How Specialized VCs Will Outperform the Market

Specialization is a new and emerging trend in the early-stage venture market that serves LPs, founders, and certain venture investors well.  At last count, more than 250 “Micro VCs” – typically defined as venture funds under $100M – were flooding the market. Many LPs, founders, and venture investors, including our team at Maven, think this is just too many and will correct over the coming years. This is the third frothy Silicon Valley market cycle I’ve experienced over the last 20 years of my career. Just like in the past, the industry will right-size (likely in the next 12-18 months) when there is a market correction. Post-correction, we will see a more sustainable number of early-stage venture investors with the right expertise, passion, and track records. And, those early stage investors who specialize will have a significant leg-up. An Emerging Trend If you look at this list of Micro VCs, you’ll notice that the overwhelming majority are multi-sector generalists. Of course, that alone isn’t enough to judge quality. I know many incredible generalist investors who I respect and happily work with. However, in the last several months, I have seen an emerging trend of more focused funds. At Maven, we focus our investing on consumer software startups. Other great examples of funds with different focus areas that raised in the last few months are Engineering Capital (investing in engineers with a tech infrastructure focus), Zetta Venture Partners (an analytics fund), and Eclipse Ventures (a hardware-focused spin-out of Formation8). These are just a few examples and we will see many more early-stage investors specialize as this market matures. Why We Focus Early-stage investors often differentiate on two points: value-add and access, and a focused strategy helps with both. At Maven, we stick to what we know: early-stage consumer software investing. I’ve been fortunate to have massive successes in consumer software startups as an entrepreneur and investor (NBCi $6B IPO, Bebo $850M acquisition, Check $360M acquisition, Tango $1B+ valuation). Because of our team’s background, we can immediately add value to consumer software founders; but not so for enterprise, clean tech or big data startups, which are very different to build. Focus makes our value clearer and more impactful. We have more experience with the specific obstacles our companies will face, stronger relationships with the partners and service providers who matter, and deeper expertise to offer tailored product and marketing advice. Access to Deals Our differentiated investment strategy helps us stay top-of-mind with consumer software founders and co-investors. If someone sees an interesting consumer startup and they want an expert point of view, it’s more likely they’ll think of Maven versus other investors who consider a wider set of opportunities. Our founders think the same way when they refer their friends to us. And, the best consumer software startup founders desire acceptance into our exclusive Maven consumer hyper-growth incubator, where we accept less than 0.5% of the applicants. Consumer Software: An Opportunity to Outperform  In addition to value-add and access, which play in the favor of all specialized investors, we’ve identified a few additional advantages of a specialized focus on consumer software:
  1. Consumer software startups are less expensive to start and cheaper to scale.
  2. It’s especially hard to identify early winners at the seed stage for consumer startups, so we have a significant competitive advantage. Because we only look at consumer software startups – and we see 2,500 of them each year for our 10 investments – we get to spot consumer trends before most folks. Really smart, successful investors like Marc Andreessen have said it: they’ll invest early with enterprise but have to wait and pay-up later with consumer. When we spot the right team with the right consumer vision, we have stronger conviction than others to write that first seed check.
  3. It pays off. Of companies with a $1B+ valuation, consumer-focused startups drive 72% of the value – even as enterprise companies require and receive more capital.
We love meeting and co-investing with other venture investors who have that special eye for early-stage consumer startups, and we’re actively looking for new companies to bring into our portfolio at Maven. If you are a founder working on the next big consumer software startup, check out what we look for in an investment, and I hope you’ll get in touch.

4 thoughts on “How Specialized VCs Will Outperform the Market

  1. Generally speaking (no pun intended), the arc of future venture capital and private equity investment is more and more niche. The purpose of technology is to make everything specific.

  2. Stefano, thank you for sharing your post! It seems that we are on the same page with regard to the benefits of specialization! As the ecosystem evolves, time will tell what is the optimal extent of that specialization…

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