Startup factories are as new a term as a phenomenon. They go by several different names and there are also multiple definitions describing how they operate. This can make it hard to understand what they are at first glance. Last year, I decided to found a startup factory of my own so I thought I would take a minute to share my experience and explain what's behind these two words and what they actually mean.
I define a startup factory as incorporated serial entrepreneurship, or a meta-startup, that designs and launches new technology-centric businesses, in parallel, using a shared infrastructure and team.
But what does all that mean? Let’s try and break it down to make it easier to understand. First, the core function of a startup factory, like the name implies, is to create and develop startup businesses. Multiple startups with a focus on technology, be it a product or service, are created simultaneously in parallel. They use a shared team and combine resources to optimize budgets and reuse their accumulated knowledge. A startup factory has to be able to effectively manage human, financial and material resources to successfully create a startup and therefore takes a very proactive role in creating the actual product or service behind the business.
Startup factories generally do not invest in already established companies. Instead, they prefer to get engaged with new ventures at the earliest stage possible in order to have the greatest overall impact. Of course, that’s also the riskiest stage to get involved in with any business, but that’s where the value of a startup factory comes in. To be able to create a startup from scratch using only a portion of the investment that would otherwise be required, and doing so in parallel, serves to diversify and mitigate the risk of any single venture.
Startup factories also vary a lot in terms of where their ideas are generated and who gets to lead the product or service that's being created. Some startup factories develop only in-house concepts and assign a CEO from within their existing team to lead efforts. Others choose to operate by finding the expertise and experience they need from outside of the factory. Of course, there are also others that seek a combination of these two approaches to come up with ideas and identify the talent that they need to succeed.
And where does the investment capital come from? Startup factories often have the capability to invest directly into their companies or to attract suitable investment from within their network of business angels and venture capitalists. Often times, they not only help to attract funding for their companies, but they also provide important advice on matters ranging from what are the right investment vehicles to use and what are the legal covenants needed to protect founders, to what the right cost of capital of an investment should be.
I hope this helps to provide some insight into what startup factories are, what they do, and how we bring real value to the table.