Founders seeking finances to fund their startups have many options available to them. However, some funding opportunities carry as many risks as they do benefits.

Hopeful entrepreneurs are now looking to the startup studio business model to help mitigate risk of failure. Startup studios develop startup ventures and give strategic support to bring the idea to life by providing capital, technical tools, expert guidance, and more. 

How Startup Studios Fund New Businesses

Many factors contribute to the success of a startup; the most important being sources of capital to test, validate, and develop a startup idea. Startup studios have successfully established core structures that allow them to finance their operations and business creation efforts.

Startup studios help founders by providing startup capital to help get ideas off the ground and fuel them beyond launch. This is why using startup studios to incubate a new venture offers critical support networks that increase its chances of success. Keep reading to learn some of the most popular methods used by startup studios to resolve various entrepreneurial issues. 

The Early-Stage Funding Model

Also known as pre-seed funding, startup studios provide early-stage funding to finance a new company early in the process or at its infancy stages. The model is more focused on the company’s growth rather than taking shares, which helps to align the objectives of startup studios and the business with which they choose to collaborate.

Early-stage funding also differs from other forms of financing, as it provides much-needed capital to a startup that’s unable to secure suitable investors. Depending on the nature of the company and the initial costs of developing the business idea, investors at this stage are not looking for equity in the company.

The model focuses on business growth rather than taking shares in the beginning. This lines up the startup studio’s goals and the businesses they choose to collaborate with. Pre-seed funding gives founders access to a talent pool, business strategists, product developers, and industry experts who can assist the startup in scaling.

The Fund Model

Startup studios employ the fund model to offer capital either through venture capital firms, government grants, or angel investors. A portion of the money raised is used to pay for salaries, office requirements, and overheads, while the remainder is put toward developing a new startup venture.

Referred to as carried interest, the fund model method focuses on the new studio’s interest to ensure the startup studio project exceeds future goals and expectations. As a result, startups can rest assured that all post-launch activities are carried out effectively.

The Holding Entity Model

With this model, startup studios invest directly in the new business in exchange for equity based on how much was invested. Subsequently, startup studios are regarded as the company’s partners and have a say in most company operations. When the new startup is launched, equity is exchanged to the startup studio based on percentage share.

It’s sometimes easier to get investors on board to fund the project with the entity holding. However, one of the drawbacks is that new businesses may lose control over how their revenue is spent, and their role is diluted to some degree.

No matter the fundraising strategy, startup studios are a valuable resource in launching and scaling a business. Check out Startup Studio Insider to learn more about the startup studio business model. 

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