Venture Studios Find Their Way to Sports: Here's What That Means
Discover more from Profluence Sports by Andrew Petcash
Venture Studios Find Their Way to Sports: Here's What That Means
Venture Studio companies achieve seed & series A funding 2.2x-3.3x faster. Will it hold true in sports?
An interesting new model is finding its way into sports.
Venture Studios.
Today we explore:
what they are
how they will impact sports
and the opportunities within them
Let’s Dive In 👇
Accelerators, Incubators, & Venture Studios
An estimated 90% of startups fail…
This is why over the last 20 years, three types of organizations have emerged to reduce the risk of early-stage startup failure by helping teams find product/market fit and raise initial capital.
Incubators, accelerators, and venture studios.
Accelerators like Y-Combinator and Techstars offer a cohort of startups a 6-12 week program (in exchange, startups give up 5% to 10% of their company’s equity).
Incubators are similar to accelerators in that they provide space and shared resources to startups, but usually no or very small amounts of capital.
Venture studios are typically founded and run by experienced entrepreneurs who have previously built companies.
The business model for both is to select startups that can generate venture-class returns — i.e., grow into companies that can potentially be worth billions of dollars.
Rise of Venture Studios
Over the last decade…
We’ve seen the rise of venture studios (which has seen an incredible 625% growth).
However, venture studios can be traced all the way back to Bill Gross, who founded Idealab in 1996.
For those unfamiliar with the venture studio framework, it’s a new model for entrepreneurship, combining company building with venture funding.
"𝘢𝘯 𝘰𝘳𝘨𝘢𝘯𝘪𝘻𝘢𝘵𝘪𝘰𝘯 𝘵𝘩𝘢𝘵 𝘤𝘳𝘦𝘢𝘵𝘦𝘴 𝘮𝘶𝘭𝘵𝘪𝘱𝘭𝘦 𝘴𝘵𝘢𝘳𝘵𝘶𝘱𝘴 𝘢𝘵 𝘰𝘯𝘦 𝘵𝘪𝘮𝘦, 𝘵𝘺𝘱𝘪𝘤𝘢𝘭𝘭𝘺 𝘣𝘺 𝘱𝘳𝘰𝘷𝘪𝘥𝘪𝘯𝘨 𝘵𝘩𝘦 𝘪𝘯𝘪𝘵𝘪𝘢𝘭 𝘵𝘦𝘢𝘮, 𝘴𝘵𝘳𝘢𝘵𝘦𝘨𝘪𝘤 𝘥𝘪𝘳𝘦𝘤𝘵𝘪𝘰𝘯, 𝘢𝘯𝘥 𝘤𝘢𝘱𝘪𝘵𝘢𝘭 𝘵𝘰 𝘳𝘦𝘢𝘤𝘩 𝘗𝘔𝘍"
A venture studio’s main goal is to “found” as many successful startups as possible — all from the ground up.
Venture studios create startups by incubating their own ideas or ideas from their partners.
The studio’s internal team builds the minimum viable product and then validates the idea by finding product/market fit and early customers.
If the idea passes a series of “Go/No Go” decisions based on milestones for customer discovery and validation, the studio recruits entrepreneurial founders to run and scale those startups.
Unlike accelerators, venture studios don’t have a set timeframe — they search and pivot until product market fit is found.
A venture studio kills most of its ideas that can’t find traction and won’t launch a startup if it can’t find evidence that it can be a scalable and profitable company.
Venture Studios By The Numbers
The average venture studio injects $232,458 into each startup that they develop.
In return for this support, venture studios generally take a 34% equity stake in the startups they co-found (with the highest equity percentages at around 80%, and the lowest equity percentages hovering at around 15%).
𝗦𝘂𝗰𝗰𝗲𝘀𝘀 𝗿𝗮𝘁𝗲𝘀 𝗮𝗿𝗲 𝗵𝗶𝗴𝗵𝗲𝗿 𝘁𝗵𝗮𝗻 𝗮𝘃𝗲𝗿𝗮𝗴𝗲:
✅ Achieve Seed and Series A funding 2.2x-3.3x faster.
