Why Most Venture Studios Fail (And How You Can Succeed)

Before launching a venture studio, organizations must determine whether internal or external venture building aligns with their innovation needs. Internal venture building is ideal for execution challenges, where the problem is well understood, and the company already knows how to solve it. External venture building is best for learning challenges where the solution is ambiguous and requires rapid experimentation.

A helpful way to assess this is to evaluate predictability. Elliott explains, “If you can build a spreadsheet predicting the next 12 months of activity with some degree of confidence in how the market will react to your solution, then you’re dealing with an execution problem, and an internal solution is best. If, on the other hand, your confidence level is very low, you’re not sure how things will play out, you may be dealing with a learning problem, and pursuing that externally is often going to be more successful.”

The Failure Modes That Doom Most Venture Studios

Despite the appeal, most venture studios fail. Why? Elliott highlights some of the common mistakes that repeatedly derail corporate venture efforts.

1. Capitalization: Funding From the Wrong Source

Most corporate venture studios fund innovation as an operating expense (OpEx), which is a recipe for failure. Elliott warns, “Transformative innovation will fail nearly 100% of the time when it’s funded as an operating activity.” Operating budgets prioritize capital efficiency, making unpredictable, long-term investments challenging to sustain.

“If you have to compete with the marketing budget, you’ll lose. Marketing will always win in the end,” he stresses.

The solution? Transformative innovation has to be funded from the balance sheet. If a venture studio relies on annual budgeting cycles, it will eventually be shut down due to unclear short-term returns. Successful venture building, therefore, requires capital investment (CapEx) where the time horizon aligns with transformative outcomes.

2. Governance: Trying to Be Both King and Rich

Corporations often want complete control over their startups, but this approach backfires. Fully owned corporate ventures resemble their parent companies and lack the agility of true startups. Outside investors won’t fund the startup if a corporation owns more than 50%. Similarly, top-tier entrepreneurs will not join ventures where they lack meaningful ownership.

“You can’t be both rich and king. Pick one. King means you control it. Rich means you benefit from its success,” Elliot explains.

The solution? Either be rich (maximize learning and financial return) or be king (maintain control), but not both. A corporation should not own more than 40% of any given startup if they want to attract world-class investors and entrepreneurs.

3. Talent: Hiring the Wrong People

Corporations struggle to attract top entrepreneurs because their compensation structures do not reflect the risk-reward nature of startups. Great ideas with mediocre teams go nowhere emphasizes Elliott. “I’d much rather have a mediocre idea with a great team than the reverse.”

The solution? Corporations must let go of the idea that startup leaders will be content with traditional corporate salaries and bonuses. Instead they must offer startup-like incentives such as meaningful equity ownership to attract experienced entrepreneurs and keep them motivated.

“Your chance of success increases if you can attract world-class entrepreneurs to run your ventures. It makes all the difference,” Elliott insists. According to his experience, the best venture studios attract entrepreneurs, typically around 45 years old, with a strong track record of building and exiting companies.

4. Portfolio Management: Betting on Too Few Startups

Many corporate venture studios fail because they launch too few ventures and wait for results before scaling. To illustrate the importance of building a portfolio, Elliott refers to a Stanford University study on angel investing that found diversification significantly increases the probability of returns. “The best strategy for angel investing is to put everything you own into the next Google. But since most of us can’t do that, the second-best strategy is to make many small bets and see what happens.”

The solution? Corporations must shift from a planning mindset to a preparation mindset, recognizing that success in venture building comes from making multiple bets.

“You’ve got to take a portfolio approach. Building one or two things and then waiting to see how those play out is a common error and a strategy for failure. More shots increase the odds of success,” Elliott explains.

This approach is an example of power law asset distribution, where a small percentage of investments generate the most returns. Elliott advises corporations to launch 20-100 startups per year with a focus on rapid learning. Lower the cost per startup to maximize learning opportunities.

5. Competitiveness: Lack of Strategic Advantage

Many corporate-backed startups do not have a clear competitive advantage over independent startups. By default, they are at a disadvantage because of the complexity and weight of the cap table making it harder to scale. Simply adding the corporation’s brand is not enough to ensure success.

The solution? Corporations should provide unique advantages to their startups, such as being a first customer, providing access to proprietary data, leveraging corporate distribution networks and helping startups form partnerships with industry players.

“You have to actively find ways to endow these ventures with an advantage so they can move faster. That might look like a corporation being a first customer. That might look like a corporation being a distribution partner,” Elliott suggests.

6. Volume and Cadence: Moving Too Slowly

“We are very good at failing slowly and at scale,” Elliott says, highlighting that the slow speed of corporate venture studios is a critical failure mode.

The solution? Elliott advocates for a high-velocity portfolio approach. He challenges corporations to rethink venture building, urging them to focus on volume and cadence. “You won’t succeed at transformation unless you can launch 100 things rather than three or four. Think about what you need to do to change your process, governance, incentives, strategy, and talent to achieve this in the next four to five years.” By increasing the number of ventures launched, corporations drastically improve their probability of success.

How You Can Succeed: 5 Ways to Build a High-Performing Venture Studio

Despite the challenges, venture studios can be powerful tools if they are structured and managed correctly. Elliott outlines the key principles distinguishing successful venture studios from those that fail.

1. Establish a Clear Strategic Link

The ‘why’ behind venture building must be clear. “You have to connect the business strategy to the design of the venture studio. People need to understand why building new ventures matters,” explains Elliott. Leadership must see venture building as a strategic tool, not just a side experiment.

2. Optimize the Cap Table

The equity ownership structure should be designed to attract outside investors and incentivize world-class founders. Striking a balance between control and the financial upside is necessary. Elliot suggests a 40/60 split as the sweet spot.

“Having launched over 70 companies, we’ve learned that getting the cap table right is crucial. The ideal balance is for the venture studio to hold 40% equity while 60% remains with those actively running the business. When we partner with corporations, we typically structure it so that they own 20% and we, as co-founders, also retain 20%.”

3. Use Other People’s Money (OPM)

Successful venture building requires external venture capitalists and strategic co-investors. Elliott states, “You need other partners involved. Your corporation cannot do this alone.” Cultivate relationships with top-tier venture capitalists and structure deals to attract co-investors who will fuel growth. If a corporation wants a startup to reach unicorn status ($1B+ valuation), it must recognize that raising hundreds of millions in outside capital is necessary.

4. Focus on Learning and Strategic Optionality

Elliott believes the true value of venture building is in the insights gained, which can fundamentally transform a corporation’s business strategy. Revenue generation should not be the primary goal. Instead, venture studios should prioritize learning, strategic optionality and financial returns. That means developing new insights that transform the core business, creating new future paths for the company and generating value through equity ownership.

5. Quantify Indirect Returns to Gain Executive Support

Indirect returns must be measured and communicated effectively.

“The organization sees a new way of understanding markets, customers, ways of doing things. You then incorporate that back into the core business, where you’ve got this amazing lever to generate more revenue,” Elliott says.

He stresses that venture building should yield actionable insights quickly so that corporations can adapt and apply those lessons to their core business. “You have to find a way to explain benefits that are both indirect and direct. In our experience, we aim to produce that learning impact in the first 12 months.”

Venture Building Is a Probability Game—Play It Right

Corporate innovation involves leveraging corporate strengths while avoiding corporate constraints. When done right, benefits from venture building are mathematically probable.

Elliott says, “Success is not just possible; it becomes probable when you launch enough ventures, follow the right strategies, and embrace a portfolio approach.” The secret lies in launching many ventures, structuring them correctly, and learning faster than your competitors.