2. Unsexy offline businesses that get the Internet thrown on top
Where is the real oppty? Is it in a single product? is it in the application of the product or service? Is it in the creation of the product? Is it in raw materials that create the product? is it in a business that faciliates product creation? Is it a financing biz that gives them away for free? Or can you make money on some other related way?
Is there a place where it makes sense for us to play? Do we have or have not expertise in that area? Do we care (see my latest blog post about learning new things: The Jack of Neverending Trades)?
What about valuations? Is that area a place where others have not pushed valuations past where we can participate?
What do others think? My managing director and I talked about this yesterday and he recounted that he found that the best investments are where the herd completely ditched them. I concur - many things we will look at will have the world totally against us. I think this is where the biggest opportunity is, which is to find stuff before others do, make the bet, and hope that we're right. Also we're going to be wrong - probably a lot. But this is early stage, the next closest thing to slot machine gambling .and we're trying to find that magic magnetic ring that pulls all the 7s to come up...
Are there like-minded investors? Should we reach out to them and see where there thoughts are? Try socializing the idea quietly at first. Do people think we're crazy or think that's the best idea in the world?
What does the world need to look like in order for this area to start taking off? To become mainstream? Is this achievable? Under what conditions is it achievable? How long would we estimate it will take? Are there any big market forces to watch - ie. any big corporations starting to make noise about it? Any futurists, bloggers, or journalists talking about it? Will the US governmentt pass legislation to juice this area (they have definitely juiced others)?
Are there any like minded entrepeneurs? Can we socialize with them? Figure out what they are working on? Use their creativity to seed ours?
Afterwards, we gather all this information and stew on it. Let our subconscious minds mull over it. Think about it in the shower (where i do my best thinking haha!). Let our creative minds pull together all the elements.
After doing all this, do these new areas still make sense from an investment thesis standpoint? If so, then it's onwards to quietly watch the world and see if investment opportunities come up. Perhaps we can even seed the market by quietly planting ideas. By socializing the opportunity to both investors and entrepreneurs, is it possible to literally bring the future to life by our own actions?
As an early stage investor, I find that this thesis work is really interesting. Given that we need to invest as early as possible into opportunities and trends, we take the most risk from all avenues. This is why I consider thesis development immensely important for us. By thinking about the future and developing visions for it, it is my belief that thesis development can help tip the odds in our favor that we'll find wildly successful ventures to invest in. Following the herd can also yield good results, but if I take all the possible variables (ie. our fund mathematics, industry trends, valuation trends, competitive trends, etc.) into account, I can only see that developing theses will make us better and smarter investors than the others who do not.
Two other great recent posts to read on thinking about investment theses and the future: