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Startup Studios on the Rise

Are startup studios a more efficient way of building startups?

· startup,startup studio,Entrepreneurship

(The original version of this post was published on Medium.)

Building startups is hard. Most often the founders have to spend much of their time on gathering the basics. A basic team who can build an initial product. Initial funding that enables them to commit to their idea. If you ever tried it, you know the feeling.

It's also challenging for investors. For every new investment, they have to get to know a new team, build up trust from zero. And the result? More than nine out of ten times startups fail. The team is lost, so is the join experience. Founders will get up eventually, and build their next business. It just takes away too much precious time from them.

Can we build startups easier?

Los Angeles based Idealab started to experiment with a new way of building startups in 1996. Call it startup studio, startup factory, venture builder, foundry, it's almost the same. We are talking about an organization that builds startups in a repeatable way. The definition and criteria of what is exactly a startup studio are not strict. But the basic ingredients and mechanics are the same. Here are the 7 basic steps of a startup studio:

  1. Take a core team & entrepreneurs in residence;
  2. Add a shared infrastructure & in-house funding;
  3. Generate ideas internally (or in some cases, act as a cofounder);
  4. Build multiple startups in parallel;
  5. Trash what doesn’t work, reassign team;
  6. Spin off what works and get follow-on funding;
  7. Grow. Exit. Repeat.

The promise of this new model is: the centralized resources that the startup studio provides is an ideal base for entrepreneurs to quickly build and test new business concepts. The team can focus on what matters the most, the product and the customer. And for the investor it can mean a steady deal flow.

Since 1996 more and more studios have been emerging. Some were founded by successful entrepreneurs, investors and even large corporations. The most famous ones include Rocket Internet, Betaworks, Science, eFounders. There are even startup studios focused on bringing university research to the market.

Startup studios are thriving

In 2015, there were about 51 studios world wide. In 2016, this number already exceeds 150! What we know for certain is that studios are on the rise. If we take a look at publicly available data like CrunchBase we find exciting insight.

  • Startup studios create more and more companies, +15% year over year;
  • On average, each studio creates 1 company per year, and this number is steadily increasing;
  • Portfolio companies employ almost 16,000 people;
  • There is a wide range of models and verticals represented;
  • Since 2008, studio companies have raised more than $4B;
  • Funding into portfolio companies has been increasing 48% year over year since 2010;
  • There have been 14 portfolio companies acquired, on average 3 years after their launch.

If the trend continues, the startup studio model will become the predominant way of building startups in a few short years.

Making the studio model more transparent

And we have much to do to make the startup studio model better understood. There are concerns from both entrepreneurs and investors. Cap tables are strange, compared to the traditional startup recipe. Often if a studio builds a successful venture, they stick to it and lose the ability to produce multiple startups. Some people question the passion and authenticity of those who work in startup studios. 

 

Is any of this true, or are these concerns only a matter of not yet having the right information? To find the right answers, we need to decode the “genome” of successful startup studios, dig deep into their story, look at the people, processes and results.

 

Since I started my research of the studio model in early 2015, I examined dozens of studios, analyzed their track record, listened to their founders and leaders.  These people dedicated their time and expertise to make the startup studio model more transparent and reachable for all. The Startup Studio Playbook is a synthesis of all this knowledge, brought to you with one clear goal: To make the startup studio model more transparent, and make it easier for entrepreneurs to build exciting new ventures.

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