Corporates: Planning to Build a Venture Studio? Overcome these Common Challenges
Accelerators are out. Venture studios are in. Innovators are increasingly realizing the power of the venture studio model, which takes a hands-on approach to building new businesses. Studios identify a great idea, find the right talent to build out a team, and act as an institutional co-founder by investing in the business, offering centralized services, and helping the business scale. HelloFresh, Dollar Shave Club, Girlboss, and Care/of are among a number of successful startups that have come out of standalone venture studios. And more successful businesses will likely follow, says Alper Celen, Founding Partner of Enhance Ventures. “Over half of the world’s 710 venture studios were launched in the last five years,” Celen explained. “That explosion of growth is testament to the power of the venture studio model.”
“Studios offer the mentorship, team-building, and access to capital that early-stage startups need in order to be successful,” added Silicon Foundry Partner Steve Gotz. “It gives experienced founders the opportunity to use proven venture-building processes to jumpstart new businesses and fill gaps in the market, in a way that accelerators don’t.”
Corporations have taken an interest in venture studios: in recent years, major firms have either launched or acquired venture builders in order to create new engines for adjacent growth. Proctor and Gamble created P&G Ventures studio in partnership with M13 in order to build new consumer products. Global food industry leader Mars launched Leap Venture Studio to invest in pet food innovation. Umpqua Bank used the venture studio model to start Pivotus Ventures. Pivotus was one of the first venture studios created by a bank and was subsequently acquired by a major fintech.
When done well, the corporate venture studio model can be powerful. But it isn’t always easy to get there. Corporations often look to stand-alone venture studios for best practices, which are hard to replicate inside large corporate structures. Stand-alone studios benefit from an operational model that supports speed and flexibility. When a corporation creates a venture studio, they have to navigate the innate differences between new ventures and large companies in order to find the right balance of independence, oversight, and support.
“Corporates and startups have different expectations for how they should operate,” said Silicon Foundry Partner Janina Lieser. “In a corporate studio environment, those can come into conflict.” She says there are four major challenges corporate venture studios should look out for.
Challenge #1: Governance
Startups may originate inside corporate studios, but they need to be managed as if they are independent businesses. They require flexible governance structures, including their own boards, which feature external perspectives. They need the ability to define new operational processes and risk and compliance procedures. But corporations often don’t see it that way. Corporate executives and board members can sometimes get too involved in micromanaging startups. Silicon Foundry Partner Steve Gotz says it’s not uncommon for corporations to apply their existing risk and compliance approaches to venture building activities, which often don’t account for the exploration of new technologies and business models.
“Venture building is a strategic activity that needs to be managed at the senior-most levels of an organization,” Gotz explained. “A well-structured corporate venture-building program will anticipate challenges and help senior executives navigate a complex array of decisions, many of which require executives to think more like venture capitalists.”
Challenge #2: Culture
The culture differences between new venture teams and internal business units can feel like oil and water. Startups are built to push boundaries. They tend to move much faster than big corporates, and they have different approaches to decision making, hiring, and operations. Silicon Foundry Partner Janina Lieser says that attitude can include seeing corporate partners as bureaucratic entities full of red tape. “Startups will perceive corporations as always saying ‘no,’” she said.
Competitive dynamics at the corporate level can hinder their venture studio startups’ ability to partner, sell, and grow. “Corporates may have lists of organizations the startup can’t approach, or they may require startups to get corporate approval before approaching potential partners and customers,” Lieser explained. “That can slow down progress for new ventures and limit their ability to scale.”
Lieser’s advice for overcoming those cultural differences: keeping the lines of communication open and developing a strong ethos of collaboration. “Corporates and internal startups have complementary strengths,” she said. “Developing a culture that prioritizes a one-team approach will make it easier for both the startup and the parent company to achieve their goals.”
Challenge #3: Capital Allocation
Corporations and new ventures have different time horizons for delivering value and impact. Corporates are under pressure to demonstrate quarterly earnings, whereas startups are working to find product-market fit — a process that doesn’t fit neatly into a quarterly earnings cycle.
Corporates may give internally built startups a fixed amount of money and time to build a minimum viable product before expecting the startup to unlock more capital by reaching particular milestones. But startups think about progress differently. They tend to spend money exploring ideas that may not lead anywhere–an iterative process inherent in the startup journey which is oftentimes at odds with how corporations allocate capital and assess progress. “That can cause friction with corporates, who may underestimate what’s required to bring a product to market,” explained Silicon Foundry Partner Steve Gotz.
Gotz also points out that there’s no widely accepted strategy for aligning incentives and compensation structures for new ventures operating inside of corporations. Traditional startups offer employees equity to incentivize success. But internal startups have to think of other ways to create upside for their employees, particularly if they’re building ventures that have yet to spin out of the corporate. “Consider how your new venture will define and measure success, and how you can align that with incentives to reward the entrepreneurial spirit and execution you’re looking to foster,” Gotz advised.
Challenge #4: Talent
Talent is the biggest determiner of success for corporate venture studios, but sourcing and retaining top talent is difficult. The best entrepreneurs and the teams that follow them are agile and relentless in the pursuit of opportunity. They want to create impact by solving hard problems. They’re also sought after, which means they have options and expectations. They want to work in bureaucracy-free environments — but it’s difficult for many corporate venture studios to provide that without top-down buy-in and support.
“If entrepreneurs are to succeed in a corporate studio environment, they need to be able to make decisions quickly without getting bogged down in red tape,” Gotz said. “Thoughtful design, easy-to-navigate processes, and a clearly defined path to commercial success are critical to building environments that empower talented teams to pursue ambitious growth opportunities.”
At Silicon Foundry, we help corporations pursue a range of adjacent growth opportunities by designing venture studios that are aligned with the organizations’ needs and objectives. From idea generation to talent sourcing and startup scaling, we support corporations throughout their studio- and venture-building journeys. Interested in learning more? Get in touch today.