Traditional early-stage investing is undergoing rapid changes ● The need for better product-market validation and shorter investment cycles require model rethinking ● AnD Studio is a growth ecosystem that aligns the interests of all parties while lowering the investment risk and increasing overall success rates
For more than 30 years the venture capital ecosystem was the driving force behind the incredible innovation explosion that gave us the internet, the smartphone, social networks, and the entire brave new world that we live in. Though we are witnessing rapid changes in growth and scale stage companies — reaching liquidity and scaling through global markets — the early-stage investment scene is left behind because of the following:
- The level of support needed is increasing with promising innovations looking for validation, scarce access to talent recruitment, and the growing need for experience and support in building scalable companies
- Startup valuations have become crazy-high, leaving sound investors without the ability to properly assess opportunities
- Adaptability to serial entrepreneurs who are no longer looking at early-stage VCs and angels as mere sources for capital, and rather expecting strategic value
- The pace of Pre Seed through Round A investments is shorter than ever, forcing investment decisions to be extremely fast and efficient or missed
Adding to this phenomenon is the impact of Covid19 which pushed investors towards later-stage investment at lower risk and lower profit potential over the risky long term early stage — a change resulting in an over 35% decrease in early-stage investments made in 2020–2021.
The result is rather ironic — the process of “how to do innovation” itself has remained more or less the same, despite the immense changes to the entire landscape. AnD Ventures was founded with this new notion in mind.
The core of the newly founded AnD Ventures Fund is the AnD Studio. After thorough research and continuous success in implementing this model at Google, LivePerson, and Microsoft — it is our conclusion that it reflects best the “new normal” that we live in, and is the best method to execute our vision of rapidly growing innovative and internationally successful companies, for the following reasons:
- A founder can no longer just envision an innovation because a thorough knowledge of a business vertical (eCommerce, fin-tech, etc) is an absolute must. An expectation that someone without deep domain experience could recognize an untreated pain point (not to mention a solution) — is simply unrealistic.
- As Basic Tech is becoming a commodity (like transistors and software libraries) — the “softer” domains like a proper product-market fit, customer retention, and business model are becoming the real game-changer.
- The apparent flaws in traditional innovation-fostering programs such as Startup Accelerators. Oftentimes the interests of an early-stage company and an innovation-seeking corporation are not properly aligned. The staff of an accelerator are called mentors but are usually volunteers, therefore have a low stake in properly selecting the candidates, training them, and understanding the corporate’s strategic needs. The lack of commitment and trust of all parties leads to the high failure rate of the programs that we witness.
The Studio model successfully tackles many of these problems by carefully bringing together experts to support the innovation process, and establishing a comprehensive framework that aligns the needs of the entrepreneurs and corporates in creating a virtuous growth cycle:
- Entrepreneur selection and support
- Market validation
- Customer-targeted MVP development
- Supervised pilot design and execution
- VC-backed investment
- Deep involvement in the company development and assistance in international growth, key staff hires, and new markets penetration.
This process is providing a flexible support environment that is, nevertheless, tailored to the needs of every Studio company, and yields significantly better results. On average, Studio startups go from Day Zero to Seed round in 10.7 months, and from Seed Round to Series A in 14.5 months (see chart below). In comparison, the average startup is roughly three years old by the time they raise a Seed round, and it takes 20 months to raise a round across the first five rounds, and 25 months for each consecutive round.
To summarize — the Studio model creates a virtuous cycle where the interests of all parties — the entrepreneur, the customer/partner corporate, and the investor — are perfectly aligned. The entrepreneurs enjoy a supportive ecosystem that is tailored to their needs and provides the necessary resources for their vision to succeed, the corporate enjoys privileged access to a curated deal-flow that reflects corporate strategy, and the investors are taking part in a series of validated ventures that solve real-world challenges and gauge a real-world interest, thus significantly de-risking their investment. Our vision is creating an end-to-end innovation fostering ecosystem, and in creating this our fund and studio complete each other and mark the future of disruptive and fast-paced early-stage innovation.