Introduction: The rise of venture-building and how it will shape the future
The gathering momentum of the venture-building business model has been propelled in part by the success of Idealab, a venture builder founded in California in 1996. Credited for launching over 150 companies that have resulted in more than 45 exits by means of IPOs and acquisitions, Idealab has spearheaded the rise of venture-building in the startup and venture capital ecosystem.
This initial success has encouraged the rise of venture-building giants such as Betaworks, eFounders, Expa, Rocket Internet and Science, with unicorn-status ventures that include FoodPanda, HelloFresh, and Heliogen. Snowflake, the $74 Billion cloud computing data warehousing company, was incubated by venture builder Sutter Hill Ventures and nurtured from its infancy all the way to IPO. In Asia, the triumph of Lippo Group’s Ovo, a $2.9 Billion Indonesian e-wallet unicorn, is credited to BCG Digital Ventures, the corporate investment and incubation arm of the US-based Boston Consulting Group. IMS DV, the venture building arm of Integrated Management Systems (IMS), Asia’s Leading Digital Transformation Agency, launched its venture builder in 2018 to replicate the success of the mother company and has since rolled out numerous disruptive SaaS companies and platforms, including Property Raptor, Owlgaze, Acuity, and OrgHive.
There is no doubt that venture builders are shaping the future of the world of startups. For entrepreneurs, they offer a compelling opportunity for a partnership that adds value beyond capital. Each venture builder has its own expertise and approach, so startup owners should be thoughtful about their existing capabilities and how the right partner can support their vision through to the finish line.
In this whitepaper, we’ll analyze the current landscape of venture building in Asia before examining the different types of partnerships, before finally sharing our guide to picking the right venture-builder for your business.
The state of play for venture-building in Asia
In 2020, Enhance Ventures reported that there were approximately 560 venture studios in the world compared to 89 in 2013, representing a growth of 625% over the last seven years. Despite a delayed start, Asia has since been playing catch-up in the venture building game – and has done so well thanks to its maturing startup ecosystem. The 2020 Global Startup Ecosystem Report found that Asia Pacific has gone from having 20% of the world’s top startup ecosystems in 2012 to 30% in 2020. Based on Enhance Ventures’ venture builder map, the number of Asia based venture builders is growing. Singapore is leading with five venture builders, there are four in both China and Hong Kong, two in India, and one each in Thailand, Vietnam, and Indonesia.
Unlike the United States, Asia is not a homogenous market that facilitates expansion and scale in order to capture significant cross-border market share. Ventures, especially those outside China, must conquer several Asian countries to secure revenues comparable to US dominant players. Disparities between legal systems, lifestyles, cultures, languages across Asia make international expansion difficult. This fragmented but promising landscape necessitates local expertise and go-to market experience: two critical pillars that a good regional venture builder can provide. Ideally, the venture builder has teams in various local markets for seamless support and expansion, and several venture builders have set out to simultaneously conquer several Asian markets, such as RockstarZ Asia and Hype Asia that have each opened offices in Vietnam, Singapore, and Hong Kong.
IMS DV has an Asia-first approach and the ambitious goal to grow all its ventures internationally from the outset. IMS DV’s teams are based in tech hubs like Hong Kong, Guangzhou, Shanghai and Singapore and back ventures in mainland China and other parts of Asia. Beyond Asia, IMS DV has a presence in Europe and is further exploring the US market. By leveraging state-of-the-art technology and the combined resources of its 300+ in house team, IMS DV is well-positioned to support startup entrepreneurs in surmounting the market and industry challenges that have proven to cripple so many viable business ventures.
How venture builders structure their portfolio to maximise the success of their startups
Venture builders (also known as venture studios, company builders, or startup studios) are expert powerhouses that help turn industry-disrupting ideas into revolutionary startups while ensuring commercial viability. They are usually characterized as having in-depth proficiency in a particular industry. For example, Moment Fintech Venture Builder positions itself as Asia’s Fintech builder while DFR grows companies in the digital media & entertainment space in Asia, and RENERGii aims to build next-generation startups specifically focused on making Asian food systems more resilient and sustainable using circular economy principles. Likewise, IMS DV is renowned for its strong engineering capabilities, particularly in Blockchain and Artificial Intelligence, and invests quasi-exclusively in Enterprise SaaS software solutions.
