According to Enhance Ventures’ data there were about 560 venture building companies operating worldwide in 2020, which is a 625% increase in the VB segment since 2013. This promising business model led to the creation of services such as Zalando and Medium (an American blogging platform). In Poland, start-ups built in this model include Booste – a fintech start-up, Gamivo.com – a platform with products for gamers and a game-streaming technology provider RemoteMyApp which has just been purchased by Intel Corporation. Among entrepreneurs, however, there is still a lot of doubt about what venture building really is and what distinguishes it from venture capital financing.
It all starts with an idea
A venture builder is an organisation that develops start-ups using its own ideas and resources. An experienced venture building fund (VB) usually has a dedicated team of experts, who analyse trends on an ongoing basis, looking for niches and innovative projects in their sectors. Sometimes the fund decides to pursue an external idea, which is at a very early stage of development and needs strategic and operational support.
Regardless of where the ideas developed by the venture builder come from, they all have one thing in common: potential for becoming future market leaders.
Next, the venture builder:
- carries out an analysis of the feasibility and profitability of a given idea, and if it gets validated…
- assembles a team, also recruits management staff,
- provides initial funding,
- passes the project into the hands of a dedicated team, while wholeheartedly supporting each stage of its implementation.
The support for the VB organisation is comprehensive and includes both designing new products and services (the venture builder has at disposal entire teams of experienced developers, designers, marketing and pricing specialists on board), bringing them to the market, scaling the business, as well as obtaining additional financing and business partners.
What’s more, the venture builder also helps teams that develop new projects in day-to-day operational management. This includes, among other things: legal, administrative, accounting, marketing and communications guidance critical to the success of the entire venture. The VB fund therefore operates in a 360° model, watching over every stage and element of the project, and it works quickly and effectively thanks to the implementation of agile management methods and hiring the best managers. It also relieves co-founders and project managers of the need to look for such resources on the market, also reducing the risk associated with the involvement of previously unproven contractors and service providers.
How does this translate into project development? GRID Esports, currently the leading provider of esports data, estimated that it needed a dozen months to bring the product to market. Thanks to the support of the Tar Heel Capital Pathfinder fund, this was achieved in 4 months. Booste, a fintech company providing e-commerce companies with financing for business development and scaling, within a year of the first meeting of the co-founders raised PLN 54 million in A round financing and entered three new foreign markets. These are just two examples of how venture building works.
Not to be confused with venture capital
Venture builders have a lot in common with venture capital funds but operate on a different basis. Both invest in promising teams and business ideas but what sets them apart is the moment of entry into the project and the degree of commitment to its development. VB funds actively help to develop new ideas since their inception and also support entire projects at the operational and strategic level. In turn, VC funds invest in projects that are at a somewhat advanced stage of development and their support is usually limited to financial involvement and sometimes strategic consulting. Most often, however, due to the strongly limited resources (VC funds do not maintain “ready-to-action” teams within the organisation) and other principles of functioning, including the risk appetite (“80% of the wins come from 20% of the deals“), VC investors are involved in the project to a much lesser extent if we compare them to venture building investors.
So, what should we do if as a team looking for financing for the development of a fairly advanced project (e.g., at the “seed” stage) we also want to be able to take advantage of such extended support? Funds specialising in both venture building and venture capital investments, such as Tar Heel Capital Pathfinder, share resources with all the projects under development. As a result, the founders, who decide to develop their projects by raising venture capital funds, also have access to venture building resources.
Venture builder is not an accelerator
While the goal of a venture builder is to build new, scalable businesses with high potential for commercial success, accelerators offer substantive and practical support to start-ups at an early stage of development. Participation in the acceleration programme usually lasts several months and ends with a so-called demo day, during which the start-up presents its final product.
In addition, venture builders are responsible for running a business project in a comprehensive way, and consequently, they need to be more selective. Accelerators, in turn, take a “spray & pray” approach, working with many start-ups at the same time and hoping that one of them will turn out to be a success.
Venture builders can create a unicorn, too
Many of the businesses kick-started by venture builders are worth hundreds and billions of dollars today, ranging from e-commerce and fashion to social media platforms and shopping clubs. Projects developed in the venture building model include:
- Westwing – an online furniture and interior design elements shop, operating today in eleven European markets – Germany, Austria, Switzerland, Poland, France, Spain, Belgium, the Netherlands, Slovakia, the Czech Republic and Italy,
- Delivery Hero – an online food delivery service company that operates in more than 50 countries in Europe, Asia, Latin America and the Middle East and cooperates with more than half a million restaurants.
- Zalando – an online shop focused primarily on selling clothes, shoes and fashion accessories. Initially, the business model of Zalando was written off. It was expected that the company’s free shipping and returns policy would prevent growth and, as a result, lead to bankruptcy. Today it is one of the brand’s competitive advantages and its revenues in 2020 reached $8 bn.
Venture building in Poland
Although the history of venture building in Poland is definitely shorter and the model has only just started gaining popularity, we have already witnessed the first significant successes of the companies that were created in such environment. One of the examples is the fintech company Booste, co-founded by Tar Heel Capital Pathfinder. Another star from the Pathfinder’s portfolio is Gamivo.com, which in the third year of its operation generated a remarkable turnover of PLN 160 million.
“Good venture building organisations can quickly launch and develop new projects. New companies are independent, but they can still benefit from the support and experience of the venture builder and its team members in the operational, technological and business matters. Start-ups that we co-create gain a definite competitive advantage over projects starting in other ways, thus offering a better chance of success” – explains Arkadiusz Seńko, managing partner of Tar Heel Capital Pathfinder.
Efficiency and other advantages of the venture building model have recently been validated by the success of another company built by Tar Heel Capital Pathfinder – RemoteMyApp (RMA).
The startup was established in 2014 in the ecosystem of Red Sky, a startup studio company currently operating within the Tar Heel Capital Pathfinder’s group – and closely cooperating with the fund on the development of its portfolio companies. RMA was all about game streaming – the company has been developing technology that allowed for the creation of game-streaming platforms and operated its own website streaming games from the cloud, Vortex.gg. Within just a few years the company has grown to become one of the leading providers of that technology to global businesses looking to introduce online games to their users. Their client roaster included, among others, the telecom giant, Deutsche Telekom.
“The goal is to leverage our venture building model to build companies that will become market leaders or attract top international corporations. The idea is to anticipate the needs of the market. In case of RMA that turned out to be a 100%/resounding/spectacular success. As recently as a few years ago most investors did not believe in the concept of investing in a global provider of game-streaming technology. Today, we have just closed a deal unique to the Polish VC market, which has never seen such an exit, i.e. an acquisition of a tech startup by a global player and, at the same time, the first acquisition of that kind by Intel in Poland” – adds Seńko.
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