What is a ‘Venture Builder’, how does it work and why does it matter?

Quake is a Venture Builder. As a new category in tech-investment, we’re often asked what it means. In this article, we explore what a venture builder does and the impact it has on the success of start-ups.

 

What is a Venture Builder?

A ‘Venture Builder’ is an organisation that creates and develops startup companies. Venture builders are involved in the ideation, creation and growth of new ventures.  

Venture builders develop an idea into a product, a product into a business and a business into a success. They use their in-house team and their network of contacts. They play a proactive role in the startup ecosystem by providing funding (or the route to funding), but also take part in the creation and development of new ventures. This approach can increase the likelihood of startup success by combining financial support with strategic guidance, operational support, and risk mitigation.

Venture builders take a founder-level equity position in their ventures. Like VC’s they tend to back ventures that are aligned with their knowledge and internal team. The initial idea could belong to the venture builder, or it could be the idea of an external party, but the amount of equity is normally significant.

 

How do venture builders build and support their portfolio?

Venture builders are there for a specific part of the life of a business - to get it past the difficult teenage years! Venture builders will each have their own methodology based on their experience and the ventures they tend to get involved in. The ambition of the venture builder is to build a portfolio of viable businesses over a short period of time. Their approach will often include the following.

 

1. Ideation and Team Formation 

The idea comes from an entrepreneurial mindset crossed with industry knowledge. The venture normally starts in one of three ways;

• Internal sourcing: The Venture Builder has the idea. It’s their vision, they start the validation process and expand it with additional co-founders
• External sourcing: An industry expert has the idea. They approach the Venture Builder to form a partnership based on shared ideologies
• Hybrid sourcing: A combination of both where internal and external individuals form part of the starting team with a shared ‘idea’

Whatever the starting mechanism, the idea and people are critical to gaining momentum. The ideation phase will help to solve questions such as;

• What value will the business deliver to customers?
• What customer problems will it set out to solve?
• What customer needs are we satisfying?
• What products and services will solve these problems?

Commercial activities during ideation may include cost structures, revenue streams, marketing and sales channels, partnerships and key activities. Technological activities include experimenting with new technologies, understanding product requirements and prototyping. Experienced venture builders will leverage existing technology, code, systems and frameworks to propel the prototyping. 

At the end of the ideation phase, the venture builder will be confident in moving forward with their idea and consider the level of risk associated with the next stage to be appropriate.

 

2. Producing a ‘Minimum Viable Proposition’ 

‘MVP’ commonly stands for "Minimum Viable Product." It is a concept and strategy used in product development and startups to create a version of a new product with the minimum features necessary to satisfy early users and gather feedback for future development. 

But venture builders are not just concerned with the product. They are trying to build a proposition too. The proposition is critical to having something credible to sell to early stage customers. The proposition will include brand, website, marketing materials and some marketing activity. 

The MVP stage is a critical phase in market testing. The team needs to get in front of real prospects and pitch the proposition and product at the same time. Every pitch will produce learnings that result in iteration of the proposition as a whole (and how it's being sold).

The MVP phase concludes with the launch of the business. There will be customers (or users) and some awareness of the brand. The founding team will be getting busy and there will be a need to start hiring. There could be a requirement to raise capital at this stage depending on the level of work required 

Overall, the MVP approach is a practical and strategic way for startups and product teams to validate ideas. It helps gather real-world data and refine their product and proposition based on user feedback.

 

3. Establishing ‘Product Market Fit’

Establishing product-market fit is a critical milestone for any technology company. It occurs when a product satisfies a significant market demand. Some critical pieces of PMF include;

• A deep understanding of the market, the customer and the value 
• Constant customer conversation
• A product that is developing at pace and solving an increasing number of problems for an increasing number of customers. 
• A consolidated value proposition 
• Customer references and testimonials are plenty
• The Net Promoter Score is up and customers are part of your sales team
• Partnerships are becoming established and companies want to collaborate with you

Achieving product-market fit validates the business model, reduces the risk of failure, and provides a foundation for scalable growth. It ensures that resources are invested in a solution that people find valuable . This leads to increased customer retention, positive word-of-mouth, and sustainable revenue generation. 

