain infrastructure layer for reusable packaging. £2.6m in seed funding raised.
Byway—flight-free sustainable travel agency. £1.1m in seed funding raised.
Read next: Accelerator vs Incubator: What’s the difference?
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