In recent years we have seen how investments in emerging startups have not stopped growing. Both private equity (PE) and venture capital (VC) companies have increased their investments by 40%, according to sources such as Reuters and Pitchbook. One of the fears of PE managers is there is still room to explore new opportunities, even though the investments are growing and profitable. These investment teams are used to seeing opportunities for disruption or new value propositions that never get put into practice. This is where the role of venture studios comes into play.
Private equity is a type of investment that consists of providing financial resources for the development of a mature company. In exchange, they receive a share of the company in which they invest.
The objective of this type of investment are private companies, those that are not listed and that are in a mature phase. While venture capitals tend to focus on startups and emerging companies, private equity continues the cycle of maturation with companies in more advanced stages.
This type of investment is highly beneficial for both parties, moving towards a common goal: making the invested company even more successful. On the one hand, private equity will receive more benefits the more successful the company is; on the other hand, the company will manage to grow and become stronger.
In order for the company to grow and become stronger, private equity applies a value creation process that is usually personalized for each company, in which strategy and talent are worked on. Once the foundations are built, the organic and inorganic growth of the company is worked on. In this phase, it is common for private equity to use other growth levers, such as experts in commercial excellence, just to name a few.
However, although PEs have the mission and interest of improving the performance of their companies, they do not have experience in improving them. Their role is not focused on improving the company from its roots. Therefore, if a great business opportunity arises, they will not be able to take advantage of it, but will need he help of an external agent. This is where the venture studio comes in.
A venture studio can team up with other investment companies, and can build a bridge between investment actors and new business opportunities that never come to be.
A venture studio is a team with the mission of developing new business models together with companies. This collaboration can create new companies, services or products that are better adapted to the needs of the market, and that provide a competitive advantage. This strategic decision is key both for private equity and for the invested company.
In short, a venture studio is in charge of creating new ventures, businesses around new products or services. It ensures that these new ventures have the same level of competitive advantages, but also adds new ones that have not been taken into account. While private equity may be able to detect shortcomings in the adaptation of their companies or in their very essence, the venture studio is the agent in charge of starting them up and making them a reality.
It is a classic both for large corporations that want to innovate, and for companies invested by PE: “We don’t have a team to develop this”. Sometimes, there are clear opportunities for profitable projects, but if a team is already dedicated to activity A, so getting down to work with options B and C requires more resources and can even be counterproductive to do it in the same company. Different opportunities can create confusion: they often have different goals and require different roadmaps.
For these reasons, outsourcing these actions can be a good idea, but it is important to be clear about who to outsource to. If we consider hiring the services of an agency, this may not be the best option, since the lack of alignment between the two can be counterproductive. However, opting for a venture studio can be the solution, in ordern not to get in the way of the company's main activity, while diversifying opportunities at the same time.
In addition, the venture studio not only provides a team to develop the idea, but also gives continuity to the project. This team is made up of experts who greatly shorten the analysis part, but without neglecting it, so that a launch can be seen in a very short period of time. Agility is one of the keys to the success of a venture studio team.
As a general rule, private equity target companies are not fully digitized and have the opportunity to fill this gap and grow exponentially and not linearly. To cover these digitization needs, the venture studio provides equipment, experience, know-how and agility. Outsourcing this process helps to shorten time and go to market with new features or business models that completely change the direction of the company.
Although digitization remains an obvious mission in business transformation, it is not the only one. A venture studio not only works to help a company with its digital transformation, but can also detect new complementary services or create new business models, different from those defined, to complement them and take advantage of new market opportunities.
In conclusion, the union between a private equity and a venture studio can be a key alliance to access new potential. Just by using a venture studio as a tool, investors can access potential unicorn companies or much higher growth ventures that might not otherwise come into existence.