Without product-market fit, a company may struggle to attract customers and scale operations. Product-market fit is a key determinant of a company's long-term viability and success in the marketplace.

 

4. Scale & Grow

Scaling a technology business involves expanding its operations, customer base, and overall impact. It is a challenging part of the journey - trying to retain the important qualities that established product market fit, appealing to more customers and developing new aspects of your product to sell across your portfolio.

The experience of the venture builder plays a critical role in the following functions;

• Management Information - Accessible data for fast decision making
• Scalable Marketing - Ensuring a steady flow of leads for the sales team 
• Robust Sales - A tried and tested sales process that delivers results 
• Scalable Product - That customers fall in love with and can trust 
• Building Teams - Building highly engaged teams that deliver for the business
• Financial Governance - For growth and additional capital when needed  
• Preparing for exit - Consistent growth metrics that are attractive 

Perhaps the most important part of the growth phase is the continual work required to be consistent whilst being innovative. The model must scale and must be replicable for more customers. The business must also scale at pace, demonstrating impressive year-on-year growth, not just incremental growth.

 

5. Scale-Up (Goodbye Venture Builder)

As the start-up phase comes to an end, the venture builder must consider its position in the future of the business. A £5m ARR business with an offer of £25m presents a good point for the venture builder to exit. By this time the venture builder has become a custodian of the business. The business is running well and PE or VC money might be required to scale the business to £20m of ARR. Their exit is required for the health of the company.

Successful exits require careful planning and consideration. The choice of strategy depends on various factors, including the business's financial health, the owner's objectives, market conditions, and the level of control the owner wishes to retain. Here are several ways in which a venture builder may play a role in this:

• Exit Avenues: Exploring a variety of exit avenues, such as mergers, acquisitions, IPOs, or other strategic partnerships
• Identifying Opportunities: Venture builders stay informed and monitor the market to help identify exit opportunities
• Preparation:  Refining business models, optimising operations and enhancing the value proposition
• Strategic Partnerships: To enhance the startups' value and attractiveness in the eyes of potential acquirers
• Dealmaking: Negotiating favourable terms and structuring deals for all parties
• Due Diligence: Ensuring that all necessary documentation and information is readily available
• Alignment: Venture builders work to ensure alignment between founders, stakeholders, and potential acquirers or investors
• Maximising Valuation: For more favourable exit outcomes
• Mitigating Risk: Addressing legal, financial, and operational issues that may arise during the exit process

The venture builder's role in the exit strategy is to actively guide and support the startups they create. By leveraging their expertise, networks, and resources, venture builders contribute to the success of the exit strategy and maximise value for all stakeholders.

 

Why venture building? What are the benefits of the venture builder model?

More than 90% of all start-up businesses fail. The Venture Builder model offers many benefits for entrepreneurs. It's a way to execute ideas in an agile manner, backed by the experience of a team that have real knowledge of their craft.

Venture builders can quickly turn ideas into viable businesses. Streamlined processes, experienced teams, and available resources accelerate the development and launch of startups. They can reduce the time to market allowing startups to enter the market faster with shared resources, expert guidance and a focus on efficiency.

By spreading resources across multiple startups, venture builders reduce the risk associated with individual ventures. If one startup faces challenges or fails, the impact on the overall venture builder is mitigated by the success of other portfolio companies. Similarly, the risk of failure in the external sourcing approach is less for the external party because of the flexibility offered by the venture builder model.

Being part of a venture builder's network exposes startups to a broader ecosystem of potential customers, partners, and investors. This network effect can contribute to the growth and success of the startups. Venture builders can experiment with various business models, adjusting strategies based on market feedback and changes in the business environment. This flexibility allows for more adaptive and resilient startups.

Overall venture builders increase the likelihood of success. The collective experience and shared knowledge contribute to a more robust foundation for growth. Founders can focus on their core competencies and passion areas while the venture builder handles operational aspects. This enables entrepreneurs to dedicate more time and energy to innovation and market strategy in a supportive environment for entrepreneurial success.