We have designed our firm to exploit two particular market inefficiencies:
- VCs are generally uninterested in companies outside of certain narrowly defined sectors, despite the fact that many fast-growth businesses are not conventional tech companies. We think this is a mistake. As proof, we’ll note that any analysis of the best-performing stocks of all time will show many companies which don’t look like conventional VC-backed tech companies (example). Of the 2020 Inc. 5,000, only 1,150 are in traditional tech industries (“Computer hardware”, “IT Management”, “IT Services”, “IT Systems Development”, “Software”, and “Telecommunications”). In particular, any young company in any industry, if led by a tech-savvy management team, is going to approach growth very differently than their old-fashioned competitors. We’re particularly interested in founders bringing tech savvy to stodgy industries. We’re most interested in fintech and salestech, but have flexibility to invest in other sectors.
- VCs are generally biased against founders who are not White/Asian males, and/or who are not in core geographies, despite the fact that the data says that you’re better off investing in diversity. Paul Graham, cofounder of Y Combinator, observed, “many suspect that venture capital firms are biased against female founders. This would be easy to detect: among their portfolio companies, do startups with female founders outperform those without? A couple months ago, one VC firm (almost certainly unintentionally) published a study showing bias of this type. First Round Capital found that among its portfolio companies, startups with female founders outperformed those without by 63%.” For more on this, see The iconic VC-Backed founders are all White & Asian men. So why invest in diversity?