Early Stage Startups: From ad-hoc to Systematic - 2025

TLDR

• Startups in a competitive environment have extraordinarily high failure rates.
• Venture Capitalists and Grant Programs are shouldering the high failure costs.
• Venture Studios provide a collaborative approach that increases the pool of skills and resources that startups can draw upon.
• The success rates for Venture Studio startups are dramatically higher than incubator, accelerator graduates, or grant programs.
• Investors can benefit from more secure returns on investment by investing in Venture Studios and startups within Venture Studios.
• Startups can benefit from a collaborative environment where their peers have a vested interest in their success, and where mutuality dominates the culture.

What is wrong with Startups today?

The world’s most successful startup accelerator, Y Combinator, has a 98.75% failure rate in producing unicorns. That’s right. Only 50 of the 4,000 YC graduates succeed in producing unicorns. Many of these shortcomings happen because startups today are built like artisans built cottage industries in the 20th century: a single person taking on all business roles. Each founder is expected to do everything themselves —raise funds, identify problems, build teams, and sell solutions. This approach to entrepreneurship is not only extremely challenging but also ineffective, leading to low success rates. 

While the media loves to celebrate big funding rounds, it rarely covers the news of startups that quietly shut down (nor why they do) and the teams and learnings lost or taken by the entrepreneur for their next venture, while investors get nothing. Venture capitalists rely on spreading bets across many founders, knowing most will fail. This creates misaligned incentives: VCs push startups to "go big or go home", leading many entrepreneurs to burnout and end with little to show for their effort. The system is broken.

After going through the entrepreneurial journey a few times, including joining accelerators, raising VC funding, selling a company, etc, we kept searching for a better way. 

We found a new movement that benefits both founders and investors. Enter Venture Studios, (also called Startup Factories or Venture Builders). Venture Studios transform the startup game by switching from solo to multiplayer mode, and from ad-hoc to systematic processes.

What is a Venture Studio?

Venture Studios represent a fundamental shift from traditional venture capital and accelerators to a long-term relationship involving all the areas startups need to succeed. 

In practice, Venture Studios provide:

1. Research & Idea Generation: Venture studios actively identify and generate new business ideas, either internally or through collaboration with entrepreneurs.
2. Team Formation: They help assemble the founding team, often by bringing in experienced operators and subject matter experts into Entreprenuer in Residence programs.
3. Hands-On Support: Venture studios provide playbooks and operational support across the startups, reducing the overhead for all and constantly refining best practices.
4. Funding: Studios provide initial funding to get startups off the ground, still giving critical feedback but reducing by over 80% the number of ours founders have to spend on fundraising.

Early-stage startups with more than double the success in less than half the time

Venture Studios aren’t past the stage of being a novel idea; the model has been tested for two decades and the results speak for themselves.

Data from: https://inniches.com/startup-studios-research

Venture Studios are more capital-efficient and have a lower failure rate for entrepreneurs. As a result, the number of Studios is growing rapidly. About only 40 studios operated globally between 1995-2005 up to 700+ by 2022, and the Global Startup Studio Network (GSSN) reporting a 625% growth globally in the last 7 years.
As this new model matures, the number of well-known ventures born from these Studios has grown too. Some popular names are Dollar Shavers Club, Moderna, Tweet Deck, Beyond Meat, Medium, Gify, Bitly, and Lift.

Importantly, Studios are not necessarily focused on Unicorns. They do produce a fair share, but Studios also excel is in creating medium-sized businesses in the $10-300 million range that can exit well. The close relationships that studio operators develop with acquirers, other investors, and corporate clients and partners accumulate from one startup to the next, allowing studios to be more and more precise with the ventures they originate.

Addressing the challenges of Venture Studios

Not everything is rosy. When considering investing in Venture Studios or startups created by a Studio, it’s important to understand the potential pitfalls of the model. The following list allows investors (or founder considering joining a studio) to assess the risks and find out whether a mitigation strategy or solution is in place:

