On this special segment of the Full Ratchet, the following
investors are featured:
Each investor discusses thermals, sectors, drivers and/or
market trends that may have significant impact in the
future and are potentially postiitioned for outsized-returns.
Nick: On today’s special segment, we have Leo Polovets of Susa Ventures. Leo, are there any big sectors, thermals, trends, or changes in the industry that you see on the horizon? And if so, can you talk about those that may have significant impact?
Leo: So, to be honest, I don’t think about trends too much. I like to look at individual companies a lot more and then kind of explore each company’s competitive landscape and ecosystem when I look at it. That said, I think one kind of horizontal trend is that there are basically a lot of SaaS companies popping up for unsexy industries that haven’t really been touched by software for a while. So we see it as the logistic space, monitoring power plants, or those kinds of heavy enterprise, heavy industry applications. That’s a really interesting place to invest.
That’s also a place where there’ll be a lot of progress and a lot of positive side effects for society because, in a lot of these places, they operate by like fax or voice mail or they write things down on paper. It’s pretty inefficient, and of top of that, because the data’s almost never digital, the data isn’t used to make processes better and to learn and make new excellent products.
And so I really like companies where they basically come in and say “Hey, we have a SaaS product that basically takes this paper process and fax process that you have and makes it digital.” And that’s a really easy sell to a lot of companies that feel the pain of working with paper and faxes. But then, pretty quickly, once everything is digital, it’s a lot easier to innovate rapidly to build new features out to really streamline processes. That’s a great business model and it creates a lot of value for everybody.
Nick: Do you have any thoughts on the growth in SaaS at the B2B level, and maybe just an abundance of SaaS models that starts to create inefficiencies? Just in my daily routine, I probably have eight or nine different SaaS performance tools now, and I’ve gotten to the point where it’s a little difficult to jump from one environment to another and keep things organized.
Leo: Yeah, that’s definitely a place with a lot of tension. Some places, especially like marketing or analytics, where the spaces get crowded and then it’s—even if your product is placed good, maybe that’s not good enough to really stand out from the crowd. And on top of that, I think there’s a tension between good-enough all-in-one platforms and really good solutions that only do like one tiny sliver of what you want to do.
And to be honest, I don’t have a strong sense of where that’s going in the future. I have seen more meta-startups where they integrate with a lot of your tools and put them in one place. Slack kind of does that for communication. I’ve seen that with a couple of analytics companies where they’ll connect to all of your accounts like Mixpanel and Google Analytics and Flurry and then try to show you all the data in one place, start showing you insights in one place. So I think that’s definitely an interesting approach to the simplifying landscape. Segment IO is kind of in that space as well.
So—to be honest, though, I’m not really quite sure where the industry will go. I think the platform solutions a good one though. If you can make an infrastructure that’s basically like swap out the best-in-class piece for each piece of a process, that’s a really good place to be.
Nick: On today’s special segment series, we have Michael Goldberg from the Bridge Investment Fund. Michael, are there any big sector changes, thermals, industry trends that you see coming in the future? And if so, would you take a moment to talk about one and what impact it may have?
Michael: Sure, I mean, it’s a great question, Nick. Maybe I’ll take that and continue some of my sort of international theme. One of the things that I’ve seen done really effectively outside the US and I was actually at a firm called Rocket Ventures out of Germany, and basically they’re looking for models that have worked in the US and then rolling them out in a localize way around the world. And I think if you look at kind of some of the success in the Chinese market and localizing ideas that have been tested—and then this is outside of IP issues. That’s a whole other discussion. But, I mean, just sort of taking something that’s worked in another market and then making it work locally.
So I guess my answer or my take on this would be advising potential investors like—you know, a market like Vietnam. Vietnam has eighty million people. You can make something work with a very local approach. You do need to necessarily back an entrepreneur that has a technology solution for the world. In fact, you might be better off looking at how a smart entrepreneur is localizing a technology and developing a local solution around a product or a service for a market, or maybe a region.
I was in Morocco a couple weeks ago and had some conversations with entrepreneurs about that. and, okay, the country of Morocco isn’t so big, but if you kind of draw a circle around the region—so my answer is more around some of these “Don’t worry about the next trend to reinvent the world,” take a look at the last trend, and sort of see where there might be applications locally with the right entrepreneur that you can bet on.
