Patrick Montague
November 6, 2022

Venture Studio meets Circular Economy

A new model on the block: Venture studios have arrived.

Much has been written about the venture capital model’s reliance on power laws as an a priori assumption for funding innovation.

It is well-established orthodoxy that venture capital investments follow a power law distribution. In the context of venture capital, this means that the top performer in a given market or portfolio is as valuable as the next 9 best performers combined. The top 1% account for 10% of total returns and the top 10%, in turn, basically capture all the value.

Without going too far down that rabbit hole, the power law approach, while appropriate in certain circumstances, depends on underlying pre-conditions that are far from universal. At times, the approach can actually encourage incumbency / status quo and become antithetical to competition, technological innovation, and the adoption of new behaviours.

Especially for anyone working on circularity-oriented solutions to global, whole-of-society challenges, one element of the power law remains undisputable: it assumes a high rate of failure (aka waste).

The venture studio model offers an alternative approach with less waste; more evenly distributed value creation; and shared services, knowledge, and talent across a tightly-knit and focused network. In fact, one might call the venture studio itself a circular approach to early stage risk capital.

The economics are better and the chances of success are better. On average, studio start-ups go from day zero to seed round in 10.7 months (compared to 36 months for a traditional start-up) and seed round to series A in 14.5 months. 60% of venture studio start-ups reach series A funding rounds.

Beyond this intellectual framework, studios offer concrete benefits to founders. Their shared infrastructure and conductivity allow founders to quickly take advantage of market opportunities as they arise, faster than they could in isolation, without adding any hurdles.

For etsaW Ventures, the shared resources, infrastructure, and programming offered to portfolio companies serves three broad purposes:  

1. Launchpad for Civic/Corporate/Government Engagement, allowing entrepreneurs to leverage their impact without being pulled away from core business operations.

2. Path to Raising Capital, supporting founders’ financing needs from the earliest stage with smart, value-add, and flexible capital.

3. Meaningful Participation in the Circular Community, encouraging default “opt-in” to the etsaW community, a collection of peers who are mission-aligned and driven. Both talent and knowledge flow freely to help generate a more sustainable entrepreneurial ecosystem.

Venture capital is an amazing tool but, like capitalism itself, its true benefit lies in its dynamism and ability to evolve to meet new challenges and new circumstances.  

Facing the defining challenges of our current global circumstances, the traditional power law-driven VC strategy is just not very….sustainable. In fact, it is often a relatively wasteful funding strategy. At etsaW Ventures we are flipping the script and employing a studio model as a more circular approach to funding the circular economy.