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Disrupting the Venture Landscape Disrupting the Venture Landscape Why the Startup Studio Model is Where Investors Find Capital Efficiency DISRUPTING THE VENTURE LANDSCAPE 01 About This Report AUTHOR This report was created by GSSN (Global Startup Nick Zasowski Studio Network). GSSN and its members share GSSN Director a collective focus: creating opportunities for Nick leads the studio community for GSSN, a highly startups around the world to access the human curated network of the world’s most innovative and financial capital they need to build powerful startup studios, venture studios, company builders businesses and make a meaningful impact, and venture builders. Prior to his time with GSSN, wherever they call home. Nick led global partnerships, curating the accelerator network for parent organization GAN. About GSSN Being involved with multiple stakeholders across startup ecosystems, Nick loves connecting the GSSN is a highly curated community of the world’s world’s leading innovators so that all can reach venture studios, startup studios, company builders, their next level of potential. and venture builders. GSSN brings together the most relevant information and peer community CONTRIBUTORS so that studio leaders can build the best opera- Sarah Anderson ting structure for your startup studio by providing Managing Director, Cintrifuse curated connections to talent and financial capital, giving studio leaders more time to create their next Douglas Beyer successful venture. Director of Investments, Radianx Capital John Carbrey Note to the Reader CEO and Founder, FutureSight Alper Celen Startup studios (referenced as “studios” throughout Founding Partner, Enhance Ventures this paper) are interchangeably known around the globe as venture studios, venture builders, or EDITORS company builders. Simply put, studios are company creators. They solve real problems by Anna Armstrong matching great business ideas with the best GAN & GSSN Brand & Content Manager entrepreneurial talent to execute those ideas. Georgina Guidotti Studios then test these ideas and back them with GAN Accelerator Coordinator funding and resources in order to launch and grow powerful, scalable startups. To learn more about Dani Larson the defining structures of studios, check out our GAN COO first white paper. Patrick Riley © GSSN, 2020, Proudly headquartered in GAN CEO, GSSN Senior Advisor Denver, Colorado, USA. Danya Strait GAN & GSSN Events & Social Media Manager About DISRUPTING THE VENTURE LANDSCAPE 02 Table of Contents 3 Foreword 4 Introduction 5 Unprecedented Growth for Studio Stakeholders 9 Investing in Innovative Company Building 10 The Advantages of the Studio Structure 13 Investor Landscape 14 Conclusion 16 Case Study: eFounders 17 Case Study: High Alpha 19 Case Study: Science, Inc. 20 Appendix 22 Endnotes Contents DISRUPTING THE VENTURE LANDSCAPE 03 Foreword: Going Beyond Ideas and Team Do you bet on the horse or the jockey? We’re here to tell you that the answer is neither. While the horse’s athleticism will be hailed as the fastest and the jockey’s skill and dedication will be lauded for crossing the finish line first, the true bet lies in the trainer who is bringing the horse and the jockey together for the perfect fit. It would seem that there is a correlation between horse betting and startup studios. Some may look for the best jockey — or, the ideal founding team — the athlete that will lead a horse to victory. But this would be a largely unsuccessful betting strategy as the win percentage for top jockeys is around 20%. Others who are focused on finding the “perfect horse” — or, the best idea or biggest problem — to win the race may lose sight of all the other factors. In horse racing, the odds of the favorite horse winning is 33% of total races. Coincidence or not, it’s equally striking that startup ideas only account for 28% of a startup’s success.1 But, if you bet on the trainer who is the expert in bringing together the right jockey for the right horse, then your odds skyrocket. One of the most popular trainers in the world, Bob Baffert, has a career record of finishing in the money in 53% of his races. Seems like the wise choice to bet on the trainer, right? Investors today face much of the same dilemma while investing in startups. As an industry, do we bet on the idea or the team? As investors get more sophisticated and innovative with their portfolio, some are finding that the answer is “none of the above.” Instead, investors are turning to studios — a proven effective and efficient method to build startups. Nick Zasowski GSSN Director “Startup ideas only account for 28% of a startup’s success.” DISRUPTING THE VENTURE LANDSCAPE 04 Introduction This white paper dives into the reasons studios BREAKING DOWN BARRIERS have taken hold of the venture world and the In a world where “startup studio,” “venture studio,” makeup of the studios leading the way. “company builder,” and “venture builder” are all terms used interchangeably, the conversation with Studios are creating the world’s next generation