How to build a successful venture studio: Defining a portfolio approach

Building ventures is a risky activity. The statistics say that as much as 9 out of 10 startups are bound to fail. Venture studios, however, offer a unique opportunity to de-risk the creation of new ventures and maximize returns if the portfolio is managed well. But how should you think about a portfolio of ventures in a corporate setting? How much return can you expect from your ventures? How much risk should you take on?

Dealing with risk

Building new business ventures equals risk. Fortunately, there are certain procedures and strategies that can be used to limit the risk of venture creation. Most famous is perhaps the “lean startup” methodology, which focuses on validating hypotheses as quickly and cheaply as possible. By working this way, venture teams are able to abandon unviable ideas early and minimize the impact of potential failures. These methods of working should be enforced across all the venture teams in order to eliminate unsuccessful ventures from the portfolio early on. 

Portfolio balancing 

Another essential aspect of mitigating risks is having a balanced portfolio. This involves finding the right mix of venture maturity levels, business models, and sectors to ensure the portfolio is diversified and has a balanced risk profile. Having a larger share of initiatives that are at the idea stage combined with a few later-stage ventures can help spread risk and make room for both high-growth opportunities and more stable revenue streams. In a portfolio of 20 ventures, a majority should be in the discovery phase, a few in the pilot phase, and just a couple in the launch or scale-up phase. 

Furthermore, a portfolio that covers a broad range of ideas, business models and sectors can provide diversification and increase the chances of success for the portfolio as a whole.

Expected return on investment 

Finally, and most importantly, corporate venture studios should be treated just like any other investment portfolio. All ventures in the portfolio will not provide the same return on investment. Many ventures fail and give no return, and only a very small percentage will become highly successful. The data below suggests that nearly two-thirds, or 13 ventures in a portfolio of 20, would not earn a positive return. Around 5 ventures would give between one to five times the return on investment and only 2 would be able to generate more than that. 

Nonetheless, as a corporate venture studio it is possible to skew those numbers to your favor by leveraging the unfair advantage that comes with being part of a large organization (e.g. customer access, distribution channels, intellectual property) and following best practices.