If I Were a Venture Capitalist…
If I were an average sized V.C. ($150m or so), was watching the funding overhang end (what funds raised vs. what the industry spent), and the uncertainty in the economy in general, here’s what my portfolio would look like (based on several years of research in a variety of fields for a diverse set of clients). Assume a standard 7 year investment horizon.
First, the standard answer of growing segments today: education, consumer healthcare, and consumer technology. Say this is between 25-50% of your existing portfolio (heavier if your exit events are projected to be earlier than later).
- Education. Software and hardware for the (virtual and meatspace) classroom, college, loans and payment processing.
- Consumer Healthcare. Payment processing is huge. Insurance products. Info management and point-of-care tools.
- Consumer Technology. Going to see a shift away from features to social networks/graphs with purpose. Reputation systems that transcend a particular business.
Next, take into account three major trends:
- The gutting of the middle class. It’s happening (measured by a decline in median income levels, 1/3 being one paycheck away from losing their homes)Won’t be stopped, the system is too far off the rails.
- The rise of distributed manufacturing capacity + tinkering networks. Or work in general really.
- As in the first depression, the elite get by. They may lose half their net worth, but half of a lot is still pretty good. They’ll keep buying with some modifications.
Of course, as an investor, you don’t just want businesses that can rapidly gain market share, but also businesses in a space where the market itself is growing MASSIVELY. For example, 3d fabrication alone is predicted to double in the next 5 years. The following would comprise 50%-75% of my portfolio. (Of course, assume the executive teams, value props, and execution are solid.)
- Bankruptcy. Digitally accelerating or delaying the information flows. Transforming nonproductive assets. Helping families/communities cope. Repossessing. Not really dealing in debt (default will be more likely).
- Fractional Employment. Despite not having jobs, they will remain productive. Platforms that enable distributed work (atomize every task) will take off. Tasks will progressively grow in complexity.
- Decentralized Production. Everything from energy, food, water, consumer products, healthcare products (courtesy of biohackers). This includes tools (design software, hardware, etc) and methodologies they’ll need to generate each.
- Upmarket Services. Simply, bifurcating society. Those who can afford today’s standard of living, and those who are in the 3′rd world category. So vacations, security, building walls, dampening exposure to shocks, preserving asset value. Wine, art, diamonds, etc.
- Private Security. No longer a public good, market is poised to explode. Neighborhood rent-a-cops, bodyguards, protecting schools/malls/tent cities/infrastructure. The nonlethal weapons and tools and information management they’ll need.
