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Illustration: Sarah Grillo/Axios

Venture capitalists are known for spotting and investing in promising upstarts, but an alternative approach is growing in popularity: incubating.

Why it matters: With startup investments pricier and competition stiffer, some investors are setting up startup studios or incubating companies — a trend that's expected to continue accelerating.

The big picture: The recent public listings of companies like Snowflake and Hims have put incubation and startup studios back in the spotlight.

  • Startup studios have evolved since Idealab's founding in 1996 — from offering shared office space and servers to providing efficient systems for quickly testing (and rejecting) ideas.
  • They tend to combine deep market research, networks with potential entrepreneurs and other would-be early employees, and capital to seed promising ideas.

What they’re saying: "In general, the studio structure is really smart in a world where there's a lot of capital coming into the market downstream," says Heather Hartnett, Human Ventures CEO. "And the return profile of being in there early is great."

Between the lines: It's all about getting sizable equity stakes at a low price.

  • "Our goals include proprietary deal flow, which yields meaningful ownership in great businesses, without paying frothy prices," explains Brian Schechter, who heads Primary Venture Partners' incubation program. He adds that the NYC firm's first three incubated companies will return its first fund "many times over."

In New York City, which appears to have more startup studios than any other region, this model can fill in some resource gaps and turbocharge startup formation. (Yes, NYC's startup scene is now robust, but that wasn't always the case.)

  • Startup studio Atomic's arrival last year in Miami is likely to have a similar effect.
  • And the studios can act as their own business clusters, especially when focusing on a particular sector like fintech or health tech. "If you have founders building [companies] together, it's not 1+1=2 — it's 1+1=10," says Hartnett.

Yes, but: Not all startup studios and incubation is created equal.

  • The top criticism is that some studios take too much equity (sometimes upward of 50%-60%), leaving founders with stakes not meaningful enough to put in the grueling work. Ditto with board control.

The bottom line: VCs will go to great lengths to find great investments — and it increasingly means helping to hatch companies themselves.

Go deeper

Dan Primack, author of Pro Rata
Jan 5, 2022 - Economy & Business

There's an internet debate raging over Web3

Illustration: Gabriella Turrisi/Axios

Web3 is many things, including the subject of a Twitter food fight over whether it's the next Internet or just a niche financial technology.

Why it matters: There are billions of dollars at stake in being right, whether via investments in Web3 startups or in legacy companies.

Updated 25 mins ago - Politics & Policy

British national named in Colleyville synagogue standoff

A law enforcement vehicle sits near the Congregation Beth Israel synagogue on Jan. 16. Photo: Brandon Bell/Getty Images

British national Malik Faisal Akram took four people hostage at a Texas synagogue outside Fort Worth on Saturday, the FBI said in a statement.

State of play: Authorities had initially declined to release the name of the 44-year-old suspect or identify the hostages, all adults, though police chief Michael Miller confirmed that one of those held was Rabbi Charlie Cytron-Walker, who leads the congregation.

Updated 37 mins ago - Politics & Policy

Omicron dashboard

Illustration: Brendan Lynch/Axios

  1. Health: Concerns grow over CDC's isolation guidelines — Experts warn of more COVID-19 variants after Omicron — WHO recommends 2 new treatments — What "mild" really means when it comes to Omicron — Deaths are climbing as cases skyrocket.
  2. Vaccines: America's vaccination drive runs out of gas— Puerto Rico expands booster shot requirements— Supreme Court blocks Biden's vaccine mandate for large employers.
  3. Politics: Vivek Murthy calls SCOTUS vaccine mandate block "a setback for public health" — Focus group says Biden weak on COVID response, strong on democracy
  4. Economy: America's labor shortage is bigger than the pandemic— — CDC COVID guidance for cruise ships to be optional starting Saturday — The cost of testing.
  5. States: West Virginia governor feeling "extremely unwell" after positive test — Youngkin ends mandates for masks in schools and COVID vaccinations for state workers — America struggles to keep schools open
  6. World: Beijing reports first local Omicron case weeks before Winter Olympics — Teachers in France stage mass walkout over COVID protocols.
  7. Variant tracker