Venture Building: Beyond Incubators & Accelerators
A few decades back, start-up incubators were the rave within the entrepreneurship community. Schools and universities, private companies and even research labs all ventured into incubators.
VENTURE BUILDING: BEYOND INCUBATORS & ACCELERATORS
Venture building…the new startup model
Startup Incubators and Accelerators and their limitations
A few decades back, start-up incubators were the rave within the entrepreneurship community. Schools and universities, private companies and even research labs all ventured into incubators. Through several business plan competitions where ideas and plans were evaluated for novelty, feasibility, viability, and potential for profitability, project ideas become eligible for incubation and trainings opportunities were provided to the participants in addition to some level of funding.
While incubators focus on novel and disruptive business ideas, accelerators, as the name implies, focus on accelerating the growth of early-stage companies. They will usually take a percentage of earned profits of the companies they help to launch while incubators were funded by universities, governments or government agencies, or by entrepreneurs as social entrepreneurship (non-profit) services. There were many success stories, however, major funding steps remains a growth challenge for many start-ups as initial fund injection is usually not big enough to build a business that is global in size and structure. Only very few of the limited number of ideas that get accepted into incubation are able to access necessary financial, technical, staffing and management support to move to experience major breaks.
Venture Builders: A New Model of Entrepreneurship
The need for a different, more effective and efficient startup model had continued to become stronger, giving rise to the idea of venture builders (VB), otherwise referred to as venture production studios, or tech studios. Venture builders, according to Diallo, share the four values of capital commitment, industry experience, a passion for innovation and a natural tendency towards collaboration. VB have access to investors and venture capitalists and are sometimes, actively sought out by these funders. They are therefore, constantly seeking and creating opportunities to bring funders in contact with the businesses under them. Venture building however goes beyond providing funding.
García-Luengo (2017) defined venture builders simply as ‘organizations dedicated to systematically producing new companies, which they help grow and succeed’. Though this definition is very general, he further identified five key characteristics of this new model which include incubators and accelerators’ roles of identifying business ideas, building teams, and sourcing funds. VB goes beyond this by managing the ventures and providing the needed talent or technical team.
These last two roles being the key characteristics that set VB apart. The critical issues of management and staffing can make all the difference between success and failure for many startups who cannot afford the cost of high-level professional services required for scaling. These talent teams can provide services ranging from technical to non-technical, including HR, finance, engineering, legal services, business advisory, computing, sales, digital and traditional marketing, etc. venture builders develop a central talent team.
Models and Types of Venture Building
Various approaches to venture building are emerging as more organizations begin to see the advantages. There is a corporate venture building model. In-house venture builders own equity in the ventures they are supporting and the approach is the commonest model for venture builders. In this business model, the corporation is the venture builder; it owns the talent pool that supports its venture building. It sources ideas internally, develop and launches them, it funds, manages and grows them by leveraging the expertise of its talent team. On the two sides of this are what García-Luengo described as the paid VB models.
These include the ‘working for investors’ and the ‘working for corporation’ model. While the former aims to grow and bring a startup to an exit, with investors reaping benefits from its sale, the latter profits from selling its services to the corporation. Some VBs who serve corporations at a fee include Polymath Ventures, RockaLabs and Betaworks, while Mach49, and BCG Digital Ventures adopt the ‘venture-building-as-a-service’ or ‘working for corporation’ business model. Overall, venture builders address the challenges and limitations of incubators and accelerators; their adoption processes do not involve the screening processes that deny many startups the opportunity to access necessary growth support.
Successful and Emerging Venture Builders
The most famous Venture Builder, Rocket Internet, is Germany-based; it gave rise to startups including PayMill, Lazada, Jumia, Home24 and FoodPanda among others. Other popular and emerging Venture Builders include Obvious Corp which spinned off Medium, Branch, and Lift. Singapore- and London-based Entrepreneur First is popularly known for its Magic Pony Technology, Transcelestial, and over 100 others. US-based HVF lab, founded by PayPal co-founder Max Levchin gave rise to Affirm, Divvy and and Yelp among others while UK-based Zinc Ventures owned the Assembly co-working space and a number of real estate ventures. Ardent Capital (later Wavemaker Partners) is Thailand-based venture builder.
Betaworks is also US-based while StarterSquad, reported as considering itself as the “European version of Betaworks” is based in the Netherlands. Springlab is based in South Africa and it employs an innovative joint-venture business model. Silicon canals also discussed 10 Venture Builders that are transforming the startup model in the Netherlands while Yang (2018)’s review of key venture builders in South-East Asia, captured projects including Go-Jek, Entrepreneur First and LaunchPad among others.
The Xpress Train Sdn Bhd or TXT, is the only currently known venture builder in the Johor region of Malaysia. Its business model, captured in its slogan ‘Build, Launch and Grow’ is to support entrepreneurs to build, launch and grow their businesses. Leveraging a wealth of corporate experience, it works with a team consisting of local and international talents of engineers, business developers, computing experts, sales and marketing professionals, customer service experts, growth hacking specialist and legal consultants. It is poised to be the nursery for growing future startup giants in Johor.
The founder, Edwin Loh, is extremely passionate about the startup ecosystem in Johor, and hopes to make a significant difference in this regard. TXT VB combines a co-working space with event centers and meeting rooms, and holds regular networking events aimed creating and enhancing the growth opportunities of its startup ventures. Though it only launched less than 15 months ago, TXT is currently working with several startup projects covering diverse sectors from food and beverage to real estate while also offering VB-as-a-service to bigger corporations across Malaysia, Singapore, Vietnam, Cambodia, Thailand, and China.
The main characteristic that set venture builders apart remains the use of shared resources. They pool together capital, knowledge, skills and networks that are made accessible to their startups, thereby eliminating the critical limitations of finance, management, and staffing that kills many startups. Venture Building is growing rapidly, and although, e27 Singapore unfortunately observed that they are ‘a criminally underrated contributor to the startup economy’, there is hope that it will continue to receive more recognition as a more viable startup model.
García-Luengo, J (2017). Venture Building, a new model for entrepreneurship and innovation.
Diallo, A (2015). How ‘venture builders’ are changing the startup model.
Venture Builders are a criminally underrated contributor to the startup economy.