SaaS Venture Studio: Beginners’ Guide
Published on April 7th, 2022
15 min read
Published on April 7th, 2022
15 min read
Building a business from scratch comes with multiple added factors in the SaaS entrepreneurial ecosystem. Entrepreneurs must go through a process cycle from assembling a skillful team to raising capital. Here SaaS venture studio enters the scenario, as start-ups can avoid the reasons for failures partnering with a venture studio.
Data has shown that 21.5 % of start-ups fail in the first year, 30% in the second year, and 50% in the fifth year [Source]. There can be a myriad of contributing factors such as lack of cash flow, being in the wrong market, lack of apt market research, bad partnerships, ineffective marketing, not having expertise in the industry & many more.
A venture studio can lend its expertise to prevent these slippery slopes from happening and aid the entrepreneurs to learn to accelerate to archive the intended milestones and avoid the risk of becoming broke. This approach is a crucial aspect to ponder upon in the early stages.
Since its inception in 1996 with the creation of Idealab, venture studios have brought that structure aids to start-ups & over the years, this model has shown exponential growth. Are you curious to know in-depth about SaaS growth ventures? In this blog post, we have discussed what SaaS venture Studios are, why they are attracting entrepreneurs’ interests and the overall scenario of the venture studio model in fueling SaaS business growth.
Venture studios are those that build a start-up by offering strategic direction and structural support like the initiation and providing capital to the start-up to reach product-market fit. SaaS Venture Studio is the new engine of intentionality in the work of innovation & start-ups. They provide a unique approach to funding start-ups and creating a massive impact in helping to grow & evolve the entrepreneurial idea.
Venture studios are designed with the frame to create new start-up companies. They do it by generating new ideas or recruiting founders with ideas, and then they apply notable amounts of time and capital to the successful growth of the start-ups.
Are you wondering how B2B SaaS venture studios work? The core of every venture studio commemorates the process with four steps. Though each studio has a unique way of naming these four steps, the fundamentals of the stages are the same:
Venture Studio provides capital funds at each stage of the process; the team’s experience offers help to avoid common mistakes that can hamper the business growth. In the entrepreneurial sphere, “start-up studio,” “venture studio,” “company builder,” and “venture builder” are all terms used interchangeably.
Venture Studio validates ideas following a systematic approach and builds startups! It works with multiple prototypes at the same time.
It offers assistance to the startup in the capital, expertise, human resources, and connections for fundraising. Also, venture studios invest in a startup, provide strategic direction, and help with capital for the startup to reach product-market fit. Unlike venture capital, venture studios are involved in day-to-day operations and strategic decisions of growing the new business. After the startup shows traction, it can seek to raise capital from outside investors, including VCs.
They act as the “factories that build businesses,” also apply venture building methodologies to identify market opportunities, craft ideas for business, assemble founding teams to run the companies independently, and support the businesses’ growth right from inception to spin-off.
For example, FirstPrinciples Venture Studio commits within $50,000 and $100,000 for each idea. In this model, the startup ideas generated within the organization are entirely funded by the Venture Studio; as for the partnership ideas investment is provided based on the equity split of that specific project. Besides, specific stages are set with KPIs before releasing the MVPs, and there are pre-commitments when a project hits the benchmark.
Image Source: [FACTSET]
The global pandemic has less affected the SaaS industry than others. The SaaS giants like DocuSign have seen growth up to 200%, & growth of Zoom and Twilio have soared. Along with the USA, Europe is now home to several SaaS unicorns. SaaS has become profitable for venture studios in the last few years. In 2019, in the USA alone, $136.5B was invested in SaaS companies [Source].
So why is SaaS grabbing the attention of venture studios?
The fundamental reason is a software as a service business is predictable and has recurring revenue. A monthly subscription to a SaaS solution is repeatable. It is more of a secure form of income that has the potential to grow by acquiring more subscriptions or increasing its cost, compared with a one-off payment.
Image Source: [Persistence And Predictability Of Saas Growth]
The customers have searched for a solution in recent times. Rather than pouring money into a single purchase, they prefer flexible, lower-priced products that can quickly ace and also have the option to cancel easily.
SaaS ventures’ second point of attraction is that SaaS firms tap into the modern prospects’ attitudes. There is already an available market for SaaS business models.
In terms of the potential returns, SaaS is highly capital-efficient. For example, a successful business set can be developed for less than $10m in funding. Besides, there is a playbook for building and scaling SaaS companies. It denotes quickly which marketing and sales profiles to hire at what commercial maturity level. Most SaaS organizations require less than $1 of capital to acquire $1 of ARR.
In both good and bad business times, moving to a capital-efficient growth model is a wise idea, as in scaling time, you can be rewarded with higher valuations. If tough times hit, you have the expert veteran operating relentlessly tracking your deal health.