Venture builders leverage their core expertise, share resources and infrastructure costs between their portfolio startups: keeping fixed costs low while maximizing the output from their teams. Within large venture builders (i.e. above 50 employees), an entrepreneur can expect the same levels of excellence from talent comparable to Silicon Valley’s top firms: a must for helping translate ideas into resilient, viable businesses. Typically, rapid growth is enabled by cost-effective state-of-the-art technology while often satisfying concrete industry needs in blue ocean spaces (rather than trying to compete in an overcrowded industry).
From industry experts to larger corporates: There are three key types of venture builder collaborations
There are 3 common types of collaboration with venture builders:
- Industry experts have a disruptive idea but wish to have a strong operational and technical partner to bring this idea to life. For example, a team of cybersecurity experts partnered with IMS DV to co-found OwlGaze, an end-to-end cybersecurity software designed to help companies predict cyber threats using artificial intelligence and pattern recognition. Similarly, entrepreneurs who would like to exponentially realize their billion-dollar idea can leverage the financial and intellectual resources of a venture builder. This way the entrepreneur can focus more on positioning the company, identifying opportunities, and increasing market share, while the venture builder focuses on providing the back office and technical support. The founder of OrgHive, a veteran in the health and wellness space, partnered with IMS DV to create a social and content platform that empowers Chinese consumers to verify the authenticity of organic products via blockchain technology.
- Large corporates that identify a specific need in their market but wish to leverage the unfair advantage of the venture builder. For instance, Engel & Völkers Hong Kong partnered with IMS DV to create Property Raptor, a Salesforce-powered CRM software for real estate agents and agencies designed to help nurture customer relationships, automate sales, and close more deals. BCG Digital Ventures is almost exclusively focused on this type of venture building.
- An established startup that wishes to level up its game could also partner with venture builders to ignite their next stage of growth. Established startups often wish to benefit from the network of investors around the venture builder as well as synergies with other portfolio companies that can unlock cross-selling opportunities and sharing of client base.
Venture Builder vs other players in the Venture Capital Ecosystem
The ease of starting a company thanks to technological advancements (especially relating to cloud services and storage) has given rise to a wave of entrepreneurs aspiring to create the next success story: yet 90% of startups still fail. Cash shortages, technology immaturity, lack of commercial viability, inexperience in sales and marketing, and inability to attract talent are all pitfalls that can cripple an otherwise sound business idea. Running a startup is a balancing act between the actions required to capture market share and the available capital to sustain those actions.
Of course, there are other players in the venture ecosystem – such as accelerators, incubators, and venture capital firms – that are there to give a helping hand. Accelerators’ intensive short programme approach can help a startup get off the ground, but what comes after that? Similarly, venture capital firms provide funding and typically have a hands-off approach in the daily operations, but who can really be the startup’s “partner in crime” that helps it fight through the ups and downs?
Venture builders fill that role. Venture builders invest (typically in the range of 15%-70%) alongside the founder(s) while providing them with services that are within the scope of the venture builder’s expertise, such as technology development, digital marketing, and data analytics to transform an idea into reality. An important differentiator of venture builders from other industry actors is that they are highly involved from an operational perspective: able to provide holistic support ranging from software engineering, finance, marketing to IT, depending on their capability and focus. When choosing a partner, it is therefore essential to identify one that has the relevant expertise to support your vision and who will also be there in the trenches fighting the battle.
Venture Builder Success Rates & Returns
The right venture builder significantly reduces the risk of failure of a startup and accelerates its growth in an unprecedented way. It can be very difficult for ordinary startups to compete with companies created and backed by venture builders as the latter operate on a completely different playing field from day 1. A traditional startup has neither the ability nor the funds to attract the talent required, and this lack of structure exacerbates existing hurdles to survival and growth.
Another key differentiator is that unlike venture builders, venture capital firms and accelerators usually invest a small amount of their capital across a large portfolio with the expectation that the majority will fail. Venture builders tend to focus their resources on fewer opportunities but give these companies a lot of attention. On average, studios are building between two to five companies per year. As a comparison, accelerators work with up to 10 startups per cohort and run several cohorts per year.
Global Startup Studio Network (GSSN), a highly curated community of the world’s pre-eminent venture studios with over 30 members across the globe, found that 84% of startups developed from venture studios achieved the Seed stage. Among those startups, 72% managed to advance from Seed to Series A, while only 42% of traditional startups had the same luck. In total, 60% of all startups incubated by venture studios make it to Series A.GSSN surveyed 258 startups created by venture builders and was able to draw the following conclusions:
Startups created by venture builders can reach Series A over twice as fast than traditional startups. Also, the average internal rate of return on the investment is almost 2.5 times higher than that of traditional startups.
