Venture Builder or Startup Studio?

Venture Builder and Startup Studio are not the same thing.

Now, I am not a fan of definitions, especially for business models that are relatively recent, still little known, and particularly heterogeneous in their practical application. I also have a poor memory and thus forget definitions with alarming ease.

However, I notice that, at least in Italy, the terms Venture Builder and Startup Studio are used as if they were synonyms, when in reality they are separated by a business model at opposite ends, which we can summarize in a tranchant manner as follows:

• Venture Builder = consultant

• Startup Studio = entrepreneur.

Both the Venture Builder and the Startup Studio create startups

It is true. And it is not true. Let's say that both aim to build a venture from scratch (and possibly do so in a Lean logic), but with the following important differences, which better specify the tranchant definition mentioned above.

Purpose

The Venture Builder builds startups on demand, starting by creating a POC (Proof Of Concept). Therefore, it primarily operates on commission and is compensated for this. The evolution of the POC into a spin-off and an MVP (Minimum Viable Product) is a hope, but not an obligation.

The Startup Studio builds startups only following an in-depth phase of data collection and market analysis. Even in the case it receives a prompt from a potential Industrial Partner. This is because the Studio's model is performance-based: it primarily earns from the exit of the initiatives it creates. Therefore, like any entrepreneur (and investor), it does not start initiatives that do not generate high potential returns.

Cap Table

The Venture Builder, by creating initiatives on commission, when it enters the cap table of the startup it has created, does so in a limited way and primarily to lower the initial development pricing of the POC. This allows it to cover costs and achieve a minimum desired margin. If it can also monetize a potential stake, that's just a bonus.

The Startup Studio acts instead as an entrepreneur and for this reason must have control of the financial and human resources that will constitute the startup. It is not compensated for its activities (or not enough to cover costs), so it focuses entirely on monetizing the stakes. Being a high-risk activity, it commands a significant portion of the cap table, which can range from 30% to 80%.

Operations and Results

The Venture Builder typically operates under the direction and control of the commissioning Corporate. It is a true consulting relationship aimed at generating POCs, with the hope that these will lead to real business opportunities and therefore spin-offs. Such an event is - to be fair - quite rare. The venture eventually spun off is strongly characterized by the Corporate, which usually retains significant control from the outset.

The Startup Studio operates as a partner of the Corporate, carefully evaluating all proposals (project-related, financial, and human resources) and autonomously deciding whether and how to develop the startup (especially since it invests financial resources, too!). As the startup evolves and gains metrics, the Corporate increases its exposure until full acquisition. The Corporate represents a true Industrial Partner for the Startup Studio.

But then, for my Corporate, which model is worth focusing on to innovate?

It's a bit like asking the baker if the bread is good 🙂

In any case, I will try to give a clear answer, leveraging what was presented in the previous paragraphs. There is no model that works well in every case, because we know well that every business reality presents some constraints (once known as "strings and strings") with which to come to terms.

However, if your Corporate:

• regularly engages in M&A activities (Open Innovation);

• has a CVC (Corporate Venture Capital) or participates as an LP (Limited Partner) in another Venture fund;

• has experimented with other models resulting in being full of POCs sitting in drawers

then it is advisable to rely on a Startup Studio, outsourcing part of the innovative processes and delegating them to those who have the necessary focus to give them substance (there is life beyond the POC!), operating with greater independence and total alignment of interests.

However, the hypothesis of trying both models in parallel cannot be ruled out. Indeed, if I were the Chief Innovation Officer of a large company, that is precisely what I would do.

Venture Builder and Startup Studio: Final Notes

Some Startup Studios choose to stay away from corporate logics, deciding to operate as holding companies and view exits for their ventures - for example - as public offerings. There are many models of startup studios and obviously some of these do not align with what has been written. The purpose of this discussion has solely been to clarify the difference between innovation operators who create ventures, involving corporates in various ways along the way.

Regardless of how you want to define them, it is probably now clearer to you who to call if you need a consultant or a business partner (and co-investor) to innovate.

Startup Bakery is the Italian startup studio specialized in creating B2B SaaS companies with Artificial Intelligence. We offer aspiring Co-Founders the opportunity to develop a business idea. We create investment opportunities for Professional Investors. We assist companies in the innovation process.