In our previous blog, "The Venture Studio Model from a Bird's-Eye View," we explored how venture studios, like Hunsicker, have embraced a collaborative approach to create and scale successful companies. In this post, we’ll explore the math behind venture studios and shed light on several of the clear economic advantages inherent in the execution of an effective studio model.

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First, let’s focus on how the studio model breeds efficiency and speed for its portfolio companies.

Capital Efficiency & Risk Mitigation: The Power of the Company Creation Playbook

Venture studios like Hunsicker each leverage a proprietary playbook that guides founders through each stage of their journey, ensuring only the most promising ideas move forward. This rigorous approach significantly enhances capital efficiency by preventing wasted resources and focusing investments of time and capital on ventures with higher potential for success. By vetting ideas early, venture studios gain deep customer insights, validating assumptions and positioning portfolio companies for success right from the start.

According to a study by the Global Startup Studio Network (GSSN), venture studio companies have a 29% success rate in comparison to 10% for stand-alone early stage companies.

Operational Efficiency: Shared Services Organization

Venture studios and their portfolio company founders capitalize on operational efficiency through the studio’s shared services organization. By centralizing functions such as finance, operations, marketing, & human services, studios create synergies and cost savings across portfolio companies. This shared services model eliminates the need for each startup to build its own infrastructure from scratch, reducing overhead costs and enabling founders to focus on core business activities.

A research report posted by the Harvard Business Review (HBR) indicated that early stage companies can achieve cost savings of up to 50% through the centralized support of a shared services organization. The resulting operational efficiency significantly extends the runway for early stage companies by burning less cash in the initial phases.

Shared Learnings and Collaborative Environment

Within venture studios, founders and companies benefit from a collaborative environment where knowledge and experiences are shared. This collective learning fosters a culture of innovation, enabling founders to tap into the wisdom and insights of their peers. By leveraging shared experiences, best practices, and mentorship, founders can navigate challenges more effectively, accelerating their growth trajectory and reaching key milestones at a materially faster pace.

According to a study by GSSN, studio companies on average reach a Series A fundraising round in approx. 25 months, compared to standalone companies who require 56 months to reach that same milestone.

Now let’s highlight a couple of key economic benefits that LPs can gain with through investing in a venture studio’s fund:

The Co-Founder Advantage: Unlocking a New Form of Equity for Investors

Unlike traditional startup investments, venture studio fund investors are in a unique position of having a percentage of their capital deployed during the crucial company creation phase. By participating in the earliest stages of the venture, these investors secure direct access to founder shares and hold a material equity position in each new company at its formation.

Data from PitchBook indicates that studio investors secure an equity stake of 20-30% in each portfolio company at its formation.

Studio investors will then increase their equity positions as further capital is deployed to grow each company while it operates within the studio environment. This dual equity role via founder shares (common stock) and preferred shares is a scenario that traditional VC can never offer to its investors because that capital is injected later in a startups growth trajectory. Being early has tremendous financial advantages.

Maximizing Economic Upside: The Power of Pro-Rata Rights

Another key economic advantage of the venture studio model is the ability to secure materially higher pro-rata investment rights. With venture studios holding significant equity stakes, investors have the opportunity to participate in subsequent funding rounds at a higher proportionate level. This increased pro-rata investment right allows investors to maintain their ownership percentage in successful portfolio companies, capturing more value as the ventures raise additional capital rather than the typical dilution flow of traditional VC.

Traditional VC investors may have pro-rata rights ranging from 10-20% while venture studios often secure pro-rata rights ranging from 25-50% or even higher.

The math behind venture studios demonstrates their economic superiority. With capital efficiency, operational efficiency, shared learnings, and unique investor benefits, these studios unlock significant economic potential. Whether you're an investor seeking optimal returns or a founder looking for support and financial advantages, venture studios provide a compelling proposition.