PS#090: 10 Ways to Build an Investment Thesis – Markets (Part 4)

Over the past two weeks, we’ve discussed how ​incumbents​ and ​customers & users​ can help drive your investment thesis.

Today, we’re going to walk through how changes in the market can do the same.

When reviewing different markets, I focus on the following…

• What can be done now that couldn’t be done before?

• What’s working in parallel industries that can be copied?

• What data exists that didn’t exist before?

Venture capitalists are always on the hunt for new, emerging, and large market opportunities. These questions can help identify those markets and the corresponding opportunities.

Let’s get started.

(1) What could be done now that couldn’t be done before?

This is a great question because it widens your perspective.

What could be done now that couldn’t be done before? What problems have we assumed can’t be solved, but now can?

This question can be answered in a lot of different ways. It could be a change in technology, behavior, regulations, economic environments, geopolitical issues, consumer preferences, cultural norms, etc. There are all sorts of factors that can drive change in a market.

By asking the question this way (at least for myself), it widens my view outside of the typical venture capitalist answer of technology. Not that technology isn’t a great reason, just that there are lots of lots of reasons for these changes and we shouldn’t overlook the others.

(2) What’s working in parallel industries that can be copied?

I love this question.

It forces me to think differently, outside of my typical comfort zone. Just as we might try to look at something from another person’s perspective, we can do the same thing with markets. Different industries approach problems in different ways. There might be some transferable lessons that can be taken from one industry to another.

A few examples…

• Airbnb allows homeowners to rent out their properties to travelers by applying the sharing economy model from Uber to the hospitality industry.

• IKEA's flat pack furniture design principles have been used by humanitarian organizations to deliver easily transportable (and easy to assemble) shelters for refugees and disaster victims.

• Netflix's recommendation algorithms, which personalize content based on user preferences and viewing history, have inspired retail companies (e.g., StitchFix) to personalize shopping experiences based on individual customer profiles and preferences.

It’s a great strategy and one that’s produced a lot of successful companies.

(3) What data exists that didn’t exist before?

This question plays off the first question a bit.

In an ever expanding world of smartphones, wearables, and AI-powered technology, data becomes increasingly valuable. However, not only is it valuable, but these technologies are creating entirely new data sources that haven’t existed historically.

To understand this, just take a look at your smartphone. It’s tracking your location, usage, devices, biometrics, networks, health, app preferences, interactions, photos, videos, and many more things that 20 years ago would’ve been impossible. Now, these data sets are detailed, expansive, and widely available.

Whether you think this is a positive or negative trend within our current world, it’s a persistent one that will only become more pronounced. We are creating, collecting, and structuring more data than we ever have before (and this will only continue to grow, likely exponentially).

So, the question remains, what data exists now that didn’t exist before? How can we use this data to create new, exciting, and hopefully helpful businesses?

There will be many new data sets in the coming years that will create a whole new set of opportunities.

Alright, we’ve now covered thesis building strategies around incumbents, customers & users, and changing markets. There’s so many ways to go about identifying venture opportunities, but these are few that I have found particularly helpful over the course of my career.