Venture Studio 2.0

As the number of Venture Studios offered by Family Offices and smaller VC grows, their quality and ability to deliver positive investment outcomes often fail to meet expectations. Studios established to get early deal flow, develop founder ideas into viable startups and mentor invested deals toward exits often underperform. Underperformance comes in many forms – too few deals in the pipeline, taking months to move from idea to revenue, and lower than expected exit values. This article explores alternatives to a full studio model for FAMOs and other venture investors.

Why Small Studios Underperform

Opening a traditional studio starts with hiring seasoned startup veterans and support teams. A properly staffed studio includes staff members with previous experience as CEOs, CTOs, or CFOs along with staff with domain experience in health care, fintech, AI, etc. Large fund studios employ 6 to 18 full-time people plus Entrepreneurs in Residence. 

The average annual budget for a studio is $2.49M (1) . However, for funds with AUM under $100M, carry/ management fees don’t support the number of studio employees needed -- so they end up taking out loans or understaffing the studio. 

To stay within their budgets, many funds cut the number of studio headcount and rely on Limited Partners to fill the gaps. They also generalize the Executive in Residence (XIR) role and assign multiple startups to each XIR. Under resourced XIRs struggle to pull in the LPs or perform critical due diligence steps. Since FAMOs average 17 direct investments (2), under resourced studios also lack time to help their invested companies grow or pivot to profitable exits.

Improving the Model

Studio 2.0 reimagines the studio as a core team of direct hires supplemented by a large team of outsourced fractional CXO services. This, retainer-based model provides funds with the breadth of experience and domain expertise they need at a fraction of the cost of hiring their own team. 

The outsourced team helps with all stages of deal pipeline including preparing invested deals for their next round or exit. This model provides help from an experienced startup CEO, CFO, COO or CTO in increments that fit the specific situation.

Each month the in-house studio team works with an engagement manager to schedule services needed, and set up calls/meetings with prospective and invested deals. 

The outsourced services are paid by monthly retainer -- this allows the fund to change the roles and time commitment every month while keeping their expense line predictable. 

Conclusion

Traditional studio models with large in-house teams and budgets work well for large funds – but Family Offices and smaller funds need a new, more flexible model that controls outside service costs while providing ever changing domain and sector experience. Retainer based, outsourced studio services are a great solution.

About the Author

Deborah helps investors select and activate start-ups for investment by identifying, evaluating and growing startup ideas. Her previous experience includes executive and C-level roles at nine startups, four of which had exits. Deborah holds a BA in Economic Theory, and an MBA. Outside of work, she enjoys Dragon Boating and volunteering with an animal rescue organization.