What Essential Work Can Teach Us About Investing
If 2020 taught us anything, it’s that VCs must shift their focus towards America’s essential industries.
If 2020 taught us anything, it’s that VCs must shift their focus towards America’s essential industries.
Over the past two decades, we’ve lived through two recessions, not including the present crisis. Living through one crisis while still reeling from the prior feels a lot like staring into a rearview mirror while also focusing on the even bumpier road ahead.
In high school (better yet, it was college for the elder Millennials) when the dotcom bubble burst in the early 2000s, we saw a limiting truth emerge — online businesses were far more susceptible to failure than we initially thought. Most companies were chasing the popular trend at the time (e-commerce). Few took the opportunity to look forward and recognize the underlying opportunities ahead in emerging solutions like cloud computing. Amazon and Google did.
Then fast forward to our entrance into the workforce in 2008. We uncovered the nasty truth about mortgage-backed securities, which culminated in a global financial crisis. Those who were focused on the road ahead recognized that the smartphone platform would open up several new mobile solutions to optimize the analog world of housing and income, e.g., gig economy service-providers like Uber and Lyft, and short-term housing/rental solutions like Airbnb.
Venture Capitalists have always tended to focus on the future. History has a way of highlighting those who did and those who didn’t.
Queue Q120, when Americans (and the rest of the world) found themselves in desperate need of essential services we often take for granted — healthcare, mail, food — I began to focus on the limitations in how many of these crucial industries operate. What was clear to me was the gaping inefficiencies of the legacy systems and technologies we rely on to get our day-to-day needs accomplished.
It’s time to take a closer look into the window of the future. Catching a glimpse of what could go wrong has, on the flip side, creating an opportunity for us to think through what could go right. Before the COVID-19 pandemic, we were aware of several global trends that would have an outsized impact on various industries — everything from baby boomers transitioning from the workforce to the emergence of e-commerce as a viable retail channel. Once the pandemic accelerated those trends (by what some suggest a decade worth of time), venture capital indeed began to double down on the apparent opportunities. But we should continue to look out even further.
Right now, people who’ve never leveraged delivery services for day-to-day goods are reliant upon them to eat, receive medication, and more. Those who never envisioned moving to more remote and suburban areas have quickly packed up and settled in new homes far away from the city life’s convenience, making them more reliant on long-distance delivery services and collaboration tools to complete their day to day work. This growth market will not diminish. It is our future.
The house of mirrors and windows that we’re living in can be a VC’s most significant asset right now. We’ve been told for decades that software will eat the world — but perhaps it won’t happen in the way we believe. Venture capital has always invested in transformational technology companies that create pathways to new luxuries (remember life before Airbnb? Me neither). The windows of 2020 have shown us: we have to focus on the transformational technology companies that will create more accessible pathways to our necessities.
Here are three things I’m focusing on now, thanks to what I’ve seen ahead:
Investing in companies that are genuinely looking to transform a majority of the global GDP. As our connections become more global, this means looking at how legacy industries such as travel and manufacturing will look by the end of this decade. But given the realities of COVID19, this also means looking at solutions that optimize markets' efficiencies in healthcare, food/agriculture, supply chain & manufacturing verticals.
The essential industries desperately need technology solutions for the next 50 years to meet customers' more complex needs. In my book, this means looking at sectors within commerce infrastructure (such as logistics, e-commerce enablement, etc.) & the built environment (commercial & residential real estate, construction, etc.).
Founders with legacy industry and technology experience. Having worked with companies ranging from KlearNow to Airspace Technologies, I’m aware that it comes down to working with founding teams who have firsthand experience and background in the actual legacy industry they serve — not just tech. Take Luke Saunders, the founder of Farmer’s Fridge (a company in the GreatPoint Ventures portfolio). We invested in a founder like him because of his direct experience with the consumer need as a traveling salesman who often lacked fresh, farm-to-table options for meals. His company is now solving a critical nutrition problem that would otherwise only exacerbate in an increasingly transient culture.
I would love to hear in the comments the following: What sectors or you bullish on? What early-stage startups within the themes I mentioned (and those I didn’t mention) are you most excited about?