How to Maximize Returns by Investing in Venture Studios

Tips for angel investors
Dmitry Samoylovskikh
🇪🇪 Founder @Uniborn
3 min read

Venture builders, aka studios, acting as startup fabrics are not a new concept. However, structured investments in them are not common — yet that's changing. To dispel any doubts, we've curated a set of crucial questions to help you assess a studio before diving into investing.

Why invest in a startup studio at all?

Let the numbers do the talking. Here are some stats from the GSSN (Global Startup Studio Network) report. Although the data is from 2020 and cannot be complete due to the private nature of the sources, the potential of startup studios is undoubtedly huge and growing every year.

  • A traditional startup typically takes over twice the time — more than 4.5 years — to secure Series A funding. Conversely, a studio startup achieves this milestone in just around 2 years or slightly more.
  • 84% of studio startups raise seed funding, with 72% of them progressing to Series A, compared to 42% for traditional startups. Overall, 60% of studio-born companies reach Series A.
  • Traditional startups typically have an average exit rate of about 6.6 years, whereas studio-born startups exit in approximately 3.85 years.
  • Studio-based startups boast a 5% chance of reaching unicorn status, significantly surpassing the 1.1% chance for other VC-backed startups that raised seed funding.
Image: GSSN
Image: GSSN

Okay, studios are an excellent target for an angel investor. How to pick the right one?

This is where the fun begins. Here are some questions we recommend pondering when selecting venture builders. There's no one-size-fits-all answer, as studio strategies vary widely. However, these questions will help pinpoint potential weaknesses, aiding your investment decision.

  • What's the studio's focus? Is it well-defined, aligned with the team's expertise, and reflective of current market trends?

Perhaps the principle of "the narrower the better" applies here. Building a successful venture studio is akin to launching multiple startups simultaneously, so possessing deep, specialized expertise in a specific area is paramount.

Of course, this doesn't mean you should run away if you see that an otherwise attractive builder is focused "on the whole AI market." But all other things being equal, we would be more likely to pay attention to a builder developing "AI solutions in MedTech."

By the way, this insight reverberated at last year’s Venture Studio conference we attended (how time flies!). Max Pog highlighted this important point in his summary for builders' founders.

Image: Max Pog
Image: Max Pog

Keep in mind that the focus can go beyond industry or region. It could also be the studio's unique technological resources or the rare qualities of its mentors, which should also serve as a green light for your investment.

In essence, you must grasp what enables this studio to expedite the creation and launch of startups, propelling them to significant development in less time than independent founders do.

  • At what stage do studios recruit founders? And are they indeed selecting the ideal founders for that stage?

Let us remind you that studios typically recruit founders from one of three periods, as eloquently described by Ben Yoskovitz, Founding Partner at Highline Beta (note that his article is also addressed to founders, not investors).

Image: Ben Yoskovitz
Image: Ben Yoskovitz

And here's the thing: true founders, the dynamic visionaries, should be brought into a venture studio early on to create or validate an idea. Later on — particularly once an MVP is developed or early traction is gained — venture studios should seek operators with more management expertise to scale successfully.

Typically, both types are referred to as "founders," which can be confusing. Therefore, your task as an investor is to scrutinize when the studio selects founders and the criteria used to select them. Examining the founders' backgrounds to see if they have more creative or managerial skills is also favorable.

  • What exact resources does the studio have? Will they suffice to outperform independent startups?

Determine the studio's funding source, the number of clients and partners it engages with, the hard skills within the team, tasks that are outsourced — as well as patents, technologies, and equipment at its disposal. 

Ascertain the equity stake the studio takes from its startups (typically 25-40%, depending on the studio model). It's crucial to clarify the involvement of other planned investors besides yourself and whether the recruited founders are also investing (it's good if they are — but it's rather a rare circumstance and may push away the best founders).

Here are some specific questions about the team to consider:

Image: Ben Yoskovitz
Image: Ben Yoskovitz

Venture builders may not readily disclose all levels of detail, often protected by NDAs and other agreements. In any case, reach out to founders and investors who have exited and those currently involved with this studio to get a firsthand look at their experiences.

  • Finally, ask yourself if the equity you can afford in this studio is enough. Maybe teaming up with like-minded angels is a smarter move?
Image: Max Pog 
Image: Max Pog 

Consider this list of questions just the beginning — we'll keep sharing more insights with you. For now, if you want to try your hand at investing in venture studios, join our Foundation cartel. We scout the best studios every month, with many delivering IRRs of over 50%. Our goal: invest over €10 million in leading builders and their spin-offs by 2025.

Cover image: Unsplash

Share this article

Uniborn is a community-led platform for sourcing, sharing, syndicating, and amplifying startups.

Uniborn is a trade name of Uniborn OÜ, registry code 16515953, Rotermanni 6, Tallinn, 10111, Estonia.

We are not intended to be a substitute for legal, tax or financial advice.

Uniborn OÜ is licensed by the Estonian FIU as Trust and Company Service provider, operating license FIU000420.

Terms and Conditions
Privacy Policy
Risk Disclosure