Our (refocused) investment thesis

By boris, February 11, 2016

Over the years, we have invested in almost every category out there: from ad tech and content, to gaming, hardware, marketplaces, e-commerce, and SaaS. We’re constantly revisiting the types of businesses we should be investing in and refining our investment thesis driven by three key questions:

  1. Which markets/business types do we understand the best?
  2. Where can we be value-add investors?
  3. What are the most capital-efficient opportunities for a fund of our size? We recognize that we’re investing a relatively small pool of capital: a $35m fund for approximately 25 initial investments plus follow-ons in at least 50% of those investments.

Looking back, we feel that we made the best decisions with (and hopefully provided the most help to) businesses displaying strong network effects. This brings us to our refocused thesis: we like to invest in businesses with potentially large network effects built around people and/or data.

We think that network effects can provide a long-lasting competitive advantage and can be very capital-efficient. Connecting people and data over the web and mobile also creates something that wasn’t possible before – the end result is new and unique, not just something faster, cheaper, or better. Network effects can be found in many categories, from marketplaces, to (social) platforms or SaaS, and in many products built specifically around (big) data.

Since we’re typically investing at the seed stage, and companies usually don’t have network effects this early, we’re taking a higher risk that our investment may not work out the way we imagine. But, we’re happy to take this risk in exchange for a greater upside potential.

Important businesses can be built in many verticals and with many different approaches – but we believe we are better investors in network effect businesses than in any other business.

  • What has changed compared to the previous investment thesis?

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  • bwertz

    We were always big believers in network effect driven businesses (e.g. marketplaces are about 1/3 of our portfolio) but also invested in companies that had different dynamics (e.g. vertically integrated commerce) – so this was more a narrowing / refocusing of the thesis than a complete change.

  • Bobby Graham

    Hi Boris,

    What is your perspective on companies like “Honeybook” and the concept of a “Market-Network”.
    (3 sided marketplace with SaaS tools, a network and lead gen).

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  • bwertz

    I think a 3 sided marketplace can work really well for some industries but is generally much tougher to build – and adding SaaS tools to the mix is always important when you have an infrequent purchase cycle (we have a whole section on that in our marketplace guidebook: http://versionone.vc/marketplace-handbook/)

  • Vince DelaRosa

    I like this. What about a tribal platform? A business environment where there are complimentary regulations, and lower taxes.

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