Often deemed synonymous with incubators and accelerators, venture studios help early stage startup companies develop their ideas into worthwhile investments. This kind of support goes beyond monetary funding and into other foundational business elements in getting to a launch.
During our latest ConZoom session, we had the chance to explore these different models with two front runners within the venture studio space: Amanda Joseph, VC Investor at Founder Equity, and Kevin Lindbergh, Managing Director, Operations at the Northwestern Mutual Venture Studio.
ConZoom is a weekly virtual event hosted by Diffuse that is part networking (you’ll meet at least a half dozen high calibre startup players) and part purposeful (you’ll ConZoom new ideas). If you want to make new friends from our VC ecosystem, email us at [email protected]
What is a Venture Studio?
Rarely will you meet two venture studios with the exact same model. Some look for founders with skeletal ideas, while others provide a founder with a complete business plan to execute.
According to Kevin, Northwestern Mutual’s venture studio looks for entrepreneurs who are very early in the game and could greatly benefit from the studio’s resources.
We work with external entrepreneurs, and try to bring them in very, very early. Basically when they’re at the idea stage. We then work with them through the process of shaping the idea, running the customer discovery process, and then ultimately building the business, before helping them raise funding to spin it out of the program.
Northwestern Mutual model provides considerable support to its founders, Kevin shared. In addition to covering startup costs, the founder is given a team who will provide expertise around product development, software engineering, go-to-market, and other operational needs. In exchange for this support, Northwestern Mutual is treated as a co-founder on the cap table, being allocated 30% common ownership prior to the seed round.
As part of our model, we cover a lot of the costs of the program. We provide the founder a stipend so they can focus on the new venture. We also fund the demand generation experiments, the MVP creation, and other costs prior to spin out.
Amanda’s at Founder Equity revealed a different approach. Her team does not come on board as co-founders, but rather preps early entrepreneurs to get ready for their seed round.
We have three pieces to our platform: We’ve got our fund side, we’ve got a product and advisory firm, and then a venture studio. In our venture studio, we work with entrepreneurs who are too early for our fund. We call them pre-seed. What we do is we partner with them but not necessarily as co-founders. We give them a dollar allocation and we help them build their product for market within a 12 to 18 month period, allowing them to leverage all the resources that we have in-house. Basically, we’re preparing these companies to get to that next seed stage of investment, and most importantly, we’re teeing them up for other seed stage investors.
Accelerators, Incubators, and Venture Studios: Is There a Difference?
Incubators, accelerators, and venture studios are usually lumped together, but they are distinctly different. According to Amanda, one of the main distinctions is that incubators do not always act as investors, but merely help companies innovate their disruptive ideas. Amanda explained:
When I’ve worked with incubators, they’re generally these ecosystems for startups to help them grow. They’re not always investors in the company, but they provide other resources, mostly in programming, to help startups succeed. it’s a little different than with our venture studio, where we’re taking direct investment in the company. We’re providing the actual resources to actually build it.
Kevin added that accelerators are typically shorter term, meaning they work with startups on a certain time frame.
For our program, we make a longer bet in our founders. This lets us wend and wind our way up to the point where we can get them out the door with something that’s venture fundable and scalable, compared to accelerators, where it’s more of a 10-week boot camp. Working with venture studios is more of a long-term process by which we want to work together with a founder to get to a launch.
Because the Venture Studio landscape is as varied as it gets, VCs have to choose a structure that suits their investment style, risk appetite, and resources. Meanwhile, founders have to find the studio that caters to their funding stage, support requirements and industry focus.
What Do Venture Studios Look for in a Startup?
So what’s the secret sauce that Kevin and Amanda look for in startups?
For Kevin, oftentimes, it’s more about the founder than what they’re trying to build:
The model is really focused on the founder. As we’re recruiting and bringing people in, the criteria is 80 percent on who the founder is and 20 percent of whatever their idea is. Knowing that the initial idea will likely pivot several times, we’re looking for the archetype founder. Maybe they’ve been a successful CEO and had an exit or have been an early senior leader in a company that grew rapidly. Somebody that has that kind of experience.
For Amanda, however, it’s equal parts founder capacity and market feasibility:
We have not worked with an entrepreneur that just had an idea. We typically find out whether there is some need for it in the market. As an example, right now we’re working with a company that is a marketplace connecting designers and suppliers. When this founder came to us, she already had an MVP that already had some traction, and she was able to demonstrate that there was a need. Those are the kind of startups we look for. The ones we want to take to the next level.
Ultimately, venture studios present a viable solution for startup founders still trying to find their edge. Not only will studios be invaluable in polishing ideas for market readiness; just as importantly, they can also help startups attract other seed stage investors. If you’re a new entrepreneur looking to land a deal with a reputable venture studio, let’s have a chat.
Amanda Joseph works with the fund and venture studio arm of Founder Equity, a Chicago and Dallas-based early stage venture fund that makes seed stage investments ranging from 500 to a million dollars across a wide variety of sectors in technology companies.
Kevin Lindbergh leads the day-to-day operations at the Northwestern Mutual Venture Studio, a Wisconsin-based financial services company that co-founds FinTech and Health & Wellness startups, helping them with ideation, discovery, validation, launch, and funding opportunities.
Diffuse is a venture ecosystem that incubates and runs select funds. From investment thesis to fundraising and deal flow management, we cover our GPs end to end. If you want to spin up your own fund, get in touch with us at [email protected]. We would love to see how we can help.