To put this return into perspective, a Cambridge Associates’ report shows that between 2010 and 2020, venture capital achieved an average annual return of 15.1%, while private equity generated a 13.8% return. Meanwhile, public equity stock indices such as the S&P 500 came in at 14% per year, and the Russell 2000 achieved a 10.5% average annual return. Companies that partnered with venture builders outperformed the other asset classes with a 53% return.
The IMS DV Venture Building Process
At IMS DV, we share the risk and reward with the founding entrepreneur by investing in equity and by being the venture’s hands-on tech partner, commercial, financial and operational advisor, and mentor. We have a house of world-class technology experts to ensure the startup’s access to the leading tech infrastructure, blockchain and Artificial Intelligence know-how in Asia. By leveraging state-of-the-art technology, the team at IMS DV efficiently navigates industry change and helps companies adopt disruptive business models while sharing the risks and upside. Working with Asia’s most influential corporations and visionary entrepreneurs, IMS DV catapults visions into viable businesses through ideation, scoping, building, launching, and scaling.
Finding your Perfect Venture Builder Partner in Asia
Love at first sight does indeed exist but finding the right venture builder is more like finding your husband or wife: there must be synergy, chemistry, and trust. The Venture Builder should offer the perfect ‘package’ for your plans. Not only does it need to have a successful track record of building companies and/or products, a team of relevant industry experts, but also deep experience in developing good tech for companies in similar markets. Partnering with a venture builder is not a ‘fling’: together with your co-founding partners, you vow to put in years of time, effort, and commitment – in the good times and the bad times – to make the company a success.
This 4-step guide will help you to identify the perfect venture builder for your idea or startup.
1. Have they “been there, done that”?
Building a business is not a linear process: it is a journey of tackling challenges, solving problems, and constantly adapting to ever-changing market demands, customer preferences and operational difficulties. A venture builder must have experience with launching and scaling business and products. Some venture builders were founded by successful entrepreneurs who have developed a repeatable success formula to validate, grow and scale businesses. Other venture builders are previous employees of large tech startups that have experience with scaling a business or are a subsidiary of a strategic consultancy firm. As such, the relevant experience, background and areas of expertise vary widely.
IMS Digital Ventures is the venture building arm of Integrated Management Systems (IMS), Asia’s Leading Digital Transformation Agency. IMS offers data-driven technological solutions that transform businesses. IMS’s services span marketing automation & CRM, AI & machine learning, blockchain, data analytics, and omnichannel digital marketing. IMS leading technological know-how is recognized and utilized by renowned international companies including VISA, HSBC, Marriott, SIEMENS, Pepsi, JLL, and many more. The same cutting-edge expertise is made available to entrepreneurs partnering with IMS DV. The foundational components to building a deep tech startup are readily available at IMS DV. We provide an advantageous head start, with the initial development of data-driven strategies, access to highly skilled DevOps as well as an experienced entrepreneurial team accelerating time to market while minimizing risk.
2. Are they there with you from day 1?
The majority of venture capital firms and even some venture builders are only interested in a startup when the concept has been commercially proven and has established a customer base with recurring revenue. For instance, the venture builder Hype Asia, only focuses on Series A to Series C companies. However, without any guidance and support in the beginning, a startup is vulnerable to early mistakes that could prove fatal. For instance, research by Failory found that 34% of startups fail (i.e. shutdown) due to a lack of product-market fit, 22% fail due to marketing related problems, while team problems contribute to 18% of failure. Onboarding the right partner with relevant experience will mitigate these risks and support you in creating a solid foundation for growth.
IMS DV is highly involved in its ventures as of day 1 and often takes up a co-founding role covering tech, digital marketing and operational excellence – and we also actively support companies on fundraising and shareholder matters. We consistently stay involved until at least the Series A stage of a company, but we will remain a hands-on shareholder until the exit.
3. Do they go through thick and thin with you?
Be sure to investigate the operational and management teams of your potential venture builders to assess how involved they will be in the actual process. Some venture builders have a small team of less than 10 covering multiple portfolio companies, staffing fresh graduates with little relevant experience on crucial operational matters. Will the key management of your venture builder remain involved? Some venture builders list an impressive panel of advisors and experts in their marketing materials. Is this just branding or will you actually have access to these resources? Does your venture builder take a cohort-based approach or is the interaction on a highly selective and personal basis? Another important question is if your venture builder is incentivized enough to not easily give up and simply focus on other opportunities instead if your business has hit a road bump. Investigating how the venture builder works by discussing these matters with the management teams of the other companies in the portfolio will provide some indication on how the partner is likely to support you.
