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Venture studio, the right answer to trigger Industry 4.0?

Misha Lu, Anchor Taiwan 0

Credit: Anchor Taiwan

AI, Big Data, Industry 4.0…by now we have already been familiar with these buzzwords defining the latest industrial revolution and technological progress. However, as the hardware and software industries increasingly overlap, few have begun to contemplate how the companies of the future will be built, especially with the digitalization of the real economies.

The way new businesses start and grow has been transforming incessantly: in the past 10 years, we have seen how traditional venture capitals gave way to accelerators and incubators. In the coming decade, we are likely to see the idea of "venture studio" ascending in prominence, gradually playing a larger role in startup creation.

An idea gaining traction

In fact, a venture studio is hardly a new idea: Idealab, founded in 1996, is generally believed to be the first venture studio in existence. Lauded as one of the United States' oldest and most successful technology investors, Idealab has launched more than 150 companies.

Among them, more than seven companies have become unicorns. Compared to CB Insights' estimation that average startups have a 1.28% chance of hitting unicorn status, Idealab's success rate at 5% is quite impressive and has paved the way for other similar venture studios such as Betaworks, High Alpha, and Rocket Internet.

According to an estimation in 2020, the venture studio market has already seen an impressive 625% growth in the past 7 years. 560 venture studios are currently active around the globe.

While the venture studio model is yet to take a fixed definition, with alternative names including "startup studio", "venture builder" and even a "startup foundry," it is in essence an organization (corporate or standalone specialized entity) aiming to build startups from the ground up, albeit in fast succession, through the provision of venture capital as well as the infrastructure, expertise, and network.

For corporates in particular, the venture studio model has become an effective tool to support innovations from within: by assembling teams with internal executives as well as outside domain experts to address certain pain points or market opportunities, corporates have been formalizing "intrapreneurship."

A convergence of technologies is accelerating startups

In fact, the inevitable trend of software-hardware integration has created an unprecedented environment for startup acceleration. Former Google CEO Eric Schmidt calls the phenomenon "super evolution," in a Ctech interview: Emerging technologies like ubiquitous computing, big data, and advanced engineering have made it possible to accelerate development cycles at an unprecedented speed.

When it comes to Industry 4.0, the trend of software-hardware convergence is even more obvious. Lior Susan, the founder of Eclipse Ventures, observed that decades of technology innovations were all coming together, creating a "full-stack" toolkit incorporating hardware, software and data, cited in a TechCrunch interview. Susan, a former Flex executive, noted that small companies could use this full-stack toolkit to accelerate, and proceeded to found Lab IX as Flex's venture capital arm where more than 30 hardware companies were incubated and invested, including Mantis Vision, Imprint Energy and Atheer. In 2015, Susan went on to found Eclipse Ventures – a venture capital dedicated to companies offering full-stack solutions.

Credit: Anchor Taiwan

Credit: Anchor Taiwan

"Unfair advantages" prerequisites for Industry 4.0

Perhaps prompted by this unprecedented opportunity, more and more industry 4.0-focused venture studios have surfaced. The German logistics giant DB Schenker has for example launched its own venture studio in 2021 to better address next-generation technologies. The Chicago-based Rocket Wagon Venture Studio, founded in 2019, is dedicated to creating startups for the cyber-physical world and deems the venture studio model "a natural doorway" for companies who, instead of building innovation teams within, can just invest in innovations guided by experts to stay relevant in the 4th industrial revolution.

Dragos, a U.S. industrial cybersecurity firm that recently reached unicorn status at a valuation of US$1.7 billion, can also thank the venture studio model for its success. DataTribe, the U.S. venture studio behind the rise of Dragos, proudly declares that it gives an "unfair competitive advantage" to startups by providing a wide range of services from office space, go-to-market strategy, and product management to marketing, legal and financial support.

In short, as the engine of Industry 4.0 rolls on, the threshold for startups rises as well. Gone are the days when game-changing technology startups can be launched from scratch in a garage. Startups trying to ride on the latest wave of industrial revolution require a criss-cross of deep domain knowledge, industry networks, and intense capital to grow, and venture studios provide precisely such resources.

The ground is getting fertile in Taiwan…

As venture studios in Europe and the United States are embracing Industry 4.0 technologies, the model remains underexplored in Taiwan, the hub of the global electronics manufacturing industry.

However, the ground is fertile. Leading electronics manufacturers like Acer have increasingly aligned themselves with exterior startups to bring in more product innovations. Acer Gadget, an AIoT-focused Acer spin-off that has risen to prominence for its best-selling "smart prayer beads," serves as a recent example of how Acer entered close strategic partnerships with startups to harvest innovations.

Even though the idea of the smart prayer beads stemmed from within, Acer Gadget partnered with exterior startups to build the software needed for the product. It is an example of intrapreneurship gaining traction within Acer. Nicknamed "Tiger Teams," these newly created entities within Acer are growing in number. While they are not "venture studios" in name, in practice they already bear the hallmarks of a venture studio.

…and beyond

In the face of the ongoing great convergence between digital and real economies accelerated by COVID-19, the entire Asian manufacturing industry, not just that of Taiwan, is bracing itself for a tectonic shift unleashed by Industry 4.0. Apart from the growing relevance of venture studios, the investment landscape is also seeing other significant changes amidst the growing number of industry 4.0-focused venture capitals and corporate venture capitals.

Right at this juncture, where software meets hardware, and West meets East, there has never been a better time point to reflect on where Asia stands, regardless of which side of the hemisphere we are located. Join us in the next session of Asia Venturing: The Great Convergence - Why Industrial Tech is the Next Big Thing (7 PM APR 25 SF | 10 AM APR 26 Taipei). Together with Nicolas Sauvage, president of TDK Ventures, Ken Forster, executive director of Momenta, and Elisa Chiu, CEO of Anchor Taiwan, we will walk you through the landscape of Industry 4.0 investment.

About Asia Venturing:

Asia Venturing is a series of monthly roundtables with roadmaps to the future focusing on the hype vs the reality of Asia's supply chain-boosted innovation ecosystem, jointly powered by DIGITIMES and Anchor Taiwan. We bring together leading industry luminaries, corporate strategists, experienced investors, and entrepreneurs to expand your network and redefine the possibilities of cross-border opportunities. The replay of the latest session can be seen on DIGITIMES or Anchor Taiwan)

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