Will Venture Builders feed the next generation of Venture Capital investments?
Venture Capital and Venture Builders have fundamental differences but could possibly become great partners in the not so distant future.
Venture Capitalists know that their main aim is to provide money, so aiming to attract the best possible start-ups must be their number one priority.
When it comes to Venture Capital funds, they tend to diversify their portfolio so that they reduce the overall risk that comes with backing early stage companies. Start-ups tend to be one of the risky types of business to invest in, so this is where venture builders can come in.
Venture Builders, which are sometimes called ‘Startup studios’, are more than happy to get involved with a company from the idea stage and they often come up with their own ideas that can eventually be spun-out to a separate company. The model involves a lot of experienced people ensuring that the proper step are taken at the beginning, where the idea is validated, and they can assign experienced entrepreneurs or previous founders to run with the new idea.
What this means is that you have a streamlined process that creates multiple start-ups with competent teams that have a proven track record in building new businesses. Once the first steps are taken, most will eventually need a bigger cash injection to grow operations - and this is usually the point where Venture Capital firms thrive.
The synergy between Venture Capital firms and Venture Builders is one that could be a wonderful thing for both parties as it means that the Venture Builders will have financial backing for their portfolio companies and spin-offs to get them to the next level.
The Current Market
Due to the economic climate Venture Capital funds have grown more cautious in recent times and are slower to invest. Considering the current market requires them to lower their risk, it may be the time where we start to see them look to alternative solutions like Venture building.
In a market where late-stage funding has dropped significantly in the last quarter, seed stage investments have actually seen 9% growth.
While Venture Builders can be considered as being in an investment class of their own, they provide a more structured process for early stage venture development, usually from concept to launch. They can also loosen their reins in the process right at the time a company becomes ready for Venture Capital investment.
According to The Global Startup Studio Network’s data, portfolio companies tend to spend 11-24 months in the startup studios and earn an average of $2,100,979 in the 12 months after spinning out. They also reported in their 2022 data report that it takes an average of nine months to start generating revenue from a company's creation date.
With a strong success rate to date, Venture Builders are solidifying their place in the market but how Venture Capital firms react, remains to be seen. It seems likely, however, that they will be eager to utilise this solution to one of the investment industries biggest issues.
For more information on how Zoosh Ventures can help technology startups go to our funding solutions page.