4. Can they ensure your idea/company remains competitive in the years to come?
In today’s fast-paced business world: reliable access to data insights is the lifeblood of any company. Regardless of industry, deploying business intelligence and utilizing business analytics is crucial to ensure data-driven decision-making across all levels of the organization. A reliable data analytics programme can insulate a company from costly mistakes, whether that’s creating unsuitable products that do not answer industry needs or launching ineffective marketing campaigns that result in crippling customer acquisition costs. To instill confidence in data-driven decision-making, technology and processes must be put in place to support data extraction; structuring; analysis; and visualization. Each step requires specialist skills to ensure success: a data analytics specialist is unlikely to have the expertise needed for data structuring and processing, for example. Similarly, data visualization requires sound understanding of subject matter expertise to ensure relevant real-time storytelling that can be consistently relied upon by business users. All this makes up the “Insights value chain”. Any weaknesses in these components of the “Insights value chain” (as described in McKinsey & Company’s report) affect a company’s ability to generate tangible business value from its data.
Partnering with a technological powerhouse that has the ability to build an insights value chain at an early stage will deliver significant competitive advantages and help to future-proof your business. This infographic published by McKinsey & Company below displays how the collection of data translates into real business value.
IMS DV’s in-house team of data analysts help transform big data into powerful insights, with added machine learning capabilities to optimize decision-making. The automated recommendation and decision-making process becomes more accurate as the volume and complexity of the data increases. An example of this in ecommerce are the tech platforms operated by clothing retailers such as Farfetch and Revolve, which constantly collect data on consumer preferences to create accurate recommendations that upsell products, increasing the average basket size, return rate and conversion rates of its customers. With this in mind, IMS DV launched Acuity: an end-to-end e-commerce platform that delivers game-changing growth for Direct-to-Consumer (DTC) brands. With this all-in-one solution, Acuity helps younger brands to compete on the same playing field as their larger, more established rivals when it comes to ecommerce capabilities.
IMS’ tech team is headed by a Silicon Valley veteran with unrivalled knowledge of Artificial Intelligence, blockchain and data storage. This expertise coupled with the insights of market practitioners in a specific industry can lead to the birth of highly innovative new solutions. For instance, OrgHive’s blockchain-powered organic verification technology is a pioneer in bringing transparency to the Chinese organic food industry; this was a venture that was jointly founded by sales and marketing professionals in the organic food space and IMS DV.
Relatively high returns and a lower-risk profile make venture building an increasingly popular model for investors, entrepreneurs and corporates alike. High success rates and short development times have enabled venture studios to outperform other asset classes. A growing number of venture builders has established itself in Asia Pacific, hoping to be the co-creator of the next unicorn, on the back of the strengthening of the startup ecosystems in the region. Each venture builder has its own unique approach, focus, and expertise when it comes to launching and supporting new startups. Therefore, budding entrepreneurs must understand and evaluate what partnership type will be most apt in seeing their vision through to IPO. Teaming up with a best-in-class venture builder that has a wealth of experience in their industry and deep technical capabilities will undoubtedly raise these chances.
Case Study :
In 2018, the owner and principal of real estate agency Engel & Völkers Hong Kong and Greater China urgently needed a best-in-class CRM system and digital marketing solution that could improve his agents’ productivity and increase the number of deals closed. He searched, trialed, and customized numerous CRM systems available in the market, including the market leaders in the USA, yet none could provide a seamless experience tailored to Asia’s real estate market needs. After having been introduced to IMS DV, it became quickly apparent to him and the IMS team that his company was not the only player in the market that was experiencing this problem. There was simply no enterprise-level CRM that was both affordable and highly suitable to the residential and commercial real estate market in Asia Pacific. This prompted him to partner with IMS DV to create Property Raptor, an intuitive real estate CRM solution that improves productivity, increases conversion rates and makes time-consuming tasks more efficient, at an extremely competitive price. Raptor’s offerings are powered and enriched by AI, and machine learning technologies to automate redundant processes and gain total visibility into the entire sales process, helping agents maximize conversions.
With the help of IMS DV, Property Raptor secured contracts with over 25 enterprise clients within 12 months of launch. The venture has raised US$7.5 Mio to date and will launch its Series A in the second half of 2021.
For more information, please visit: www.propertyraptor.com