• Taking too much equity: Venture Studios take equity in the startup they originate and incubate. However, if the studio takes more equity than the value they provide, the startup's cap table becomes uninvestable and the team disincentivised for the long run. For a full venture studio operation (developing the idea, assembling the team, providing capital, and extensive support), a healthy range is between 25-35%. This is naturally different from incubators that intake already formed teams with an idea, and only provide hands-off mentorship. Venture Studios combine the roles of (co)founders, hands-on operators, and early-stage investors, hence the more significant ownership needed to make the numbers work. The advantage of studios comes from growing the pie: reducing failure risk, faster execution, networks, etc.
• Not my idea: Traditional entrepreneurs pass through many hardships building something when no one else believes, so they need deep conviction. Studios rely on validation methodologies instead of conviction, systematically testing multiple ideas in a short period. Bringing in founders earlier, as entrepreneurs in residence to validate the idea, gives them a chance to convince themselves and others or keep pivoting, until something truly resonates. It’s a model where if the idea is bad but the talent is good, they can keep quickly try again. Recycling talent from one attempt to the next improves capital efficiency.
• Over-protection: To ensure that a startup can function without the support of the Venture Studio, Studios set up an active program to help founders establish in-house functionalities for when they leave the umbrella of the studio. The effective model of operation is one where specialist in the studio team can setup template processes with the founders, train them, and delegate back to the team. The founders grow and save time to focus one hat’s truly unique about their business.
• Team breakdown: Founder teams can fall apart with devastating consequences as arguments about equity split become toxic. Venture Studios mitigate it by guiding teams to explore critical alignment questions in a structured process. Additionally, mechanisms such as Dynamic Equity (aka Sweat Equity - equity is not split in advance but allocated dynamically based on labor, assets, and capita invested) can further mitigate this risk. When a team does fall appart, the studio can help mediate and help recruit new cofounders quickly, saving the venture.‍
• Cash flow: Venture Studios require significant funding to keep operating for years before a successful exit. To address this, some Studios diversify by running a product or development agency that provides cash flow, others start by building cash flow-generating businesses before going for growth ventures that can exit.‍ In our case, we started with a user research agency which provided cashflow and crucial expertise in customer centricity and validation. The research agency is today a small but important part of our ecosystem.
• Operational complexity: Taking a more hands-on approach requires a Studio to develop methodologies, talent pools, and other resources. While investment funds can operate as generalists (across verticals), Venture Studios require specialisation in a domain to ensure the support offered to the startups is not surface level. Developing multiple startups in the same niche allows Studios to compound market insights, expertise, and networks. In our case, we specialise in Collaboration Tech (evolution of B2B Saas, future of work, gig economy, creators, ID, reputation, governance, etc).
  
  

Venture Studios working with Funds and Grants

Ventures Studios and VC funds can work well together. Studios benefit from a close relationship with a Fund by reducing the time it takes for their maturing ventures to fundraise. VC Funds benefit from the deal flow and reduced risk of investing in a venture that’s been properly validated. Because the Studio develops deep expertise in its area of specialisation, studios can also provide valuable market insights for Funds to refine their investment thesis.

Similarly, grant programs can work synergistically with Venture Studios. Grants programs lack the systemic processes that ensure startup success, and by investing in startups within a Studio, grants programs are improving their rates of choosing winners. Grant programs can boost projects in the studio by providing funding to develop a public good (e.g. standards, public infrastructure that can serve many projects, etc.) or take on new experimental bets.

Diversification for founders and investors

Early stage startups are inherently risk and the game is rigged against founders. Investors enjoy diversification across a portfolio of bets while founders can pick only one. Inspired by Kindred Capital VC, we developed a model that gives founders a better chance, allowing each founder to hold a stake in the other ecosystem members. As a result, our founders are more likely to help one another. Particularly in CollabTech, this model aligns with out thesis around modularity and composability.

Supporting revenue generating businesses 

Many founders want to build solid, profit-generating businesses and this aligns with our thesis on strong customer centricity and systematic validation. With the advent of vibe coding, it's significantly less expensive to start generating revenue and only raise later on to accelerate growth. Some startups avoid fundraising altogether, like MailChimp. Delaying fundraising posses a significant challenge for VC investors who might miss on deals and can also breaks some of the assumptions in the typical YC SAFE that assumed statups will fundraise quickly.

To address these shortcomings, we have redesigned the usual SAFE + Token Warrant to include a revenue trigger, whereby if a business achieves a revenue target, our note converts into equity. This model ensures that startups are free to pick the path best suited for their business while keeping negotiations fast and aligning interests. And when it finally comes time to raise, we and our partners benefit from pro rata rights.

Dynamic equity (aka Sweat Equity)

Founding team members have different levels of commitment and availability. Over time, team members may switch in or out of a startup due to unforeseen circumstances. Therefore, fixed equity splits at the founding stage can end up being problematic by the time the startup acquires real funding.

Dynamic Equity provides a different approach, where progressive allocation is based on contribution. Pioneers such as Slicing Pie have done more than 100 implementations, and there's enough data to show the approach solves many of the issues of allocating founder equity.

We've tested this approach for two years in RnDAO and our contributors liked it so much that one of our teams decided to productize it.

Recap

We’re excited about the RnDAO venture studio model because it provides:

• Systematic and rapid identification and testing of ideas, addressing dealflow limitations.
• Better support for ventures, reducing the failure rates and achieving faster growth.
• Superior capital efficiency, due to reinvesting learnings, recycling talent, and compounding networks (customer Access, etc).
• Risk diversification for founders and a supportive environment for collaboration.
• Legal contracts future-proofed for the new realities of tech startups.

What’s next?

We’re growing the RnDAO ecosystem.

• If you're an investor, join our investment network by filling this form.
• If you're looking to start a CollabTech startup, learn more about our Entrepreneur in Residence programs here.
• If you're a founder of an early-stage CollabTech startup, learn more about our incubation program here.
• If you're a designer, developer, product manager, marketeer, or otherwise looking to contribute and find your next gig in our ventures, learn more here.

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