Venture Studio FAQs

I was lucky enough to speak alongside Matt McCauley, Ben Johnston and Alex Dreiling at SXSW Sydney this October on the topic of venture studios.

The big questions that were raised during the audience Q&A are ones that I hear often, so here’s an FAQ:

1. Venture studios have a reputation of taking too much equity, is that true?

This critique always confuses me a bit… If we took extortionate amounts of equity from our founders we’d be shooting them (and ourselves) in the foot. They probably wouldn’t work with us in the first place, and if they did, they’d probably struggle to raise capital from other investors in future.

For transparency, we take 10% equity (ordinary shares) as we think this strikes the balance between empowering the founder through ownership of the venture and giving us enough of a slice to build the business as if it were our own.

Of course you’ll see some venture studios out there that take significantly more. Different models lend themselves to different equity models (e.g. where the venture studio originates the idea and then hires for a CEO).

Key tip here is to do your research, get a second opinion and if it doesn’t feel right in your gut, it’s probably not.

‍

2. Lots of VCs will say an in house team is always preferable, do you agree?

If you can find an awesome in house tech team that’s fantastic, I’d never say that was a bad idea. I think venture studios are just another option in the ecosystem for those that aren’t connected to technical people and have struggled to find a good fit. There’s room for both options.

The benefits of using a great venture studio in my eyes are:

• It de-risks the hiring process: You’re guaranteed to get a world-class product to market, quickly.
• You may even save equity: Giving a venture studio 10% for a co-founding technical team that will eventually move in house is generally a cheaper option than giving away 25-40% of your business to a CTO upfront.
• It opens doors to the startup industry: Warm intros to investors, access to legal counsel, go-to-market tips from experts that have done it all before.

‍

‍

3. What do you think the future looks like for venture studios?

Broadly speaking I think the venture studio category is going to grow significantly. We’re already seeing more and more venture studios pop up across Australia and New Zealand and there’s a highly engaged community of people working in the space that is growing weekly.

I think we will see tighter specialism from venture studios in terms of their customer focus (ie. corporate ventures, founder lead ventures), industry (e.g. healthtech) and model (e.g. ideas internally incubated vs partnering with founders).

For Paloma, we’re super interested in working with founders with deep domain expertise. Startups have historically been pure software plays and we think venture studios can play a huge role in the digitisation of industry. We’ve already made a start with ChemCloud.

‍

4. Will AI disrupt venture studios?

There’s an argument that all software development (not just venture studios) could be disrupted by AI. Put your idea in one end, and out pops the web app of your dreams.

I’m sure we are heading in that direction (in fact there are already some latent versions in market) and am excited by what that could do to democratise access to entrepreneurialism.

But ultimately building a business is unlikely to become so easy that it doesn’t require any kind of expertise or insight.

The flurry of no/low code tools that have hit the market in previous years have made things much easier, but they haven’t reduced the need for people who understand how and why to make tech decisions and be the human interface between the software and the customer.

Markets are competitive and often there’s only one or two winners. Is it pure AI? Or is AI plus humans? I’d put money on the latter.

‍

If you’ve got a question about venture studios, Paloma, or anything else that hasn’t been covered here, get in touch.

‍