5 + 1 Predictions for Venture Studios in 2025

What does the future hold for venture studios? Let's figure it out...(#85)

ChatGPT prompt: “the future”

As we approach 2025, it’s interesting to look ahead at the venture studio landscape and predict what will happen.

Here’s my take:

1. More Venture Studios Are Coming

I don’t have the latest count of venture studios, but it must be over 1000 at this point. Factor in that the definition for “venture studio” is quite loose and it’s probably more.

This isn’t necessarily a bad thing. But the quality bar and results need to keep increasing (and be validated) or venture studios will remain a niche in the global startup ecosystem.

More Buzz = A Need to Raise the Bar

With more buzz about venture studios comes more questions. As we know, with great power comes great responsibility.

Cheech gets it. 🤣

Questions aren’t a bad thing. For those building venture studios, they force us to keep testing our assumptions, iterating and learning. There’s no “perfect” venture studio. There are lots of venture studio varieties. This is a good thing. More experimentation and iteration increases the odds of more studios succeeding and more value being created.

Founders, investors and others will ask, “Why should we engage with venture studios?” Or more importantly, “Why should we get involved with your venture studio?” Venture studio operators need answers, and as expectations increase those answers get harder.

More venture studios increases the choice for founders/entrepreneurs (🤗), but also confusion (😰). People interested in partnering with venture studios will need to do their due diligence.

I see three specific types of venture studios growing:

1. Vertical venture studios

2. Geographic-specific venture studios

3. Corporate venture studios

Let’s tackle each one briefly:

Vertical Venture Studios

I’ve already said that the future of venture studios is vertical.

Specialization wins the game. I’d expect 90% of new studios in 2025 will focus on a specific industry (or a few industries), and some general studios will pivot into a niche. Building startups in a repeatable way, where the playbooks for validation, go-to-market, fundraising, hiring, product building, scaling, etc. are meant to accelerate and de-risk the process, can only be accomplished through focusing on a vertical.

This is the direction we’re going with Highline Beta. Keep an eye out in Q1-Q2 2025 for a few interesting announcements.

People ask me, “Which verticals are you going into? Or which verticals do you find interesting?” I can’t answer the first question publicly, but the second one is easy: all of them. In any vertical you can think of there are going to be 10-20+ startups that you can build within a 3-4 year timespan (think of that as a healthy initial portfolio)—so I’m almost “vertical agnostic” because there are opportunities everywhere. Some verticals will be hotter than others, but that doesn’t make a huge difference. I fundamentally believe that solving boring problems is how you win, especially in a venture studio. There are lots of boring problems in underserved industries/verticals where a studio can thrive.

Wanna Win? Solve a Boring Problem

Geographic-Specific Venture Studios

Venture studios can be part of the economic development story for secondary markets. I’ve had several conversations with people in different geographies that are looking to use venture studios to foster local entrepreneurship. It’s the same reason there are some geographic-specific startup accelerators and venture capital firms.

These studios should still focus on specific industries, because geography alone does not provide enough unfair advantage. But I see the potential.

If you can leverage unique assets provided by a geography (i.e. customer concentration, university talent / research expertise, nearby resources, government dollars, etc.) you can combine geography + vertical/industry and build a strong venture studio.

Corporate Venture Studios

The momentum around venture studios is attracting corporates. The U.S. economy (despite the global crazy we’re living in) may head in the right direction and that tends to make big companies bolder.

• Bold = growth

• Growth = build new things

• Build new things = venture studios

I believe we’ll see more big companies launch venture studios in 2025 (and 2026). They’ll build internal ventures (new businesses they 100% own) and external ventures (spin-outs that they own a portion of, shared with co-investors). Corporate studios often start with internal ventures and then recognize the benefits of spinning startups out (i.e. shared risk, higher quality talent pool, less restrictions, increased speed, etc.)

Highline Beta is working with a number of corporate partners on venture studios — designing new ones and iterating on existing ones to make them better. There’s immense value in partnering with big companies if you can unlock their assets in a meaningful way.

If you’re thinking about building a corporate venture studio, this may help:

How to Design a Corporate Venture Studio

2. More VCs Will Warm Up to the Venture Studio Model

As more venture studios produce more quality startups, I believe venture capitalists (VCs) will continue to warm up to the model. The biggest challenge is always the cap table. If a venture studio takes too much equity, VCs get twitchy. It’s just the way it goes. You can argue about it all you want, but a lot of VCs will never wrap their heads around it. More are getting there.

Part of the trend is that VCs themselves are getting into venture studios. In this scenario they own a bigger chunk at the outset and then provide the follow on (protecting their initial investment), so it’s not quite the same as buying into a deal where a venture studio already owns a lot. But it’s a signal that the startup creation phase is a good one to get into (from a price point perspective) and there’s available upside.

I’ve never believed there’s one way to build a great business. There are patterns, but no formulas. Venture studios will create giant businesses. Other massively successful businesses will be created other ways. VCs are opportunistic. If they see good startups emerging from venture studios with immense potential to scale and “not-completely-screwed-up” cap tables, they’ll invest.

3. More Capital Will Fuel Venture Studios (But It’s Early)

Venture studios build and fund startups. It’s not a venture studio without the funding.

Funding startups requires capital.

