Three types of organizations – Incubators, Accelerators and Venture Studios – have emerged to reduce the risk of early-stage startup failure by helping teams find product/market fit and raise initial capital. Venture Studios are an “idea factory” with their own employees searching for product/market fit and a repeatable and scalable business model. They do the most to de-risk the early stages of a startup.

Outside a small university in the Midwest, I was having coffee with Carlos, a rising star inside a mid-sized manufacturing company. He had a track record of taking small teams and growing them into successful product lines. However, after a decade working for others, Carlos was interested in building and growing a company of his own. I asked how much he knew about how to get started. He said that from what he read, the path to building and funding a company seemed to be: 1) come up with an idea, 2) form a team, 3) start testing minimal viable products, 4) raise seed funding, 5) then obtain venture capital.

As he described his work in additive manufacturing and 3D printing, Carlos said he knew that there were seed investors in his town, but venture capital was still largely on the coasts, and it was hard to get their attention. He also wasn’t sure his idea was great. But he still had the itch to grow something small into a substantive company.

As we grabbed dessert, Carlos asked, “Other than raising money, are there other ways to start a company?”

Reducing Startup Risk
In the last two decades, three types of organizations — incubators, accelerators and venture studios — have emerged to reduce the risk of early-stage startup failure by helping teams find product/market fit and raise initial capital. Most are founded and run by experienced entrepreneurs that have previously built companies and who understand the difference between theory and practice.

Carlos stirred his coffee. “Accelerators don’t sound like a fit for where I am at in my career,” he offered. “I don’t have a killer idea, or a technical team, but I do know how to build, grow, and manage teams.”

The Alternative: Venture Studios
I pointed out there were organizations that might be a better fit for his skills and passion to go out on his own — venture studios. Unlike an accelerator, a venture studio does not fund existing startups.

I suggested Carlos think of a venture studio as an “idea factory” with their own full-time employees engaged in searching for product/market fit and a repeatable and scalable business model.

How Venture Studios Work
Unlike an accelerator or incubator, a venture studio doesn’t fund existing startups. It’s a company that creates multiple startups in-house, then finds entrepreneurs who take them over to grow them.

Comparing Startup Funding Options
Venture studios are a good fit for entrepreneurs who don’t have an idea or team but would like to run and grow a startup. The venture studio’s employees have already identified a product, market fit and early customers — meaning someone else has eliminated many of the early risks of a new venture. In return for the lower risk, a venture studio typically takes a larger percentage of equity.

There are four main types of venture studios:

Why Would an Entrepreneur Join a Venture Studio?
While we were on our second cup of coffee, I told Carlos about the downside to joining a company created by a venture studio — how much equity/ownership they take.

Why would an entrepreneur join a venture studio and give up the majority of their company rather than go to accelerator? Most accelerators tend to look for a “founder type” — a stereotypical techie, fresh out of college, who already has an idea and cofounders.

Most people don’t fit that pattern. Yet many are more than capable of taking an idea that’s been stress-tested and validated and building it.

What To Look for in a Venture Studio?
As we got up to leave Carlos asked, “How would I know whether the venture studio a good one?”

It was a great question. While there are no hard-and-fast rules, I advise entrepreneurs to ask these four questions:

A few weeks later I got a note from Carlos letting me know that he found that there was a venture studio in his city, another run by the state, and a third in his region focused on manufacturing. He had applied to all of them.

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