Nick: Is this a little bit like “Me, too” technologies that sort of spring up in specific markets that have sort of their own culture? For example, I came across a startup in Korea that had a social media platform that was Instagram, but it’s Instagram for Korea. And they, apparently, had seventy-five percent of the high school market—is that kind of where you’re going with this?
Michael: I am! Absolutely. Absolutely, because I think it’s easy to say “Why does Korea need its own Instagram? There’s Instagram!” Well, there may be unique market factors—and some of it may be that other company say may have got there first. You know, there were like fifty Groupons for China. You have to go more than just sort of be the next Groupon for China or Instagram for this, but I think there are some market inefficiencies. I mean, frankly, Yelp! is not going everywhere.
And in some ways, I think this speaks to the deploying less capital and the exit will be—it’s not gonna be hundreds of millions of dollar exit, but if you could invest in a company that has several hundred thousand dollar valuation and the exit could be a ten million dollar valuation, that could be great! So I thin in some ways, some of these companies, “Me, toos” may lead to that in specific markets.
Michael: Yeah. Probably stating the obvious, but that was South Korean, the example there, but, yeah, we recently had David Brown on the program, and from an ecosystems standpoint, he had talking about sort of their international expansion of TechStars. Not only on the startup itself side, but also on sort of the ecosystem roll out in different cultures. I’m kind of interested to monitor that and see what works where and why.
Nick: Yeah. And there’s no one-size-fits-all. I mean, I think I’ve been really impressed with—and even within TechStars, the have this global accelerator network which are partnering with other accelerators that have kind of a similar model. That network has actually be a really great way for me to partner around my MOOC, and it is different everywhere. I mean, I think there’s some common elements that we see and, for any of your listeners that are angel investors and exploring these things, are gonna be like “Oh, okay!” There’s some common elements that are present.
And I think—just also the accessibility. We’re like in Morocco and somebody’s reading Mark Suster’s blog in Morocco and you’re like “Oh, okay!” It’s great. “I’m glad you’re up on the debate between convertible debt and priced rounds according to Fred Wilson, Mark Suster, and Brad Feld.” I mean, it’s great. Those guys—they’re so transparent and I think people are reading Pando in Harare. I mean, you show up in these places and there’s a surprising amount of sophistication because of some of the media and social media platforms. So it’s good. You can sort of start a conversation.
And then you start pointing out how things are different. It’s one thing to read an article, it’s another thing to kind of talk about the reality of investing in Bulawayo or something.
Nick: On today’s special segment, we gave Gil Penchina. So Gil, are there any big sector changes and or thermals that you feel may materialize in the next few years and significantly change the way we do things? If so, can you highlight one in particular that you think may play out?
Gil: Well, I mean, there are obvious ones that are getting a lot of noise lately, the Internet of Things is an enormous wave and everything being smart and sending back data is gonna create a bunch of new opportunities so we’re pretty excited about our Internet of Things syndicate. We think fintech is another huge area. People are basically taking apart banks into little pieces and so—I invest in a company called Vouch that loans money to people much like Lending Club does. It just lets people get a loan, but it takes advantage of your social network and gives you a bigger loan at a better rate if your friends are willing to vouch for you. So the same things that, you know, a local hometown banker used to do because they knew you and your reputation that the big banks can’t do. So they’re building a new type of credit report, effectively, which is do you friends believe in you and will they vouch for you?
Nick: That’s amazing.
Gil: So we’re seeing a lot of fintech—but, you know, again these are secular trends. You’re seeing a lot of things, Lending Club, First Republic, this is not the black swan. The black swan question is “What is not happening that should be?” and I wish I knew.
Nick: Any ideas or any thoughts about what may emerge that isn’t really—that may be under the radar right now?
Gil: Well my classic one is AngelList right now. My belief is that the next twenty venture capital firms will not be venture capital firms, they’ll be syndicates on AngelList and that no one will ever start a VC firm again. AngelList is going to become the NASDAQ for this illiquid asset class and the things that you and I are doing will become the Fidelitys, and Vanguards and T. Rowe Prices of the world. Nobody’s talking about that yet because it’s terrifying to the incumbent VC community, but that wave is coming and I’m starting to see more and more interest in it. So that’s why I’m putting all my time here.
Nick: Well, certainly if the FCC can follow through on the Jobs Act or at least amend it or adjust it, then…incredibly disruptive.