Venture studios can get capital from a few sources including revenue generation from something (i.e. services, advisory, products, etc.) or raising from investors. Most are looking at the latter and creating venture capital funds (or other funding structures; i.e. syndicates, rolling funds, SPVs) to invest in the startups they build.

LPs (Limited Partners) that traditionally invest in venture capital funds are looking for alternative places to deploy, but it’s early. Most aren’t familiar with venture studios. There’s ongoing debate about how to define the venture studio industry. Can you consider it an industry? Is it an entirely different asset class? Some studios want to position themselves drastically different from venture capital (because VC has been under scrutiny for the last few years). Other studios want to be seen as “differentiated VC funds”. It makes the whole landscape confusing for investors.

Today, I only know of one fund that invests exclusively in venture studios (Vault Fund), although I know of a few others that are trying to get off the ground. Raising capital for a venture studio is not easy, and track record will become increasingly important.

I believe we’ll see more capital invested in venture studios in 2025, but it’s not going to skyrocket. There’s hype around venture studios, but the broader markets aren’t insanely frothy, so differentiation, track record and what you’re offering investors will be critical.

4. More Venture Studio Failures

Not everything in 2025 will be rosy for venture studios.

Running a sustainable venture studio is tough.

• Studios earn equity through the work they do and capital they invest

• Work = Humans

• Humans cost money

Where does that money come from?

Understanding Venture Studio Math

Venture studios can have reasonably high operating costs compared to the dollars they invest. This is very different math from a venture capital fund, which typically has a 2% management fee to cover expenses.

When venture studios can’t sustain themselves through revenue, investment dollars, management fees or something else, they’ll go out of business (or reduce staff significantly). I’ve seen a few fairly well-known studios do just that in 2024, and unfortunately, we’ll see more failures next year.

Hype is a double-edged sword. It can genuinely float all the boats (to an extent), because it introduces more people to the model (i.e. more investors, founders, partners, etc.), but it also gets people jumping into building venture studios that may not be ready for reality.

5. Fuzzy Data on Performance

Simply put, there isn’t enough quality data on venture studio performance. We need Peter Walker at Carta to start reporting on them (if he can figure out which startups are coming from venture studios in the first place!) Peter shares a ton of amazing data on startups and the VC industry. There’s a lot more data on venture capital, but honestly, it’s still fairly murky.

Take all the data on venture studios to-date with a grain of salt. Good people are working on this, trying to collect more data to provide an objective perspective. But it’s tough and will take many years. Most venture studios are so new they don’t have any measurable results. Those that have been around a long time might not even classify themselves as venture studios.

Here are two simple examples that make things complicated:

• Some venture studios make investments without incubating, which is more akin to how a VC operates. If a venture studio makes a straight up investment in a startup and that startup wins big, does that mean the venture studio model works or the VC investment model does?

• Some VC firms incubate startups (as mentioned before). It’s always a bit unclear what that incubation actually means, but the venture studio industry is claiming those successes as “venture studio wins”.

Realistically, the data on venture studio performance will remain fuzzy for awhile. It’s a nascent industry / asset class / structure / thing (who knows what to call it!) so don’t believe (all) the hype. 😀

I fundamentally believe the venture studio model will generate strong returns (otherwise I wouldn’t be doing it!) but I don’t use “industry-wide data” as my proof point.

6. Bonus: Hopefully More Transparency

The growth in venture studios is a good thing.

• It challenges accepted “truths” on how a startup should be created

• It creates opportunities for innovation in startup building & funding

All industries need innovation (and potentially disruption)—startup creation & funding is no different.

But the relative newness of the approach, along with the murkiness of how to define a venture studio, creates confusion. Confusion isn’t good. It leads to bad actors that take advantage of people (mostly founders). It leads to quality people (founders, investors, co-investors, early employees, etc.) staying away because they don’t quite get it and aren’t sure whether it’s worth engaging.

I believe more transparency is a good thing. And it’s coming (but it’ll take time).

More venture studios will need to share their deal terms. Accelerators tend to be very public with this (because they typically offer a standardized deal). VCs are less transparent, although they’ll often share typical check size, verticals they invest in, valuation ranges, etc. Not all of them publish this information completely, but they don’t hide from it. Most venture studios do not share their deal terms. In some cases that I’ve seen, their deal terms aren’t even clear when they’re negotiating with a founder (that’s a 🚩).

The lack of venture studio transparency could be one of the biggest deal breakers in the space. It can look like hiding and shadiness (even if that’s not the intent). I’m not saying most venture studios are shady! But perception is reality, and there’s definitely a risk.

Venture studios don’t need to publish deal terms publicly on their website to be transparent. There are lots of variables and every deal may be a little different. But I think this comes back to the cap table issue. Studios know they’re taking a lot of the cap table, and if they’re uncomfortable about justifying that value, they’re hesitant to share. Studios know that other investors may not love what the cap table looks like, so publicizing it may turn people off before they look at a deal.

I get it. It’s complicated.

But if the venture studio industry wants to level up and keep improving, it’ll have to come with increased transparency.

• More studios means more options for founders, partners, capital allocators, etc.

• More options means more competition

• More competition means your venture studio has to differentiate and stand out

• I believe that’s doable, in part, through transparency

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