do you theme?

Posted by in Investing, Opinions

I was asked the other day whether there were any ‘themes’ to what we were looking for. The wooly answer is that there are…. and there aren’t. We tend to look for business characteristics, rather than specific end markets.

We like:

  • B2B and B2B2C companies as they have more pedictable and controllable customer acquistion costs than B2C. They are also less cash consumptive
  • Businesses that are built on the premise of multi-tenanted SaaS, or in other words ‘we don’t make diverse or bespoke versions of our products’. The reason? The development and maintenace operational costs long-term are relatively fixed and don’t grow in line with the number of customers you bring on board.
  • Management teams that own their strategy and carefully evolve it with consideration, not those that ‘flip-flop’
  • Companies where the revenue model can be tested early in the company’s development (albeit ‘early’ may be up to three years) we build cockroaches and not unicorns (see previous blog)
  • Businesses where the heavy technology engineering is present, but is ‘under the skin’ and the client interface is simple – an art in itself
  • Marketplaces, exchanges, data¬† and Enterprise software companies

The ‘theme’ element is then a secondary priority. We look for the market to be large enough to build a good sized business when, and always there is a ‘when’, competitors come along.

The sectors that have caught our attention, and where we are backing management teams are:

  • Personal data control and privacy –
  • Cloud app integration, a.k.a Integration Platform as a Service – cyclr
  • FinTech, but only where Technology adds more value than just being a facilitator/enabler, in truth I’d say we are interested in TechFin – freemarketFX
  • Connecting brands and consumer audiences directly, or rather more grandly ‘social media platform disintermediation’ –
  • The music industry, a laggard in enterprise software adoption – synchtank
  • Male fashion and lifestyle – stylepilot

There are undoubtedly other areas of deep interest where technology will play a huge role in disrupting markets, but where we are not yet involved. I’d shortlist those as:

  • Personal Identification
  • Insurance industry
  • Online retail facilitation – Amazon is just too dominant for it to last
  • Legal industry

But really we start with an open mind, looking for our business ‘characteristics’ and great entrepreneurs. I’d love to say that we started out knowing we wanted to be in FX, integration, personal data, music…….. but I’d be lying. We can’t, and don’t, take a thematic led approach to origination like private equity firms do. We trust in network and time to bring us the right opportunities.