Venture Building: How Startups Are Built in Russia
Venture building is a relatively new type of business created by entrepreneurs in response to the demand for innovation from large corporations. The first companies operating under this model appeared in Russia relatively recently — in the first half of the 2010s — but there are already dozens of success stories. What is venture building, how do startup studios work, and why is this format so popular? Natalia Shkirtil, Partner at i-Free Ventures, shares her insights in a column for Kompaniya magazine.
Venture Building
Companies dedicated to "nurturing" startups began appearing in the second half of the 1990s. The world's first startup studio was IdeaLab, founded in 1996 by the Gross brothers. Over its 25-year history, the company has created more than 150 projects, successfully taking 45 of them to IPO or sale. IdeaLab's results inspired entrepreneurs around the world, and by 2017 there were already over 300 successful startup studios with hundreds of completed projects.
Startup studios, or venture builders, aimed to bring as many projects as possible to a successful exit. To achieve this, they assembled experienced teams, gathered resources, and grew startups, guided either by market trends or by the needs of large businesses. In essence, venture builders placed the creative process of developing and creating new ideas within the framework of an organized business process. Today, such companies search for business ideas, assemble "teams of teams," attract investments, and assist with management.
Most startups fail. This primarily occurs due to a weak team (32%), an underdeveloped idea (28%), poorly structured business processes (24%), bad timing (42%), and lack of funding (14%). Startup studios address these root causes first, which is why their projects more often achieve success. They take on a startup at its earliest stages: developing a business idea or sourcing ideas externally, assembling a team tailored to the startup — including people with experience from other successful projects — investing before key hypotheses are validated, facilitating fundraising, and providing physical, legal, HR, and infrastructure support.
The founders of startup studios are often experienced entrepreneurs from the venture capital or technology development sectors. It is their intuition and network that help transform a startup studio into a reputable factory trusted by investors and partners. For example, the studio Expa was created by Uber co-founder Garrett Camp, IdeaLab — by renowned financier and investor Bill Gross, Palta — by former Vice President of Mail.ru Group Yuri Gursky, and i-Free — by PhD in Economics and Just AI founder Kirill Petrov, Koshelek co-founder Kirill Gorynya, and naLunch CEO Sergey Shulga.
Interestingly, the market also frequently features hybrid models: startup studios combined with venture funds or accelerators, and even startup studios built within corporations.
Startup Studios and Global Practice
On average, a startup studio launches between 1 and 4 projects per year. This is incomparably fewer than the average accelerator; however, the studio's equity stake in a startup is significantly higher. In terms of efficiency, startup studios significantly outperform accelerators and even venture funds. For instance, the New York-based studio Betaworks reported that every second one of their startups achieves success (50%).
The success of this model is confirmed not only by the studios themselves but also by industry research. According to the Global Startup Studio Network, early-stage investments from top startup studios lead to a successful market entry for every third startup (34%), while Series D investments are less effective — succeeding in only 28% of cases.
Today, the best startup studios can boast not just successful projects but even unicorn startups. The probability of producing a unicorn among market leaders is approximately 4% — which is quite significant given the level of risk. For example, Unilever announced the acquisition of Dollar Shave Club from Science Inc (a razor and personal care product home delivery service) for billion, and the food delivery project Delivery Hero, developed by the studio Rocket Internet and which went through a billion-dollar IPO in 2017, is now valued at 16 billion euros.
Many startup studio projects are found in one form or another in the B2C segment. For example, Idealab developed the mobile bank Cheese, and Rocket Internet launched a technology-driven real estate agency in Singapore called Bluenest.
For aspiring entrepreneurs, working with a startup studio can prove far more promising than attempting to develop a project independently. An entrepreneur who brings a project to a venture builder not only receives a significant equity share on par with the studio but also support, skills, and a network.
Venture Building, Russian Style
In Russia, startup studios are a relatively young phenomenon. One of the first companies in this market was i-Free, which was established in 2001 and specialized in mobile content development. In 2010, the founders decided to enter the venture business, leveraging their experience in launching technology projects. Today, i-Free is a startup studio focused on developing companies in the fields of AI, brand communications, mobile gaming, and financial technology. It is known for several projects, including the personal finance management app CoinKeeper, the app for digitizing bank and loyalty cards and contactless payments Koshelek (which became part of the Tinkoff ecosystem following a deal), and Russia's first B2B foodtech naLunch. In total, the i-Free portfolio includes 12 companies and startups, as well as 14 mergers and acquisitions.
The startup studio Admitad Projects was founded in the fall of 2018. Essentially, it was a logical evolution of what the company had already been doing internally at Admitad for several years: creating an investment fund and making direct investments in various projects that could accelerate and scale the core business. At some point, it became clear that all of this activity required a more systematic approach. That is how Admitad Projects came to be. When selecting ideas, the studio gives preference to the areas it knows best — e-commerce, martech, and adtech. It also successfully experiments in fields where it senses potential: edtech, insurtech, and fintech. For now, the primary client and, accordingly, investor is Admitad. At the same time, successful projects that have proven their viability with sustainable performance metrics can receive investments from other sources as well. Currently, Admitad Projects has approximately two dozen startups at various stages, operating in the areas of e-commerce and digital marketing. Speaking specifically about exits, by June 2021, four projects had completed the full cycle: idea -> creation -> development -> exit to a corporation.
Another notable startup studio on the market is TechnoSpark — arguably the most entrepreneurial hectare in Russia. TechnoSpark is the first technology park in Russia that began operating under the startup studio model in 2012. The studio independently formulates business hypotheses, invests in startup creation, bears the risks of selecting their business models, and recruits "resident entrepreneurs" — startup directors. Today, it is the number one venture-building company, having launched startups in the areas of logistics robotics, energy storage systems, high-tech medical equipment, diamond optics, braiding, composites, optical and industrial coatings, genomics, industrial microbiology, thin-film integrated photovoltaics, additive technologies, and flexible electronics. The studio's portfolio currently includes 107 startups, ranging in age from 6 months to 7 years.
Among other notable market players, one can also mention Around Capital, Digital Horizon, Embria Lab, MTS Start-up Lab, Unicorns Farm, ADV Launchpad, and SKL Tech. We look forward to the time when startup studios become a firmly established part of the ecosystem and prove their ability to reduce entrepreneurial and investor risks while maximizing the probability of success.
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