investors about this innovative form of company of industry-shaping companies. With great building begins complicated and only digresses innovation comes big change. This ultimately from there. The goal of this white paper is to help causes disruption to systems that have been in educate both the investor and startup communities place for years. Studios are causing this precise on the growing startup studio model and the disruption to the traditional ways of building advantages it presents to its stakeholders. companies and investing in them. This white paper will help educate those unfamiliar with the studio model and demonstrate how studios look different from more familiar asset classes. Leaders in venture are now “placing bets” on the all-star studio teams that unite the best problem-solvers with the toughest problems. It’s not all that different from the gambler who bets on the trainer, rather than the horse or the Studios exist in the space where great teams comprised jockey, to be the factor that wins races. These of world-class talent and vetted ideas collide. investors have realized that studios as an asset STUDIOS HAVE ARRIVED class are elevating the world of venture. In the following section we will explore how these Studios are established and growing at an investments have resulted in incredible gains exponential rate as an asset class. Just this year, for the investors putting their capital into the Enhance Ventures reported that there are roughly studio asset class. 560 studios across the globe, representing more 2 than 625% growth over the last seven years. Data Source: Enhance Ventures White Paper DISRUPTING THE VENTURE LANDSCAPE 05 Unprecedented Growth for Studio Stakeholders STUDIOS THEMSELVES Modeling After Idealab’s Success Studios have become a more popular structure The success of Idealab speaks for itself. Over in recent years across the startup world, but they the past couple of decades, the studio has aren’t necessarily new. Studios have been around created more than 100 companies4 and the since 1996 with the founding of Idealab3. This results have been staggering. Across the started a movement that has led to hundreds of portfolio they’ve experienced5— studio successes over the past three decades. 70% COMPANY SUCCESS RATE 35% OF SUCCESSFUL COMPANIES IPO’D OR WERE ACQUIRED 5% OF COMPANIES BECAME UNICORNS* *A unicorn is a privately held startup company with a value of over $1 billion. According to CB Insights, 1,100 tech companies6 in the venture capital funnel that raised a seed round between 2008-2010 experienced the following through a full fundraising cycle: • 33% success rate for their portfolio companies. • 28% of seed-funded companies exited through an IPO, merger, or acquision. • 1% of these companies became unicorns. Idealab was just the beginning. As the years progress, new studios have followed Idealab’s model and built similarly successful portfolios. DISRUPTING THE VENTURE LANDSCAPE 06 THE STARTUPS CREATED The startups coming out of studios have a It is only a matter of time before investors see unique composition. These companies solve past a cap table that does not meet “standard” the world’s biggest problems with the world’s venture expectations and understand the best entrepreneurs. Because of this, the innovative approach studios take to company success of these startups is unprecedented. building. The studio approach is achieving better results (30% better to be exact) as they 84% of startups coming out of studios go build repeatable processes, focus on their on to raise a seed round. Of those startups specific expertise, have skin in the game from that make it to the seed round, 72% of those day one as an institutional co-founder, and ventures make it from seed to Series A, provide financial resources. compared to traditional startups in which only 42% of ventures that get to seed make it to BETTER RESULTS WITH THE STUDIO APPROACH COMPARED 7 Series A . Ultimately, 60% of all companies 30% TO TRADITIONAL STARTUPS created out of studios make it to Series A8. Examples of fast-growing startups that have come from studios: DISRUPTING THE VENTURE LANDSCAPE 07 THE BENEFITS TO CORPORATIONS teams to create their own paths forward. Typically, a corporate innovation team will conduct “What I like about the studio extensive research, and may ultimately come environment is that there’s often the up empty handed in their search for the “needle in a haystack” to address a specific problem. A opportunity for startups to build studio partnership provides a pathway for the amongst others in the same life stage. corporation to co-develop a solution for a specific There’s synergy in that and a great problem in a specific market leveraging their opportunity to grow with expert, expertise. focused resources before potentially There are two ways corporations can build out a bringing them back into the larger studio: the corporation can create its own studio internally, or it can partner with a venture studio corporate entity.” to outsource some of the work.
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