K8 Ventures was created in 2016 by myself and my partner, Gary Scheier, to bring to the market a better model through which to develop early-stage technology companies. With the very high failure rates of early stage companies, and therefore the very low return of capital to their investors, capital markets generally see a greater number of investors avoiding this sector. Yet, with approximately 21% of jobs in America coming from companies that were funded by venture capital, a robust economy cannot afford to have its capital markets abandon the sector. What’s needed is not a shift in personnel and resources, but rather a better model for the creation and development of early stage companies.
Venture models have changed over the last 45 years in an attempt to remedy this situation. Accelerators, incubators and venture factories were all developed to increase the success rates of early stage companies. The failure rates continued to be high, with statistics showing that 43% of failing companies were doing so because the entrepreneur’s product did not have a strong enough market fit, and an additional 23% of these early stage companies were failing because they ran out of money too early in the development and growth process of their product. The one attribute each of these models had in common was their significant reliance on the talents of a usually young, and at times inexperienced, entrepreneur. To improve returns most of these models have moved higher up the risk curve to less risky, later stage investments where their models were more effective.
Another model has emerged that seems to provide an increased probability of success for early stage companies, provided certain caveats are met. This is the Venture Builder Studio (VBS). Like a corporate venture fund, the VBS builds its companies “in-house” from idea to prototype to MVP to revenue. The VBS is closer to an operating company than to an investment fund. By ‘removing’ the entrepreneur from the equation (the VBS is the founder), the VBS gives its investors more consistent and experienced management and control over the companies, as well as much higher levels of equity ownership. But the model comes with its own challenges that must be overcome for it to be successful. First, it must develop a methodology to generate strong relevant ideas that will be successful in the marketplace. Second, it must develop a way to tap into highly qualified talent to take these ideas to market, cost effectively and time efficiently. Each VBS has to develop its own model to meet these challenges.
K8 Venture’s model seems to have successfully overcome these challenges. It has built a large advisory board of industry executives that bring ideas to K8 that are closely tied to the advisor’s market and industry knowledge, experience and expertise. The advisory board and the K8 board assess these ideas for feasibility and probability of success. Teams are built from the advisory board, industry leaders, and talented workers who provide their time to K8 for equity in the future company. K8 Ventures has four companies currently in its six-stage development process, with one, p3rceive, successfully entering stage six (post revenue). K8 plans to have seven to ten companies in its portfolio. With its efficient model, it is budgeting only $3 million to bring these companies from idea to market and create an additional three to six companies.
With technology so readily available and the entrepreneurial spirit being alive and well, an efficient model is needed in the early stage company arena to bring back the capital markets to this very important and opportunity-filled market sector. This model must prove that the return on the investment is commensurate with the risk. We believe the Venture Builder Studio is the right model to do so.