Why we think we are more of Venture Studio than a Venture Capitalist !!
Venture studios aren't VCs.
Why force fit VC finance frameworks?
The venture studio model has proven its ability to create value, driving an average IRR of 60% and TVPI of 5.8x - significantly outperforming traditional venture capital benchmarks.
But here's the challenge: we're trying to force an innovative multi-role business model into legacy investment frameworks designed for single-role investors.
Venture capital funds and private equity firms play primarily an investor role, allowing them to operate on a 2% management fee with small teams focused on finance, due diligence, and deal sourcing.
Venture studios, however, play three distinct roles:
🚀 The entrepreneurial role (company ideation and founding)
🛠️ The operator role (hands-on company building)
💰 The investor role (capital deployment)
This fundamental difference creates a problem. You can't perform these additional value-added roles without additional costs - more staff, more processes, more overhead. The standard "2 and 20" model simply breaks.
This is why venture studios typically spend 40-60% of their total capital on operations—two to three times more than traditional venture capital funds. But these aren't inefficiencies—they're investments in value creation that drive higher returns through faster startup development and more capital-efficient equity positions.
Studios struggle with three structural options, each with limitations:
📊 Traditional Fund Structure: A 2% management fee rarely covers full operating expenses, so they invest more to pay the studio for services or pay the studio to create investable companies directly
🏢 Holding Company Model: Appears like a direct business investment rather than a portfolio vehicle. Runs on a budget, but creates valuation questions.
🔄 Dual Entity Model: Creates complexity with two investor classes having different economic interests and may still pay for studio services directly or through portfolio companies
Let’s add some clarity by categorizing capital allocation of venture studios into five distinct areas:
⚙️ Cost of Builds: Internal costs directly attributable to building portfolio companies
🏗️ Studio Operations & Admin: Overhead costs of running the studio entity
🌱 Founding Investment: Initial capital deployed to secure common stock
💎 Preferred Investment: Direct investment securing preferred equity
🔋 Follow-On Reserves: Capital reserved for future investment rounds
This framework works regardless of legal structure, creating a universal language for comparing studio efficiency.
It's time to stop forcing venture studios into legacy investment frameworks and embrace transparent capital allocation models that reveal rather than obscure the true economics of company creation.
#VentureStudio #StartupStudio #VentureCapital #Innovation #CompanyBuilding