Move over angel investors and venture capitals, venture studios are fast emerging as the new partners for start-ups in the Middle East, offering an estimated additional potential funding of $3 billion, according to experts.
The region, which already has about 8-10 venture studios, is also expected to see more such businesses in the near future.
Venture studios are a new way of building start-ups in a structured manner, combining business mentorship and venture capital to support the start-up building ecosystem end-to-end.
“Venture studios are fast gaining traction in the GCC region with emergence of several venture studios such as Sukna Ventures, Glowfish Capital, Enhance and Agile ventures. There are more than 25 start-ups that are backed by this new mode already,” Sandeep Ganediwalla, managing partner of RedSeer Consulting, told Arabian Business.
According to a study by RedSeer, the venture studio concept has gained traction with more than 600 studios emerging around the world in recent years, although the GCC region is still at a nascent stage.
“Venture studios across MENA, however, make a sizeable contribution to the region’s funding ecosystem, contributing about 10 percent of the funding in 2020, the report revealed.
Sanjeev Kohli, founding partner of the Dubai-based venture studio Glowfish Partners, said he expected the pace of venture studio-start-up partnership to improve to 4-5 per year going forward.
“Building successful tech ventures requires cross-functional expertise, in addition to financial resources. Venture studios bring this unique combination to tech founders from day one, which really helps accelerate business building,” Kohli added.
“At Glowfish, we have experienced this acceleration first hand at ventures in our portfolio as well as at ventures backed by similar other studios. We expect a lot more founders partnering with venture studios at the start of their journeys to avoid learning from failures that can be costly both in terms of time and financial resources,” Kohli said.
Sanjeev Kohli, founding partner of the Dubai-based venture studio Glowfish Partners
Waleed A Alballaa, an investor in the Riyadh-based venture studio Sukna Ventures, said venture builders were rising in the Middle East as an answer to a paradox where the region’s economic potential is high yet many economic areas remain unaddressed.
“The new generation of venture builders in MENA offer budding entrepreneurs a better model for unlocking deep value pools that haven’t been accessible by innovation due to structural market issues. Their early successes thus far have encouraged wider adoption of the model by corporates and startups alike,” said Alballaa.
Waleed A Alballaa, an investor in the Riyadh-based venture studio Sukna Ventures
Sukna Venture Studio, GlowfishLabs, Agile Ventures, HoneyBee Techventures and Enhance are among the GCC-based venture studios.
There are also VC funds like BECO Capital, Faith Capital and ASA Ventures, which invest in firms at the early, post-ideation stage and support them just as studios do.
“Venture studios can help in accelerating start-ups by optimising resources and leveraging common shared services like digital marketing, technology, legal and hiring, thereby bringing the cost of a setting up a start-up significantly down,” Anvita Varshney, managing director of AV Capital Partners and co-founder of Dubai Angel Investors, told Arabian Business.
“These accelerators also expose the start-ups to a mentor and investor network in the region which is quite beneficial to them,” she said.
Venture studio models
Industry experts said there are two types of studio models – agency builder and venture builder.
The agency builder studios focus on start-up building as a service, leveraging a structured program to build out start-ups in the most appropriately efficient manner.
They work with entrepreneurs who already possess a certain idea and provide the necessary resources and expertise, besides bringing in best practices. This model provides a certain degree of flexibility to the studios working in new sectors and geographies.
In the venture builder model, the ideation is largely done either by the founders themselves or in collaboration with experienced Entrepreneurs in Residence (EIRs). This lends a greater sectoral and geographical focus.
“Venture builders mostly look to create strongly relevant industry partnerships in order to mentor the ventures,” Ganediwalla said.
Varshney said venture studios can also play a vital role by sharing the learning, avoiding the pitfalls and bringing some other successful founders to share their experience.
“The early days of a startup are very fragile, which needs a right product, right timing, right team and right prioritization,” said Varshney, who earlier worked as the COO of Naspers.
Upgrading the model
Industry experts said the venture studios in the Gulf are currently in the process of becoming a studio plus fund model to gain the required financial muscle to fund more start-ups in the region.
“The studio plus fund model will provide them (venture studios) the capacity to continue holding their positions and invest more in their promising ventures during Series A and further rounds of funding,” Ganediwalla said.
The RedSeer study also revealed that this has now become a common industry practice.
“Atomic started off with a studio-only model and moved on to create separate funds to invest in its ventures. Glowfish Capital started out similarly and launched its shared services arm as a venture under the fund. Sukna Venture Studio had been operating under the studio-only model but is now under the process of raising a fund,” the report said.
It added that government-backed funds and initiatives in the UAE and Saudi Arabia – totaling around $3.7 billion as investments in the start-up ecosystem – could be an unexplored opportunity for investment in the venture studio sector.
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