Venture Studios: The new greenfield for scaling start-ups?

21 January 2021 4 min. read
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A majority of startups fail, pushing governments, sectors and companies to seek solutions for a better success rate. Against this backdrop, RedSeer Consulting explains how venture studios – a new form of business incubation – are gaining ground globally.

With their fast maturing and diversifying economies, countries in the Middle East & North Africa (MENA) have emerged as hotbeds for entrepreneurship. Most recent figures from market research firm Magnitt revealed that more than $1 billion flowed into MENA startups through 2020 – a 13% jump from 2019 despite the Covid-19 economic crunch.

The UAE dominated with more than half – around $580 million – of this investment, while the KSA was the third largest recipient country at just over $150 million. With stellar growth in both markets, KSA also clocked the highest jump in investments across MENA – up 35%.

Average VC funding globally

The startup boom is no accident. Governments in the region are making every effort to draw investments from around the world, in a bid to modernise their economies and diversify beyond the oil trade. Underlying these efforts is rising economic prosperity in the region.

“Increasing consumer spends on non-discretionary sectors like tourism and food service coupled with government support for entrepreneurs have spurred the rise of new businesses in the region,” explained Sandeep Ganediwala, Managing Partner for MENA at RedSeer Consulting.

According to the RedSeer report, the governments of UAE and KSA combined have earmarked nearly $4 billion to support entrepreneurs – through various funds and initiatives. The figure touches the global average of venture capital funding, covering MENA’s startup funding gap to some extent.

Venture studios

That being said, with all these funds flowing in, the focus must now shift to building successful businesses. The truth remains that entrepreneurship is a risky affair, with global experts placing startup failure rates anywhere between 60% to 90%. Given the ambition of MENA governments and the scale of resources being committed, these figures need to improve for economic success in the medium to long term.

Advantages of a venture studio model

RedSeer Consulting has spotted a viable solution – venture studios. As explained by Senior Consultant at the firm Soumya Jain, the new model “combines business mentorship and venture capital to support the start-up building ecosystem end to end.” In a nutshell, investors use the studio arrangement to guide a startup through the initial stages of setting up a business – the period where an overwhelming majority of startups tend to fail.

“Venture Studios lessen the time taken to build out startups and reduce the risk profile of entrepreneurs. Thus, they boost entrepreneurship by providing a platform to create ventures and attract more talent to ideate and innovate,” said Jain.

And many around the world are awake to these advantages. Per the report, around 600 venture studios have come up globally in the last few years, mostly centred in Europe and North America. MENA is still home to less than 10 venture studios – Glowfishlabs, HoneyBee and Agile Ventures to name a few.

For the researchers, growth in this number could bring tremendous value to the region’s budding startup landscape.

More than 600 VentureStudios exist today globally

“We believe that startup studios will slowly mature in terms of processes and will see exponential growth once there are a few exits. This will bring about significant buoyancy in the ecosystem,” explained Ganediwala.

And the costs are not high. Indeed, the report estimates that roughly 3% of the combined funding already committed by the UAE and KSA governments would be enough to get venture studios up and running. “Startup studios are looking to raise $100 million in the next year or so. Governments could potentially allocate a small portion of the existing $ 3.7 billion available for jumpstarting the startup ecosystem.”