How to figure out if you need a partner to build a startup?

Probably, one of the first times a startup backed up by a venture studio caught the world’s attention happened back in 2016 when Unilever bought Dollar Shave Club for $1bn. Michael Jones, CEO of Science, the studio behind the Dollar Shave Club, remembered then that initially he “wasn’t wholly persuaded by the profit margins on the just-a-few-bucks-per-razor concept”. Things developed fast: the studio invested $100,000 in the startup and then saw $65 million in sales two years later. Another two years later, one of the largest FMCG companies wrote a check for a staggering amount of money.

According to a GSSN white paper, startup ideas account for only 28% of a startup’s success. Just like a racing pilot may win the competition with one team and lose with another one, the success of building a business may depend on finding a good partner. In this article, we explain what benefits startup studios bring to the venture business.

The examples of successful businesses being launched onto the market by startup studios range from the French unicorn Aircall which had Hexa (formerly known as eFounders) behind them to FameBit (was bought by Google) backed by Science, from Deets launched by Boston Venture Studio (co-founded by Kayak co-founder Paul English) to Butter Payments with Atomic behind them.

Startups that come out of studios happen to reach the next round — seed or Series A — more often than traditional startups, argue the authors of the GSSN research. “84% of startups coming out of studios go on to raise a seed round. Of those startups that make it to the seed round, 72% make it from seed to Series A, compared to traditional startups in which only 42% of ventures that get to seed make it to Series A. Ultimately, 60% of all companies created out of studios make it to Series A”, says the white paper.

Most startups that partner with a studio know what they are looking for — a co-founder with deep expertise, proven experience, knowledge of a particular field and a solid network that will help build a company. For example, when the founder of Butter Payments, Vijay Menon came to a meeting with Atomic, he knew that the studio wanted to start a company that could help to reduce the churn.

One of the most popular reasons for working with a venture studio when starting a company is that such partnerships achieve results faster than when startups develop on their own. According to the GSSN research, studios reach seed round 25.3 months faster than the traditional venture investment.

“On average, studio startups go from day zero to seed round in 10.7 months, and seed round to series A in 14.5 months”, says the report. On the other hand, the average startup is roughly three years old by the time it raises a seed round, and it takes around 20 months (per round) to raise the first five rounds, and 25 months for each consecutive round.

The reason why startup studios work faster is that they use their experience in building companies and do not choose the trial and error path. They also test ideas fast, so they bring companies to the market fast.

Venture studios are often founded by entrepreneurs, who have had successful exits in the past, who want “to leverage their experience across multiple bets without having to invest the years building new startups themselves”, say the authors of the Venture Studio Index, an open database that includes up to two thousand startups launched by hundreds of venture studios. For example, Garret Camp, who co-founded Expa (a studio behind a dining reservation app Reserve that was acquired by Resy) was one of the Uber creators.

The studios have access to the best human capital, given their relationship with corporate executives, the research community and other valuable business fields. And they are also known for being generous when it comes to sharing networks. We, at SKL.vc, say to the entrepreneurs whom we take on board: “What mine is yours”.

When a startup joins a studio, it gets the best team and management. At SKL.vc, for example, we have solid experience in IT, so we make sure we put the best resources in the teams of the companies that we are building. Advisors who work with us have come from the top management of the most prominent companies in their respective fields.

Studios build dedicated teams and find people for important roles in the company, from HR to marketing, so that the founders can focus on the vision and development and not get lost in paperwork. An entrepreneur who decides to launch an AI startup may not know how to set up the subscription payment or where to advertise the services, but the startup studio knows how to take care of it.

Another important benefit that startup studios bring is their own investment. Being not dependent on other VC players (which is the case of SKL.vc) may be crucial. There is no need to compromise on anything since all decisions are made by the founders and the management team. Also, no precious time is lost looking for outside investments, as the studio can use its own funds.

At SKL.vc we invest our own money, so we make sure there are no toxic partners, unfriendly disputes and uncomfortable situations.

When a startup joins a studio, it gets more than just an investor or a mentor (although it gets both investment and guidance). A studio is a co-founding partner who wants to build a successful business and launch it to the market fast.

Since studios never focus on one company but aim to build several businesses at the same time, the efficiency of the process is unbeatable. According to startup expert Matthew Burris, IRR for startups backed by studios is 53%, compared to 21.3% for a traditional startup. Studios repeat what was done in the past, and don’t use hypotheses that were not checked.

Starting a venture business is exciting, yet it may sound overwhelming for many entrepreneurs who lack investments, team, or experience in building startups. Building a company with a startup studio helps to make the process less painful. The founders, who choose to work with a studio, get a full-scale partner who brings expertise, funds, people, and processes without risking much.