What Would Your Investment Thesis Look Like?

Posted: April 30th, 2010 | Author: | Filed under: posts | Tags: , , | 1 Comment »

I’ve been thinking a lot about the venture capital industry lately. Many firms lay out an investment thesis that guides their investment activities and the type of deal flow that they’re looking for. This is then distilled into how the firm positions itself with regard to entrepreneurs. Union Square Ventures has a section of their site devoted to their focus and Foundry Group talks about their thematic approach to investing. First Round also explains their focus on their site. These are just a couple of good examples.

As I was thinking about venture capital, I started to ponder what types of opportunities I would put into my own investment thesis. I divided my thinking into two categories – “focus areas”, or large opportunities that I see near to mid-term in the marketplace, and “enhancers”, simply factors that create a competitive advantage for organizations. In my view, you can have a venture that addresses any of the focus areas, but if they don’t use the enhancers to their advantage, they are at risk of organizations that do.

I expect this to evolve, but with that to set the stage, some thoughts on what my investment thesis might look like.

 

Focus Areas

Data and the Cloud

    Organizations have a ton of data. Having been a data warehouse and business intelligence consultant, I saw first hand the value that organizations derived from being able to understand and measure their data. However, the current state is that it’s time consuming, expensive, and difficult to effectively slice into your data. Enter the cloud with its new models for computing. I see the confluence of growing data repositories and more effective cloud computing continuing to align and changing the way organizations drill into their data without complex IT solutions or obtuse analysis platforms. And no longer will it just be large organizations that can afford the enterprise systems and consultants that get to dig into their data – these platforms will level the playing field in business intelligence.

Rapid Development/Deployment via the Cloud

    Services like EngineYard Cloud (built on top of Amazon Web Services), Heroku, and AWS itself are changing the way products get developed and deployed. When I worked on startups in the past, much of the early part of the technology phase was setting up servers (remotely hosted) and installing software for version control, bug tracking, project management, etc. Then it all needs to be managed. For Three Screen Games, everything was a web service or cloud-based tool that we chained together. We used EngineYard Cloud for production and testing. Need to test a new release? Fire up a clone of the entire production environment, test the deploy and the change, and destroy it when you’re done. The end result is an extremely dynamic development team that reduces barriers to building higher quality products in less time. I see huge potential in continuing innovation in systems to ease the development and deployment of products using the cloud.

Mobile as a Content Creation Platform

    Mobile has certainly changed the way that people work, but for the most part, that innovation has been focused on the consumption of data, media, documents, etc. In general, mobile platforms lack optimization to be effective content creation platforms. I believe there is a large opportunity to provide optimized mobile content creation platforms. For businesses, the key implication is greater productivity. For ventures, one of the key implications will be that as soon as mobile has a demonstrated value beyond just content consumption, the corporate spending spigots will open wider, powering an even stronger mobile-centric ecosystem. At the same time, this will align with another growing trend – that employees will be increasingly making (and supporting) their own technology choices. Lots of opportunity for mobile content creation.

Personal Branding

    I believe a sea change is underway with regards to how organizations hire effectively. In certain spaces, the venerable resume has been fully supplanted by candidates’ online personal brands for hiring purposes. In the rest of the marketplace, this shift is coming. And for good reason – resumes don’t tell the whole story – an effective online presence opens so many doors to demonstrate not only your passion and interests, but your quality of work. In all, this transition is creating an opportunity for ventures that help both candidates and organizations take advantage of the new paradigm. Much of this still remains to be defined, but I’m passionate about startups that contribute to this shift by working to define/build out new aspects of it (i.e. privacy, etc.).

Social

    The web has always about communication and is now increasingly about engaging interactions. Most of what gets branded as “social” on the web today still has a long way to go towards being truly social, though. Along with that, there are also markets that have yet to see fully baked social sites. We’ve been working on this at our startup, FanGamb, for sports fans, as an example. There’s a lot of valid concern over Facebook’s Open Graph plans, but whether it’s that particular initiative or something more evolved, companies will start to get social right. And will be rewarded for it.

 

Enhancers

  • User Experience – effective UX is a competitive advantage. FanGamb was lucky to have a fantastic UX expert work with us.
  • Seductive Interactions – optimizing for customer retention and engagement, not just conversions and pageviews. read this.
  • Gaming Dynamics – one of the interesting things about having worked in the gaming business is how applicable the principles and dynamics of games (that work in the game’s microcosm) are to other (non-game) business models.
  • Customer Development – there’s lots of talk about how important the principles of customer development are. Stellar implementation is rare.
  • Agile – like the above, many claim to be agile, though effective agile isn’t as common.