10 Most Frequently Asked Questions About Startup Studios

Essentially, a Studio acts as an investing co-founder to your startup.

The Studio team will help you from day 1 all the way up through raising your seed round of funding. Besides investment, Studios provide human capital, expansive networks, and resources like technology and proven methodology that make building startup ventures easier and faster.

1. What does a Startup Studio need to have before going out for investment?

Fundraising for a Startup Studio is different than fundraising for a startup venture. With a venture, there is typically a product or service that can be shown to investors and early traction that helps sell that product.

2. How much money do emerging Studios raise on average?

The major Studio players set the bar high when it comes to fundraising for a Startup Studio. For example, Pioneer Square Labs has raised $80M to date, Atomic has raised $170M to date, and Rocket Internet has raised over $2,200M to date. These figures may scare or excite you, but as an emerging Studio founder, you should know that these are the exception rather than the rule. Typical Studios raise between $500k and $2M in their first funding round. I most often advise Studios to shoot for raising enough funding for 2 years of runway, as this is the average length of time Studios take to develop a startup and see that venture have an exit.

3. Who invests in Startup Studios? When is the right time to approach the VC to invest in a Startup Studio?

Major VC firms are the most typical investors in Startup Studios.

4. What is the typical team size and make up for a new Studio?

Startup Studios are typically launched by serial entrepreneurs but this not to say that the only people qualified to launch Studios are repeat founders. On the contrary, there are professional athletes, scientists, and entertainment moguls who have launched successful Startup Studios. The profile of a Studio founder is simply someone with a lot of passion for building startups and deep knowledge of a particular industry, technology, or mission.

  • Having someone to handle the behind the scenes operations of the Studio (a COO) is equally as important.
  • You’ll want to see someone in a talent pipeline recruiting and sales roll.

5. How much capital do Studios typically put into the ventures they work on?

From my research and conversations with Studios, $150k — $250k is the average amount of capital injected into a startup venture over the course of their incubation period within the Studio. This funding is mostly spent on validating the idea, building the product, introducing the product or service to the marketplace, and acquiring customers.

6. How much equity do Studios typically take from the startups they bring in?

Studios take much more equity from startups than traditional VC firms, accelerators and incubators do. This is because Studios act as “investing co-founders” in every startup venture they help launch.

7. Where do the startup ideas come from- outside the Studio or inside?

This varies among Studios and is one of the first Studio design decisions that need to be made. As you can see from the matrix I’ve developed below (written about in detail here), “idea generation” exists on a spectrum. Some Studios only work on building startups based on ideas they’ve come up with inside the Studio whereas other Studios don’t develop any in-house ideas but rather source ideas from outside and bring them into the Studio.

8. How important is a thesis for a Studio and how do we formulate ours?

A Studio thesis is the focus of the Studio.

9. What happens after a startup “spins out” from a Studio?

According to research by GAN, 60% of studio-spin-out startups go on to receive additional capital from the studio. Even if the Studio doesn’t participate in the next funding round, startups spinning out from Studios typically go on to raise funds from other VC firms and angel groups.

10. How does a Studio make money?

Studios make money through exits. When a venture is mature enough (typically after 12 months of Studio “incubation”) a startup will leave the Studio and raise additional funds. Once the startup has a significant amount of traction in the marketplace, the startup must work on an exit. This could be an acquisition, merger, or a sale. The goal of a studio-born venture should always be to get to an exit. That is how Studios make a return on their investment and generate returns for their investors.

Endlessly curious about the human condition. Founder of Studio Upstart. Chief of Staff @ Untapped Ventures.

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