The rise of the thematic VC 

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The reasons more and more funds are focusing on single verticals

Every VC firm claims to have a specific focus, but most of the time it’s so broad that it becomes useless.

Most firms would say: we focus on internet, mobile, consumer and enterprise. Well thanks.

The reality is that most firms will invest in anything that has the chance of scaling to a multi-billion dollar valuation, from coffee and liquid meals to spaceships and Facebook.

That’s totally fine, and a great diversification approach. There are just a number of companies that will go public or get acquired for $1b+ every year, and they’re in different verticals. Sprinkling bets around gives you more chances to actually be in one of those.

Some firms think otherwise though.

  1. Many have developed specific focuses for different reasons, but are still very horizontal. For example, Founders Fund and DFJ are known for investing in world-changing, crazy-sounding ideas in energy, space and advanced sciences, but they will still invest in consumer internet companies.
  2. Side funds are also not new, famously fbFund from Founders Fund and Accel, managed by Dave McClure and focused on apps built on top of the then emerging Facebook platform. Accel also recently launched two Big Data funds.
  3. Corporate venture funds are also traditionally focused on the mothership’s market (Citi -> fintech, Vodafone -> mobile and infrastructure, Rakuten -> ecommerce).
  4. Some industries, like life science and med-tech, have traditionally seen very focused funds, given the different life-cycles of those companies.

But then there are some new, truly vertical VC firms.

These firms believe that by concentrating all of their bets in a specific vertical, which they believe will either massively grow in the coming years or is ripe for disruption, they can produce better returns for their LPs.

The most successful example in my opinion is Ribbit Capital. It was founded in 2012 by Micky Malka and focuses exclusively on Fintech. It raised a first $100M fund and is now closing a second one.

Micky was the founder of Lemon, a mobile wallet app and firmly believed that there are more opportunities in fintech than he could pursue by himself.

In less than 2 years, he was able to get into the most interesting and hot fintech deals, including Wealthfront, Credit Karma, Coinbase, Funding Circle, Fuze Network, etc.

That would probably have been impossible should they not have a very specific focus.

Here are the thematic funds I’m aware of:

(I might be forgetting a bunch, please add notes and I’ll add them).

So why do thematic funds make so much sense?

Much clearer and easier marketing of the firm

By appearing in an industry’s specific publications and events, it’s much easier to build brand awareness for a new firm in a niche or vertical.

Partners will soon be regarded as experts in the field and the exposure compounds.

Much easier to get into deals

Getting into really hot deals will be much easier for a vertical fund, as every company in the space will want to get that firm even if for a small amount thanks to the connections and expertise it can bring.

Lighter dealflow, less bullshit

Big firms spend A TON of time looking at really crappy deals. By shrinking the firm’s focus the team will have much more time to evaluate deals.

Specific value add

Generally the partners will have had some previous success in the field, gaining very focused expertise and a huge network.

That’s immensely valuable for founders who haven’t been exposed to a specific industry before.

Partnerships and knowledge sharing between portfolio companies is also much more valuable than in a horizontal firm.

But by investing in a single specific niche, some problems tend to arise:

Portfolio theory problem

Modern portfolio theory states that diversifying a portfolio into multiple assets, geographies, currencies, sectors, etc. produces the best risk-adjusted expected returns.

MPT has been challenged by behavioral finance recently, but even before that, venture firms need to produce the highest returns, and sometimes that means assuming the most risk. If a VC firmly believes in a specific vertical, it might make sense to put all its eggs in that basket.

Competing investments

If you only invest in a specific vertical, there will be high chances that you’ll end up investing in competing companies.

If you don’t take board seats these might be fine, but it will be really hard in the value-add phase.

Small company pool

As I said previously, the pool of companies to look at will obviously be much smaller than other VCs.

This might be a good thing but might also limit the ability to deploy capital at the ideal pace.

In general, I think the opportunities outweigh the risks, and that we’ll see stellar results from current vertical firms as well as a lot of new ones launched in the coming months and years.

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The importance of being in Silicon Valley

Google Maps

The real reason behind WhatsApp’s acquisition

Short post. Mostly a note to self.

The WhatsApp acquisition story, being one of the biggest M&A exits the internet sector has ever seen, has been obviously covered by everyone from every different angle: “rags to riches”, “Facebook overpaid”, “Erlang!”, “price per employee off the charts!”, etc.

As everybody knows, there are tons of similar messaging services, with great user traction, insane growth and higher revenues, but Facebook still acquired WhatsApp.

There are some product and fit reasons: focus on growth, great diversity of markets, highest number of users, no marketing, and so on, but I believe the main reason for the choice is their location. 7.4 miles between the companies’ headquarters and probably less than a mile between the CEOs’ houses.

The other companies’ CEOs couldn’t grab coffee and have dinner with Zuck’s at a moment request. Much less develop a friendship over a 2 years period.

This exemplifies perfectly what still makes Silicon Valley the place to be. No matter what New Yorkers and other “startup hubs” enthusiasts want you to believe.

The simple truth is that if you want to build a world-changing company and you’re not here, you’re just making it much harder for yourself to succeed.

