In 1990, venture-backed companies totaled less than US$100m. Today, it is common for venture capital (VC) funds to place US$100m+ into single companies. This incredible growth was driven by a fundamental change in the prerequisites for starting and growing new businesses. Technology has made it possible for businesses to acquire millions of customers in a matter of days while requiring negligible amounts of physical asset investment. Thus, the ‘boutique’ VC model quickly found popularity as an investment solution that placed a broad set of bets backing young and unproven businesses with highly scalable and asset-light models, accepting a lower success rate for a high return on those that succeeded.
The last 20 years have seen increasing fragmentation in the VC market, from big investment firms through accelerators: YCombinator to highly specialised VC arms like: A16Z Crypto.
Today, we see the growing popularity of another model within the early-stage ecosystem: the Venture Builder (VB). In the crowded and competitive space of early-stage venture, the VB model has seen impressive traction in the last years, gaining popularity across global markets and playing an increasingly important role in innovation and business support in a range of key industries. But, how we really define VB?
Venture Builder is a company which creates its own enterprises. From just an idea to real product which could be transform into business. VB business ideas are often thought of as ‘in-house’ by the VB team, in contrast to accelerators and incubators which bring in existing early- stage businesses. Complementing this design are various types of technical support, financing, and growth expectations.
Venture Builder’ is often a term loosely applied to a broad variety of concepts. In our definition, a venture builder is categorised by the following aspects:
Initiation of ventures is done ‘in-house’. VBs build a team of in-house entrepreneurs and source ideas for the team to develop into commercial business opportunities. This does not mean that the innovation behind the venture should be developed in-house – for example, patents or new research from universities or corporations are often the source of the ‘idea’.
Independent and standalone decision making on investments. The primary goal is to make money out of successful exits.
Venture builders often retain a majority stake in their ventures.
Focus on portfolio synergies and recycling of resources. In particular, we see venture builders using the same teams for multiple ventures until one succeeds. Other resources developed such as code, intellectual property (IP), customers, etc., can also be recycled across multiple opportunities.
Provision of funding (pre-seed, seed, series A, etc.) to the participating ventures, coming partially from investors in the VB fund. Additional funding can come from unrelated VCs or corporations. VBs are also known for assisting ventures in raising further rounds of capital and become less hands-on as the venture matures
Venture Builders are much more proactive and operationally involved in their ventures than a typical VC or angel investor. Where a VC is practically placing bets, their model is focused on creating a few big winners within their portfolio that make up the vast majority of their returns (“80% of the wins come from 20% of the deals”). In contrast, a VB typically invests in less risky ventures, of which the majority (e.g. 6 out of 10) end up as healthy and stable mid-sized companies.