Investing Thesis

One of the reasons I work for Genacast Ventures (besides the main reason: Gil Beyda himself) is that my personal biases are 90% aligned with the fund’s investment thesis:

  • Early Stage
  • Internet Tech
  • Disruptive / innovative tech
  • B2B models   

Fledgling companyEarly-Stage

Who doesn’t like being on the cutting edge of technology and business?  That being said, not everyone has the stomach for the inherent risk.  Betting on businesses this early means you are relying on gut and your judgment of the founders’ character traits more than tangible data.  Many companies Genacast considers have no revenue, little traction, and an incomplete product.

Let me emphasize, although early sounds sexy, most people are frustrated by “filter fatigue”(tm) of being the first line of defense against the droves of crazies.  For me, the excitement of these unknowns outweighs the enormous risk and effort required to find the needles.  Further, as you move from early to later stages, the work (and associated skillset) morph from emphasizing team, addressable market, and product vision into a deeper analysis of what’s been built, the financials, and likely exit opportunities.  Ex-bankers (or corp. dev. types) excel at these tasks (read: most MBAs trying to get into VC are probably a better fit here).

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= "a series of tubes"Internet technologies

Obviously, Internet adoption continues to grow at a tremendous rate (esp. internationally).  More business is transacted online, the amount of data is growing exponentially, and the resulting white spaces are vast and uncharted.   Areas like Cloud, SaaS, eCommerce, Mobile, Security, BI/analytics, even Gaming will continue to grow as the demand online (including mobile access) expands.

All that being said, the opportunities and risk with more traditional industries (services companies, physical products, [debatably] real estate) are statistically better bets to create & capture value (amass wealth).  These sectors are neglected by many of the most enterprising among us.  Like moths to a flame, many of us flock to these sexy internet/tech/start-up spaces admiring the huge successes (often ignoring the countless failures).

And here, I am GUILTY as charged.  I have always had a penchant for tech & startups and it’s hard to fight with this passion to get excited enough about one of these other spaces.

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THE most innovative product since Pet Rock!Innovative & Disruptive Tech

I am particularly excited by unique and innovative technology.  Genacast’s thesis revolves around interesting tech that serves to un-level the playing field for some amount of time.  Like I mentioned from my 3Qs post, these should not be immediately replicable or transparent when viewed by a savvy user of your service.  Having something truly different translates to a competitive advantage, potential for acquisition, and frankly ability of the team to identify a gap and create rather than replicate.

My qualifier here, (I hope) I am not obsessed with innovation for innovation sake, but realistic about its application.  The tech that sparks my interest most tends to be commercially viable in the short term (1-2 years) where I can see the real-world impact playing out.

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Biz 2 Biz Baby

B2B Business Models

In B2C, you could have 2M “users” without any revenue.  Numeric user traction is only an indicator, not real validation of a business until ‘consumers’ start paying (convert to ‘customers’) or you are able to monetize in other ways (ads or emails are pitiful justification).  Whereas in B2B models, having a customer usually means something in terms of large checks in the door.  These customers have considered a capital outlay, gone through a couple meetings and decided you could bring more value to them than the cost.  They act fairly predictably and constructing a pitch that hits their needs is increasingly transparent after learning the dynamics of the space.  Furthermore, your potential customers are identifiable and easily found.  Yes, sales cycles can be long and taxing, but this type of traction is much more indicative of success.

Similarly, the ‘picks & shovels’ approach is a bit of a hedge in a particular model.  If you create the platform that all the couponing sites should use, you are more likely to succeed than the thousands of daily deal, geo-local coupon, discounted shopping, social shopping apps are, since you are linked to many of them.

Since B2C is easily understood by everyone without deep tech or industry expertise, it seems to be the default approach.  Sadly, there is a dearth of good companies pursuing B2B approaches.

Clearly, this is a preference rather than a hard line – have fallen in love with many B2C companies as well…

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closeness = access = potential helpfulnessEast Coast

Personally, I don’t really care about this filter, but it makes sense.  Proximity to young companies is more important than one might think – ability to be there when needed, help make introductions or conduct interviews, proximity to the core of your network tends to be somewhat regional, physical presence at board meetings, etc.  I’m a West-coaster originally, but agree that seed-stage investing should be relatively close if an investor plans to have a substantive impact on progress.


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Posted on October 19, 2011, in Venture & Start-ups. Bookmark the permalink. Leave a comment.

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