✅ Of those startups that make it to seed, 72% of those ventures make it to Series A.
✅ Venture studios have a 34% exit rate, nearly twice that of accelerators (19%).
✅ The average startup created by a venture studio returns an IRR of 53% vs 21.3% for a traditional startup.
✅ The industry average for a traditional investment to exit is about 6.6 years, while startups created in studios showed that the average age of a company at exit was 3.85 years.
When it comes to the type of companies venture studios are launching, there is a split of 61% of startups offering B2B solutions, with the other 39% offering B2C solutions.
Examples of companies that have emerged from venture studios include Twilio, Overture, Bitly, Aircall, and Moderna.
Sports Venture Studios
There haven’t been too many venture studios around the sports ecosystem but we’re seeing that change.
Core Innovation doing this for golf products.
3-letter agencies are looking into this stuff.
Indiana University doing this alongside athletics/NIL.
The sports industry is in the early stages of an innovation overhaul — and venture studios are starting to look at the potential opportunities.
While not 1to1, with all the consultants on the market, emerging leagues are benefiting from much greater support (similar to venture studio models).
State officials in Nebraska even launched a new contest in hopes of creating “the next Hudl,” a sports tech start-up that now employs 3,500 employees across the world.
Looking Ahead
The number one reason why businesses fail is due to the fact that there’s no market need — venture studios are challenging this premise.
Unlike startup accelerators and incubators, which mainly provide funding and mentorship, venture studios act as both a builder and a co-founder.
Business partners have attached athletes to their products such as Autograph & Tom Brady, Casa Azul Spirits & Travis Kelce, etc...
The next evolution will be venture studios doing this at scale alongside athletes.
I think venture studios are interesting, but only if you’re willing to give up significant equity (and therefore upside) in your business.
Time will tell if any sports conglomerates of the future get their start in a venture studio.
Podcast 🎙
Today’s guest is Manuel Lopo de Carvalho.
DMG Ventures is the investment arm of the media company, Daily Mail, they have deployed over $200 million into consumer companies.
Check out the podcast episode here.
Interesting podcast as they have recently made two sports investments: F1 Arcade and a new Padel tournament called The Hexagon Cup.
Headlines
💵 Business of Athletes
Jason Kidd and other athlete investors join Oakland Roots.
NFL player Myles Garrett buys minority stake in Cleveland Cavaliers and joins MUNICIPAL as an equity holder.
🏟 Sports Business
Zelus Analytics raises $3.6M Series A.
Recruiting platform Scorability raises $11M.
The state of Utah requires NIL deals to be public.
OMERS investing $400M for a 5% stake in MLSE.
Underdog & company acquired Altius Sports Partners.
FanBlitz reportedly raised $1.3M for new NIL marketplace.
Gemini Sports Analytics raises $3.25M to advance AI platform.
Thanks for reading today!
Peace,
AP
4 Questions to Ask Venture Studios
Does a former founder run the studio, and does it have former founders as full-time employees? The most successful venture studios are founded by entrepreneurs who have previously built companies with $10M+ in revenue and 100+ employees.
What percentage of equity are they asking for? The answer will be directly proportional to what they think your value is. Firms asking for greater than 60% are actually hiring an employee rather than a founder.
Do you want a studio with specific expertise? Studios that focus on specific niches and industries can build a deep bench of domain experts.
Do they have enough funding? If you’ve given away a majority of your company to a studio, it would be helpful to have them around for support after you’ve started. Make sure your studio has raised more than $10m in funding.
Sources:
https://integral-entrepreneurship.org/wp-content/uploads/2016/07/Startup-Genome-Premature-Scaling.pdf
https://www.techrepublic.com/article/accelerators-vs-incubators-what-startups-need-to-know/
http://gan-7000682.hs-sites.com/disrupting-venture-landscape-white-paper
https://www.gan.co/blog/startup-studios-look-like-2020/
https://www.graiventures.com/articles/what-any-investor-needs-to-know-about-venture-building-studios
https://www.markinblog.com/entrepreneur-statistics/
https://www.statista.com/statistics/886112/usa-startup-exit-deals-by-buyer-region/