Venture Studios – Strategy & Structure

By: Byron Dailey

A well-designed venture studio, also known as a startup studio or incubator, aligns the economic incentives of the venture studio’s team with those of its investors while also optimizing for many other financial, legal, strategic and practical considerations. This article provides guidance to venture studio founders on how to structure a venture studio as well as hybrid combinations of a venture studio with a VC fund or accelerator.

This article is closely related to my discussion of this topic on The Gallery’s video podcast episode “The Ideal Startup Studio Structures.” While the podcast focuses on what I refer to below as “Model B” (which I have streamlined somewhat in this article), it does not cover what I refer to below as “Model A,” which may be more appealing to many studio founders for the reasons I discuss below. I discuss some issues in the podcast that I don’t cover in this article, so readers of this article will likely also be interested in the podcast.

For the sake of focus and ease of illustration, this article covers only venture studios that operate entirely in the U.S. Any non-U.S. venture studio founders, employees or investors will give rise to additional tax and legal issues that are beyond the introductory scope of this article.

I use “venture studio” to mean a business that creates new startup companies (I’ll call them “studio startups”), maybe with one or more co-founders, in exchange for equity stakes in each of those studio startups. I use “accelerator” to mean a business that delivers services (e.g., advisory, development or outsourced management or operational services) to existing startup companies in exchange for equity stakes in each of those existing startups. In contrast to a venture studio and an accelerator, a VC is a relatively passive equity investor in existing startups. A business can be organized as any one or more of a venture studio, an accelerator and a VC.

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