Venture Studios Find Their Way to Sports: Here’s What That Means

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

Letโ€™s Dive In ๐Ÿ‘‡

Accelerators, Incubators, & Venture Studios

An estimated 90% of startups failโ€ฆ

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.

venture studio vs accelerator vs incubator

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 companyโ€™s equity).

Incubatorsย are similar to accelerators in that they provide space and shared resources to startups, but usually no or very small amounts of capital.

different startup funding options chart

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 โ€” i.e., grow into companies that can potentially be worth billions of dollars.

Rise of Venture Studios

Over the last decadeโ€ฆ

Weโ€™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, itโ€™s a new model for entrepreneurship, combining company building with venture funding.

venture studio company building process outlined

“๐˜ข๐˜ฏ ๐˜ฐ๐˜ณ๐˜จ๐˜ข๐˜ฏ๐˜ช๐˜ป๐˜ข๐˜ต๐˜ช๐˜ฐ๐˜ฏ ๐˜ต๐˜ฉ๐˜ข๐˜ต ๐˜ค๐˜ณ๐˜ฆ๐˜ข๐˜ต๐˜ฆ๐˜ด ๐˜ฎ๐˜ถ๐˜ญ๐˜ต๐˜ช๐˜ฑ๐˜ญ๐˜ฆ ๐˜ด๐˜ต๐˜ข๐˜ณ๐˜ต๐˜ถ๐˜ฑ๐˜ด ๐˜ข๐˜ต ๐˜ฐ๐˜ฏ๐˜ฆ ๐˜ต๐˜ช๐˜ฎ๐˜ฆ, ๐˜ต๐˜บ๐˜ฑ๐˜ช๐˜ค๐˜ข๐˜ญ๐˜ญ๐˜บ ๐˜ฃ๐˜บ ๐˜ฑ๐˜ณ๐˜ฐ๐˜ท๐˜ช๐˜ฅ๐˜ช๐˜ฏ๐˜จ ๐˜ต๐˜ฉ๐˜ฆ ๐˜ช๐˜ฏ๐˜ช๐˜ต๐˜ช๐˜ข๐˜ญ ๐˜ต๐˜ฆ๐˜ข๐˜ฎ, ๐˜ด๐˜ต๐˜ณ๐˜ข๐˜ต๐˜ฆ๐˜จ๐˜ช๐˜ค ๐˜ฅ๐˜ช๐˜ณ๐˜ฆ๐˜ค๐˜ต๐˜ช๐˜ฐ๐˜ฏ, ๐˜ข๐˜ฏ๐˜ฅ ๐˜ค๐˜ข๐˜ฑ๐˜ช๐˜ต๐˜ข๐˜ญ ๐˜ต๐˜ฐ ๐˜ณ๐˜ฆ๐˜ข๐˜ค๐˜ฉ ๐˜—๐˜”๐˜”

A venture studioโ€™s main goal is to found as many successful startups as possible โ€” all from the ground up.

  1. Venture studios create startups by incubating their own ideas or ideas from their partners.
  2. The studioโ€™s internal team builds the minimum viable product and then validates the idea by finding product/market fit and early customers.
  3. If the idea passes a series of โ€œGo/No Goโ€ decisions based on milestones for customer discovery and validation, the studio recruits entrepreneurial founders to run and scale those startups.

Unlike accelerators, venture studios donโ€™t have a set timeframe โ€” they search and pivot until product market fit is found.

A venture studio kills most of its ideas that canโ€™t find traction and wonโ€™t launch a startup if it canโ€™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%).

๐—ฆ๐˜‚๐—ฐ๐—ฐ๐—ฒ๐˜€๐˜€ ๐—ฟ๐—ฎ๐˜๐—ฒ๐˜€ ๐—ฎ๐—ฟ๐—ฒ ๐—ต๐—ถ๐—ด๐—ต๐—ฒ๐—ฟ ๐˜๐—ต๐—ฎ๐—ป ๐—ฎ๐˜ƒ๐—ฒ๐—ฟ๐—ฎ๐—ด๐—ฒ:

โœ… Achieve Seed and Series A funding 2.2x-3.3x faster.

โœ… Of those startups that make it to seed, 72% of those ventures make it to Series A.

โœ… Venture studios have a 34% exit rate, nearly twice that of accelerators (19%).

โœ… The average startup created by a venture studio returns an IRR of 53% vs 21.3% for a traditional startup.

โœ… 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.

Startup Studios over the 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 D2C solutions.

Examples of companies that have emerged from venture studios include Twilio, Overture, Bitly, Aircall, and Moderna.

4 Questions to Ask Venture Studios

  1. 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.
  2. 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.
  3. Do you want a studio with specific expertise? Studios that focus on specific niches and industries can build a deep bench of domain experts.
  4. Do they have enough funding? If youโ€™ve given away a majority of your company to a studio, it would be helpful to have them around for support after youโ€™ve started. Make sure your studio has raised more than $10m in funding.

Sports Venture Studios

There havenโ€™t been too many venture studios around the sports ecosystem but weโ€™re seeing that change.

core innovation golf venture studio

The sports industry is in the early stages of an innovation overhaul โ€” 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 โ€œthe next Hudl,โ€ 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 thereโ€™s no market need โ€” 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.

future of sports startups

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 youโ€™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.

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