Streaming Consciousness: The question to ask when investing in startups in old-school industries

Tech in old-industries is VC-backable, if you ask the right questions.

I’ve always been a contrarian (which reads less contrarian when you type it out). Better yet, I like to take the path that others around me think is harder or less transparent. It’s a way of life that has added some stress ( and a few grey hairs🤫), but the reward has outweighed the obstacles (💪). Anyway, this thinking has led me to scour eyes 👀 North America for founders looking to disrupt legacy or old-school industries.

Of course, I’m looking for pure enterprise SaaS and AI tools. Still, the startups that intrigue me (and typically 😴 others) are those companies striving to disrupt markets that historically are driven by personal relationships and intermediates (brokers and distributors) that create nuance and complexities hard to understand by outsiders. These industries have extremely large TAMs, but stalled adoption (or the fear of it) has caused many investors to question if these vertical SaaS, tech-enabled services, or B2B marketplace solutions are venture-backable businesses.

Well, I still believe they are. Especially, after 2020 which has served as an accelerant of adoption for industries like retail, construction, real estate, supply chain, etc. Historically, I have always focused on the founding team and asked myself, does the company have the right mix of insiders and outsiders to disrupt this industry? Meaning is the founder able to articulate the vision to solves its customers’ core needs today and not cause key inhibitors to rise (usually enterprise IT groups and business units that could be deemed redundant thanks to technology). I’ve seen leaders like Nick from AirSpace Technologies embody the perfect balance of understanding the critical time-delivery market and create a vision about the future of airfreight delivery that mobilizes technologists from outside the legacy industry.

But yesterday, I got another critical question to consider when looking at these types of businesses. One of my colleagues challenged me to ask (for industries characterized by personal relationships and brokers) who in the market will get hurt most by the startup’s disruption? If the likely culprit in the industry is a larger broker or supplier that could block that startup's progress, does the founder have a strategy to work with or enhance (through a white label) their operations? That simple string of questions blew my mind. And will help me now when I’m looking for those startups that strive to build B2B marketplaces and vertical SaaS in those dull, unsexy, and very nuanced industries that I ❤️.