Venture Building vs. Venture Capital: Understanding the Models in Deep-Tech Entrepreneurship
Starting a startup, particularly in the deep-tech space, presents a unique set of challenges. Entrepreneurs in this field often have to navigate complex technologies, secure funding, and build the right team—all while managing high risks and large capital requirements. One of the models that has emerged to address these challenges is venture building, which takes a different approach from traditional venture capital (VC).
But what exactly is venture building, and how does it differ from venture capital? Let’s take a look at how these two models apply to deep-tech ventures and explore the nuances between them.
What is Venture Building?
Venture building refers to a process where an organization does not just fund startups but also actively creates and builds them from the ground up. Unlike traditional venture capital, where investors typically provide funding and then take a step back, venture builders are deeply involved in the entire process of startup creation.
This includes identifying promising technologies, assembling teams, refining business strategies, and managing product development. The venture-building approach is especially critical in the deep-tech space, where the risks are higher, the technologies are more complex, and the capital and expertise required to develop a product are significantly greater than in other sectors.
The Challenges of Deep-Tech Startups
Deep-tech startups differ from more traditional ventures like software or e-commerce companies in a few fundamental ways. Most deep-tech startups are based on scientific breakthroughs or engineering innovations that are difficult to replicate, often incorporating hardware or complex systems integration. While this opens up great opportunities for technological advancements, it also introduces a number of challenges:
Technology risk: Deep-tech innovations are often in their early stages and require substantial refinement before they can be brought to market.
Market risk: Deep-tech products often face limited market validation in their early stages, which can make it harder for entrepreneurs to prove product-market fit.
Capital requirements: Unlike software companies, deep-tech startups often need significant investment to fund product development, testing, and scaling.
Talent acquisition: Recruiting the right talent with the necessary expertise can be challenging, as these startups often require highly specialized skills.
These challenges make the traditional venture capital model, which typically involves investing and stepping back, less suitable for deep-tech companies. As a result, a venture-building model becomes a more viable option.
The Venture-Building Approach: A More Hands-On Model
Venture builders are more involved than traditional venture capitalists, playing an active role throughout the startup creation process. They partner with research institutions, corporate organizations, and entrepreneurs to create deep-tech ventures. Instead of only providing funding, venture builders help to develop technologies, build teams, and establish partnerships from the ground up.
This active involvement helps ensure that deep-tech ventures have a higher chance of success. By being involved early in the process, venture builders are able to manage technology risk, assist with capital acquisition, and create stronger market pathways, which mitigates many of the uncertainties that come with building deep-tech startups.
Key Differences Between Venture Building and Venture Capital
Although both venture building and venture capital aim to create successful startups, their approaches are distinct. Here’s a breakdown of the key differences between these two models:
1. Involvement in the Startup Process
Venture Capital (VC): VCs primarily provide funding and typically take a step back from the startup process. They may offer guidance or mentorship, but their role is generally passive once the investment is made.
Venture Building: Venture builders are hands-on from day one, working directly with entrepreneurs to identify the technology, build the team, and define the business strategy. They provide a more active, engaged form of support.
2. Risk Mitigation
Venture Capital (VC): VCs manage risk by diversifying their investments across many companies, knowing that only a small percentage will succeed. The model focuses on taking high risks with the expectation of high rewards.
Venture Building: Venture builders reduce risk by collaborating with corporate partners, research institutions, and entrepreneurs. This collaborative approach ensures that the startup has access to the right technology, expertise, and initial customer base, lowering the uncertainties associated with deep-tech ventures.
3. Long-Term Support
Venture Capital (VC): VCs focus on providing capital and expect a return on investment. Their involvement typically diminishes once the startup has hit its growth stage, and their role is primarily to guide the company toward a successful exit.
Venture Building: Venture builders offer continuous support throughout the startup’s lifecycle. They are invested in the long-term success of the company and continue to provide resources and mentorship as the startup grows and scales.
4. Speed of Innovation
Venture Capital (VC): VC-backed startups often take longer to gain traction, particularly in the deep-tech space. They usually begin from scratch, seeking funding, recruiting a team, and finding product-market fit independently.
Venture Building: With venture builders, the time to market can be faster. Since the technology is often pre-vetted, and there’s already a defined problem statement and early-stage customer interest, the startup can move quicker toward commercialization.
Why Venture Building Works for Deep-Tech Startups
The venture-building model has several advantages for deep-tech startups:
Access to Established Technologies: Instead of reinventing the wheel, startups in a venture-building model have access to pre-vetted technologies that have already been developed and tested by research institutions and corporate partners.
Lower Risk: By working with a network of stakeholders, venture builders can reduce the inherent risks of deep-tech startups, improving the likelihood that ventures will succeed.
Faster Market Entry: With access to technology, clear problem statements, and a defined market pathway, startups in venture-building models are often able to scale more quickly than those that are built from scratch.
Collaborative Ecosystem: A strong network of corporate partners, researchers, and experts helps guide deep-tech startups through the commercialization process, ensuring they have the resources needed to succeed.
Looking to the Future
As the deep-tech ecosystem continues to grow, the need for alternative models like venture building is becoming more pronounced. Venture-building initiatives are playing a key role in the commercialization of deep-tech technologies, providing the hands-on support and resources necessary for entrepreneurs to turn their ideas into viable businesses. With the right models in place, deep-tech startups can thrive, creating not only financial value but also positive societal impact.
As the landscape evolves, venture building could become a more prominent part of the deep-tech entrepreneurial ecosystem, helping shape the future of innovation and solving some of the world’s most pressing challenges.
Credits: Luuk Eliens, Managing Partner at SDTA Ventures