Suggested Read: [4 Go-To SaaS Sales Strategy To Boost Business Revenue in 2022]
SaaS businesses are easy to scale as there is lesser risk and zero overhead in packaging and distribution costs. SaaS firms are laser-focused on growing metrics like Lifetime Value (LTV) and Monthly Recurring Revenue (MRR), and they aim to minimize customer acquisition costs or CAC and churn rates.
When the business scales, the cost of servicing each customer is reduced and in a longer duration. It results in a growing and predictable cash flow in the long run.
However, while pitching for investments, the entrepreneurs must have a target market, as this is where most SaaS companies need to be successful. Be prepared with ideas about how you plan to scale; the perspective should be sales and human capital.
Venture studios which are gaining popularity in recent years. With the founding of Idealab, it pioneered the movement growth that has led to hundreds of studio successes over the past three decades.
Compared to the traditional approach, the studio approach achieves 44% better results. They build repeatable processes that focus on their specific expertise, have skin in the game from the day of inception as an institutional co-founder, and provide financial resources.
The model of SaaS venture aims to make sure that an idea is worth pursuing. In the business models during the validation stage, a team conducts market research, creates financial models, conducts myriads of customer interviews, tests the market demand, and also crafts an overarching start-up business plan.
They disengage the insights & build an MVP, continue testing and iterating with users. They further bring on early customers, hire company leadership, and find investors when required.
In the voyage of FirstPrinciples as a venture holding company, the idea was generated by assessing the scenario that a considerable chunk of creative professionals wants to build up a SaaS business of their own.
Going by the data, the CAGR or Compound Annual Growth Rate of the SaaS market for business applications is 16.4% between 2017 and 2022. In the fierce market scene where SaaS applications have grown from $44.4 billion in 2017 to $94.9 billion in 2022, establishing a business requires more than a great idea—digging the insights into the industry it has been witnessed that the technical expertise or the product marketing expertise are the major obstacles for the new or the small founders.
That is where ventures such as FirstPrinciples come in the scenario, where the venture studios assist the SaaS organizations in setting them on the trajectory of growth. For example, FirstPrinciples added the feather in the crown by aiding profitable companies to scale beyond $10M ARR.
Talking about the future of SaaS with Venture Studio is that with a burnt-out team in the SaaS companies, growth is a shaky process. The team requires to wear many hats of responsibilities to set the direction of growth and propel revenue. Besides lack of a streamlined proceed, stretch on growth capital and fundraising is a process with multiple stages that requires tremendous efforts; ventures studios often follow a different path to build a profitable company, also bring the sustainable growth, and craft a company that can stay solid in the market for generations rather being exhausted and sell to the highest bidder.
AgencyFlash is a SaaS startup that is incubated by Firstprinciples. In the journey of the startup, FirstPrinciples has spun off all the business aspects in systems and processes as well as in team building. They engaged in customer development and product development and also shared hands in finding product & market fit, managing fundraising, operations, and sales.
The ideas here scroll via a market validation test that uses landing pages, visual prototypes, and customer interviews. Other effective tactics are also leveraged to understand the market and also prioritize features. Once the validation test is over, the process of iteratively building and launching a product is initiated.
If a SaaS organization looks for faster revenue growth, the Venture studios guide the organization to reflect upon the scale of growth, i.e., justification, optimal scale, coordination, and dynamic evaluation. They also help with marketing and sales playbooks, and it acts as an action-oriented guide to approaching the challenges of scaling for impact.
It comes particularly handy when a founder looking for higher ARR often makes faux pas such as entering new segments of the market, new categories, and new areas without a precise assessment of traction. While they keep the goal of growing faster, the desire for quick growth ideas without a strategy can bring a pitfall. The venture studio aided in such scenarios by tailoring, adapting, and critiquing the ideas weaving in the coming pages of executing the playbook, and keeping the journey on.
Suggested Read: [5 Growth Marketing Strategies To Learn From & Nailed By SaaS Companies]
Ventures studios offer the organizations the required capital to get the company off of the ground. When the operational expenses are resolved, the founders can focus on building a profitable company. Venture Studios offer services to SaaS or other start-ups such as finance, human resources and recruiting, growth marketing, and PR. They also offer a helping hand in design and branding, sales and go-to-market, engineering, product design, back-office support, office space, and more. The services offered vary from studio to studio, based on their focus and own expertise- the studios manage numerous other moving parts reducing the load.
Even though venture studios are a relatively new phenomenon, the capability of Venture Studios to build new ventures quickly and successfully is becoming more recognized in the new paradigm of the SaaS entrepreneurial wave. With time more and more studios continue to enter the scene, and the advantages of the venture studio model will continue to shine through.
In FirstPrinciples, Venture Studio followed a systematic approach and infused the expertise to validate ideas and win customers. The team of experts offers the services in operations, networking, and fundraising with focus areas such as MarTech, FinTech, and Modern HR to spin out the independent venture.
If you’re a SaaS startup and want to learn more about Firstprinciples venture studio, get in touch with our expert team today!
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