Rejection


Losing that once-in-a-lifetime opportunity

Everyone experiences rejection in their life: a girl you have a crush on rejects you for someone else, a club or society denies you access or membership, a group of friends stops calling you, investors pass on your company, you don’t get the job or promotion, etc.

It happens all. the. time. Sometimes it’s fair, sometimes it’s not. Sometimes you should experience it but you don’t.

If I try to sum it up for myself, I think I’m still on the fair side. I got rejected a lot, but I also got a lot of things I shouldn’t have. That balances it out ok.

But what happens when you think that this time it really was the once in a lifetime opportunity, and now it’s gone? How do you cope with that?

  • What happens if you’ve been madly in love with someone you think should be your life partner and they reject you?
  • What happens if you have a chance of getting the job you’ve always dreamt about and you get rejected?
  • What happens if you don’t get the investor you’re sure would change the fate of your company?
  • What happens if you don’t get the deal of lifetime?

Let me tell you what happens: nothing happens. It’s gonna be fine.

Most of the time, the reality is that what seemed like a once-in-a-lifetime opportunity, wasn’t in fact one.

Most of the time you weren’t even qualified or the right person/team/company for the opportunity, but you can’t realize that until much later.

It’s really hard to cope with it and put things in perspective immediately after being rejected, but it’s nothing else than a stepping stone to something better.

Another girl, investor or job will pass along at the right time, and you’ll discover they’re even better than you could have dreamt about.

Having been told no will make you stronger and if you keep on working hard towards your goals you will have the double satisfaction of showing them how wrong they were, or maybe (should you not have such an exaggerate ego) reconsider their choice.

“Business opportunities are like buses, there’s always another one coming.” — Richard Branson

How to be a great startup employee


Hint: it’s not “rest and vest”.

Don’t ask for permission, ask for forgiveness.

It’s common knowledge that startups move incredibly fast. In such an environment, asking for permission is not even an option.

The best employees will just figure out what needs to be done and go ahead and do it. If you were hired in an early stage team you’re supposed to be smart and be able to figure out by yourself what has the highest priority or if someone else on your team needs help with something.

Be aware of what other people are doing.

You will not be able to effectively impact your company if you just sit down and pound through your to-do list without knowing what the rest of team is up-to.

This might be the leadership team’s responsibility, but you still should try to get insights into what other departments are working on and how your work will help or block anybody else in the company.

Clearly communicate what you’re working on.

Obviously, as you’re expected to know what everyone else is working on, you’re also supposed to clearly let others know what you’re up to.

Some people tend to only communicate updates on tasks and projects which they think will impact others, but it’s much more effective to give a (daily || bi-weekly || weekly) update about everything you’re doing.

Ask your colleagues for help.

Never be afraid to ask for help. If you’re stuck on something and you know someone else can help it is much, much better to ask for help instead of spending time trying to figure out stuff on your own.

You’ll undoubtedly have to do so oftentimes, so when you can, ask for help. You’ll get stuff done faster, learn faster, foster collaboration and build morale all at the same time.

People sometimes hesitate to ask for help, worried what others might think. In reality, team members are happy to help and appreciate it when others ask for it.

Over-promise, over-deliver.

Startups are not an environment where you can under-promise and over-deliver.

Whether you’re talking with customers, partners or your team, you should always over-promise and then work your ass off to over-deliver on those promises. Startups move fast and you often have to sell more than you really have. That leaves you with no choice other than doing whatever it takes to actually deliver.

Learn to prioritize.

In my opinion, the #1 skill for a startup employee is the ability to prioritize.

You will always have a ton of stuff on your plate, probably more than you have time for, so it’s really essential that you’re able to effectively decide what needs to be done first and what can wait just

Curate the details when needed or just get the 80% done when it makes sense.

No matter your role, there are three things you should constantly be doing for your startup:

Always be recruiting.

If you’re in a high growth company, one of the biggest challenges it will face is definitely recruiting smart people.

When you go to meetups, pubs, weekend BBQs, anywhere, always try to recruit. Tell your friends what positions your company is looking for and ask them if they know someone. If they don’t, incentivize them to ask their network anyways. Expanding your recruiting reach by even one degree will help immensely with your company’s recruiting efforts, which is one of the best things you can do.

Always be closing.

Even if you are an engineer, you should still be selling your company’s product all the time. Consumer product? Have your friends go to your website or download the app. Enterprise or B2B? Always mention what you and your company do when you meet new people, you’ll eventually meet someone who’ll become a customer.

Bringing in customers for your company is one of the biggest joys, especially if you’re not in sales.

Always be marketing.

This one goes without saying: as an early startup employee you’re expected to be proud of where you work and do all you can to make it succeed.

Always talk about and market your company’s product. Post news on your social networks, wear your company’s swag, put a sticker on your laptop and give out stickers to your friends.

Enjoy.

Remember to have fun. You won’t be able to do all of the above if you’re unhappy or overly stressed and not looking forward to every work day.

It’s a hell of a ride, it’s fun, it’s rewarding and it’s much easier than being a founder, so enjoy it and try to learn as much as possible.