Looking at the tech scene here in Berlin, it is clear that a new trend is emerging: venture builder, startup studio, startup factory or whichever other synonym you choose to use to describe it. The concept is in essence a startup which creates other startups, by functioning almost as a holding company, which builds other companies rather than simply owning them.
Venture builders have received significant criticism in the past for being copycat machines which take innovative business models and recreate them to dominate other geographical markets, all before the original startup can. One famous venture builder is Rocket Internet, with its prime example being Foodora. Deliveroo, founded in 2013, is an online food delivery company that brings food from restaurants directly to homes or offices, thereby giving customers a huge variety of high quality dishes to choose from. Rocket Internet saw this idea and set up Foodora, essentially the same concept, in other markets, all at lightning speed and before Deliveroo.
In the startup arena, it is commonly said that 5% of a startup is the idea, whilst 95% lies in the execution. Startups push the boundary of innovative new business models underpinned by technological development in order to disrupt markets. Key examples are Uber and the taxi industry, Skype and the telecom industry and Airbnb and the hospitality industry. However, it is the execution of this innovative business model that presents the difficulty. Maybe per this definition, venture builders can be seen as a new innovation in business execution and thereby rightfully can also call themselves startups.
Venture capitalists provide capital to risky young startups in return for equity, to allow the latter to grow. When looking at the VC industry, the returns can be astronomical. However, the power law seems to dictate two aspects of the industry; only a few of the companies a VC firm invests in return the fund and only a few VC firms provide astronomical returns. It is well-known that entrepreneurs try to get funding from the top VC firms, because this greatly increases their chances of commercial success. This is due to the network effect of these firms, exemplified by the ‘Paypal Mafia’, by which the provision of capital is supplemented by a network of useful people to tap into. This ranges from developers and salespeople to legal and business development, in addition to knowledge from industry experts and leaders.
In theory, these venture builders provide the infrastructure for a startup to succeed. Just like a VC, they provide developers, salespeople, legal and business development. If these venture builders don’t simply copy innovative business models, but also get budding entrepreneurs to pitch and execute their ideas with them, then essentially they provide the same service as a VC. This therefore begs the question of whether venture builders deserve their rep as copycats, or if they’re simply resource providers of their own. I guess only time will tell as to whether venture builders will be able to create truly innovative unicorn such as Google, Facebook and Intel.
Article by Chris Knaup, Engineer
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