Updated: May 31, 2020
If you’ve never heard of a venture builder, don’t worry, you’re not alone.
These entities are relatively new, with the first version only coming to light in 1996, and they are, for some reason, not talked about much by the media.
Unlike Startup Accelerators, Venture Builders don’t run programs with cohorts of founders who already have ideas. Instead, Venture Builders come up with the ideas for their startups in-house and execute on them with their full-time team.
This is not to suggest that Venture Builders never take outside ideas, they do, the point is just that they are very quick to bring an idea into their sphere and work on it with their internal team of experts. They test it with the market as fast as possible and either validate or “kill it”. If the idea is theirs they kill it and there is no funeral. If the idea came from an outside founder, the idea is returned to them along with all of the data about why it should be killed.
Where Did Venture Builders Come From?
As I mentioned earlier, the first Venture Builder was created in 1996. It was (and still is) called Idea Lab and it was founded by Bill Gross who is an icon for many reasons but having the dedication and foresight to create the future of Startup building before anyone was even interested in startups gives him superstar status within the Startup community and beyond.
Thanks to the hard and diligent work of another Venture Builder, called Enhance, we have a full map and timeline of the Venture Builder ecosystem.
As you can see, Idea Lab was the first Venture Builder started in 1996 in the United States. In London, around that same time, another Venture Builder was planting roots and sprouting up. Blenheim Chalcot is a well-known and respected Venture Builder with deep roots in this new model ecosystem.
Most entrepreneurs are familiar with Betaworks which is a modern version of the early Venture Builder with an added twist. Betaworks introduced an accelerator piece to the puzzle. Entrepreneurs now had options. They could bring their idea to the Venture Builder and work with the internal team to bring the idea to market in exchange for handing over a majority stake (equity) in their company, or they could bring their idea to Beta Works as part of the accelerator program and forfeit a much smaller portion of their company but receive a lot less “hands-on” help.
As Venture Builders began to grow (and I use that term lightly as they didn’t grow much in the early days in terms of market saturation/ expansion) they began to specialize.
Rocket, for example, was a Venture Builder that began in 2007 along-side Betaworks, but is now called “Rocket Internet.” They explain that their mission is to “incubate and invest in internet and technology companies globally. We provide deep operational support to entrepreneurs and help them build market-leading companies.” They have added a twist to the traditional model as well. Not only do they build companies from scratch, but they invest in very early-stage startups just like venture capital firms do.
How Are Venture Builders Classified?
We know how Venture Capital firms are classified because they are all pretty clear about what stage they invest (Seed, Series A, Series B+) and about the sectors in which they invest (A.I, Consumer Retail, Healthcare, etc.) and these classifications make for easy enough segmentation across the industry.
Thanks to this differentiation you’re able to figure out which VC firms to pitch and which are not a good fit. If you wanted to raise money for an early-stage Education Technology venture, for example, you shouldn’t be looking for investment from a firm like Flagship Ventures which focuses on the health-tech and sustainability verticals.
How are Venture Builders segmented?
Venture Builder founder Alper Celen had some insight on this topic which he shared during a recent panel discussion.
“One way we are trying to classify them, and it’s a work in progress, is by how much venture control (meaning equity) and support you have. Some studios have much more, like we (at Enhance Ventures) are super heavy, we build stuff. We’re not just saying 3–6 months into it, here’s some money go build your own team.”
He goes on to discuss the other models that exist in the Venture Builder ecosystem.
“There are other ventures that quickly spin-off their startups. Like Antler, for example, their fantastic as a Venture Generator. They’re very focused on the very early stage, finding the right idea and the right team to launch it, but then within 6-months they are quickly out.”
What Alper is saying is that some Venture Builders really keep the startups they build as their own and take them all the way from inception to launch through to exit (whether that be IPO, Merger, or Acquisition) and others focus much more on the idea, building the company, getting it to launch, and then passing it off to an outside team of entrepreneurs to run and scale it.
Alper’s own Venture Builder, Enhance Ventures, shows up on the very outskirts of the diagram above because his organization was founded much later than the originals. In 2016, exactly two decades after Idea Lab was established, Alper and his colleague Ritesh Tilani decided to expand the Venture Builder model across the Middle East and focus specifically on building online marketplace startups. They have done an excellent job at trying to define some of the ambiguity around Venture Builders and are making strides to help make the industry more accessible.
The point of Venture Builders is to find the best possible talent, match them with a disruptive idea, and give them the resources to launch that startup.
The in-house team of experts provide guidance and the on-site engineers provide prototyping help but the founders are really the element of the equation that predict success or failure.
It is my observation that “getting in” to one of these Venture Builders is not as easy as applying to an Accelerator or a Startup Incubator. I fear that the secrecy of the process and exclusion from the non-inner-circle entrepreneurs will create barriers to entry for Venture Builders that not only don’t need to exist but actually hurt the Venture Builders chances of finding success.
The trends within the industry are promising, however. With Venture Builders like Human Ventures and Entrepreneurs First Ventures offering a clear call to “Join Our Team” action right on their website, I believe we will see a lot more transparency emerging from this exciting ecosystem of innovation.