By David Frankel, Managing Partner
The range of fundable startup ideas has expanded over the last decade to encompass everything from Slack to slacks. Now, the challenge is separating interesting, but niche markets, from those that are weird and wonderfully profitable.
A few thoughts on an imperfect science:
🔮 Odd ideas + simple business models
We’re open to entertaining the most fantastical sounding markets if the founders employ a vanilla commercial strategy. We’re not looking for conservative approaches, just paths to market that don’t require massive leaps of faith.
We’ve luckily backed everything from aquaculture to zoological testing and while we cover a lot of unique markets there is a common thread: commercially-minded founders obsessed with monetizable customer use cases.
I’m reminded of the Flaubert quote, “Be regular and orderly in your life, so that you may be violent and original in your work.” Founders should say, “Be orderly and metrics focused in your operations, so that you may choose an utterly bizarre market to serve.”
➰ Inefficiency between suppliers and retailers
Beyond commercial hustle, we tend to prefer markets with glaring supplier/retailer imbalances. It’s not an accident that two mattress startups exited for billions — the industry was messed up and ripe for disruption.
My partner Micah Rosenbloom has written about this before. Founders attacking an atypical market should be able to articulate some sort of systemic incongruity. Otherwise, they’re pitching a brand which may lead to a great outcome but is less defensible.
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🐳 Big TAM
Some niche markets become powerhouses over time, but generally, it’s better to be a mosquito on a big artery. It’s just easier to buy into the idea that a startup can get big if there is a plausible connection to a large, pre-existing market.
E.g. @Olo was facilitating mobile food ordering before smartphones. It was a truly bizarre use case with a minuscule customer base, but the logic was there. Since then, Noah Glass has built Olo into the operating system for national chains like Subway
😎 Founder Advantage
We’ve had decent success backing entrepreneurs that worked in a family business and decided to modernize it using tech. It’s one thing to study the aquaculture market, it’s another to come from five generations of mariners like Marty Odlin at Running Tide.
Take PillPack’s TJ Parker — He grew up working alongside his pharmacist father, learning everything from compounding to customer service. There are so many learning curves to be scaled at a startup — it helps if domain knowledge isn’t one of them.
💳 Listen to the market
Above all, believe sales. I wouldn’t have been very interested in a SaaS business catering to the flooring industry until I saw the incredible progress made by @toddsaunders and @danielppratt at https://broadlume.com.
Even with their demonstrable progress, it would have been easy to flinch at flooring and wonder how big it could get. Fortunately, we asked “what could go right?” (HT @epaley) and they’re fast on their way to becoming the HubSpot for Hardwood floors.
👽 A word of warning — Avoid weirdness for weirdness sake
We don’t enjoy investing in unusual startups because it quenches some kind of rebellious thirst for thrills. We unequivocally believe that odd spaces and open minds can lead to outsized outcomes.