Streaming Consciousness: Key Questions for Investing in Traditional Industries
Written on
Chapter 1: Embracing Contrarian Thinking
I have always embraced a contrarian approach, which might seem less remarkable when articulated. Nonetheless, I prefer to navigate paths perceived as challenging or opaque by those around me. This lifestyle has brought its share of stress (and a few grey hairs 🤫), but the benefits have certainly outweighed the hurdles (💪). This mindset has led me to explore North America in search of entrepreneurs aiming to innovate within established, traditional sectors.
While my primary focus remains on enterprise SaaS and AI solutions, I find myself particularly fascinated by startups attempting to transform markets that have traditionally relied on personal connections and intermediaries—such as brokers and distributors—creating complexities that outsiders often find difficult to grasp. These sectors boast enormous Total Addressable Markets (TAMs), yet their slow adoption rates (or the apprehension surrounding them) have led many investors to question whether vertical SaaS, tech-enabled services, or B2B marketplace solutions are suitable for venture capital backing.
I maintain my belief in their potential, especially following the acceleration of adoption triggered by 2020 in sectors like retail, construction, real estate, and supply chain management. My historical focus has centered on the founding team, prompting me to ask whether they possess the right combination of industry insiders and outsiders to successfully disrupt their respective markets. In other words, can the founder convey a vision that addresses the core needs of their customers today while minimizing the emergence of potential roadblocks (often from enterprise IT divisions and business units that technology could render obsolete)?
I've observed leaders like Nick from AirSpace Technologies exemplify the ideal blend of understanding the critical time-sensitive delivery market while articulating a forward-thinking vision for the future of airfreight logistics that resonates with technologists from beyond the conventional industry.
Recently, however, I encountered another pivotal question to ponder when evaluating these types of ventures. A colleague prompted me to consider: for industries defined by personal relationships and intermediaries, who stands to lose the most from the startup's disruption? If the primary threat in the sector is a larger broker or supplier that could hinder the startup's progress, does the founder have a strategy to collaborate with or enhance these operations (perhaps through white labeling)? This straightforward line of questioning was enlightening and will undoubtedly assist me in identifying startups striving to create B2B marketplaces and vertical SaaS solutions in those seemingly mundane, yet intricately nuanced industries that I truly admire.
Section 1.1: The Importance of Market Dynamics
Understanding the market dynamics is crucial for evaluating potential investments, particularly in traditional industries. Investors must recognize the balance of power between established players and emerging startups.
Subsection 1.1.1: The Role of Relationships in Traditional Markets
Section 1.2: Strategies for Disruption
Identifying effective strategies for disruption involves assessing not only the startup's value proposition but also its approach to collaboration within the existing ecosystem.