The Startup Studio concept was founded in 1996 with the creation of Idealab, which is currently the longest-running studio in the world, and since then we have seen three waves of growth that generated the creation of over 200 studios around the world. Around 2013 the industry experienced the second wave which led the creation of over 80 studios at the time, including Polymath Ventures, and since then the rise of this new model was unstoppable.
The validation and consolidation of this model opened an opportunity to enable channels of collaboration and discussion between studios to share our experience on learnings, methodologies, successes, and failures. The Global Startup Studio Network arises to become a “highly curated community of independent studios all over the world”, where the members of this community have the chance to share ideas, empower their networking within the environment, and support fundraising for their companies. Today, the number of startup studios in the GSSN community has risen to 17, including our studio, Polymath Ventures.
This January, our Founder and CEO, Wenyi Cai, and Director of Investment, Andrew Hallman had the opportunity to attend the GSSN Studio Summit 2020, a fruitful event where they had the chance to talk about our work for the past years and gather new points of view from the way of work of other studios around the world and how to leverage our knowledge and experiences to help each other to understand the changing environment we are living in, and define the next steps to keep lifting the Venture Studio reputation.
After this exciting experience, we worked with Wenyi and Andrew to synthesize the main insights we collected during the event, so take a look at this useful and insightful guide to better understand the current context of Startup Studios around the world and get in the know of what’s next for our businesses.
- There seems to be a convergence in terms of the legal structure of studios, with a dual studio company and separate fund structure prevailing. This allows the studio to attract capital from two types of investors: institutional and private. For less flexible institutional investors, the fund structure is attractive because they typically have restrictions in terms of minimum ticket size, the structures they can invest in and the time in which they need to see a return on investment (typically within 10 years). Private investors, on the other hand, are much more flexible in terms of the structures they can invest into and have longer time horizons, so they like investing directly in the studio company.
- This is one of the most important competencies that a Startup studio needs to develop. Everyone is trying to figure out how to recruit founders on a scalable basis. Personal networks work very well at the beginning, but eventually, the studio needs to find a more scalable model.
- Building an active community of potential founders seems to be an effective way to build a sustainable pipeline. Effective components of the community are (1) events and (2) engaging potential founders in the ideation process.
About Work Dynamics
- Shared culture is very important. Cohabitation and explicitly shared values are key to this.
- Doing lots of events and creating spaces for founders to interact is helpful.
- At some studios, Founders have equity compensation across the portfolio of companies, so that if others do well, they do well.
Core competencies at studio level versus venture level
- It seems to be a convergence at studios around the types of services they keep in-house and which services need to be built at the venture level. All studios agree that Tech, Product, and Growth need to be built at the venture level because they are so critical to the venture’s success. “Business services”, such as Finance, Accounting, Legal, Talent can stay with the studio for a longer period.
- Senior staff in terms of Product, Data Science, and Growth in the market, are key figures to give advice to the ventures on these topics and help the ventures build their own teams in these areas.
About the success of Startup Studios
After 24 years of its creation, this business model has been proven and consolidated in multiple categories, industries, and geographies.
The advantages of being part of a Studio covers multiple aspects of the building and scaling businesses and our team wanted to share their input on some of the reasons we reinforced during this trip.
- Speed: One of the main advantages for studio companies is their ability to move fast because of the studio structure. According to GSSN, the average age of a studio company at exit is 4.3 years. Some of the key reasons for this increase in speed are:
- Knowing business model best practices.
- Understanding the right metrics to build for the sector or demographic you are building for.
- Standardizing key functions like sales (very important for SaaS).
- Ability to move fast, spending 13 months from company creation until closing of Series Seed round, compared to 17 months for the average venture in the industry.
At Polymath Ventures, our deep demographic knowledge about the LATAM region has helped us get faster to the problem we want to cover. After operating for 8 years in the region, we have developed the abilities to identify the right needs to fulfill and build digital platforms to empower the middle-class, by bridging entrepreneurs and market opportunities, combining our middle-class knowledge with the capacity to recruit the best founders to bring solutions to life. We also provide digital business strategy and key functional support throughout the ventures’ lifecycle and invest 100% of the first round and provide follow-on funding and giving access to an international investor network.
- Capital efficiency: There is a sense that the studio model is significantly more capital efficient than the VC model because:
- Heavy focus and expertise on ideation and validation phases mean that very solid business models that are solving deep needs come out of the studio. In our studio, we focus on Human-Centered Design and deep knowledge of the LATAM region to understand the problem and bring value. By starting from a well known and studied demography, we avoid burning capital and doing less prototyping than average, before getting to the right one to develop.
- Studios provide millions of dollars of resources, in kind, to produce quality products or services. Having expertise in different areas such as product, growth and talent development helps the studio to get it right with fewer iterations.
As always being part of these activities help us refresh our knowledge, contrast our thoughts and come back to our work with our mindset in place to keep building and scaling our ventures. If you are in the world of Startup Studios we invite you to join the conversation and share your thoughts about this piece to [email protected].