For decades, the question, “What type of work are you in?” had a straightforward answer. Most people did a specific job for a business in a defined industry. If you started a business on your own, it was in a particular sector, like travel, or food, or retail. Business investors followed the same path. The old venture capital model focused on sectors. The Wall Street Journal still tracks investment by sector, dating back almost 30 years.
But we’re in a very different world today. The best ideas aren’t confined to a single sector, but instead are disruptive across multiple industries. That’s why our approach to investing doesn’t focus on sectors. We focus on themes.
Thematic investing has been around for a while, and we can’t claim any credit for its creation. The Foundry Group published a great post on what thematic investing is and why they do it back in 2008. At Next Coast Ventures, we have followed that model and began our firm with seven themes that we focused on for our first fund (NCV I).
As innovation is not static, we are continually reevaluating our themes and on the lookout for new ones. This requires us to do deep research, to regularly consult experts across industries on specific emerging technologies and to monitor how a theme grows in strength and depth or dissipates. Markets change, new technology appears and society goes through big transformations—sometimes in just a few months.
Some Themes Persist
When we published our first set of investing themes four years ago, we felt confident that we had identified themes that we knew a lot about and in which smart entrepreneurs would be looking to shake things up.
And many of those themes have persisted. Take, for instance, our original theme of the Future of Work 2.0. This theme embodies both emerging trends and technologies. At the time we settled on it, we recognized that remote workforces were going to become more prevalent and the advent of technologies like 5G and VR/AR would support a gradual move to more remote teams. Little did we know then that a global health crisis like CV-19 would accelerate the trend to remote work and solutions like video conferencing would be adopted en mass overnight. It is fair to say now that remote work is here to stay in this new operating environment and there will likely be a second generation of tools to support distributed workforces.
Retail Retold is another theme that stands as a good example of how this approach works in the face of rapid change. When we first put it forth, we primarily saw two forces changing the retail industry: Amazon’s aggressive market share taking machine and the rise of a digitally native generation with major buying power.
One of the first innovative solutions to those forces that many VCs (including Next Coast Ventures) invested in was the “Direct to Consumer Brand.” EverlyWell and Phlur are two examples of companies rethinking the brick and mortar model and go-to-market strategy in two very different industries: medical testing and natural beauty.
We will continue to see startups creating new solutions related to these two forces (Amazon’s market dominance and digital natives), but also new trends emerge, very likely around the retail supply chain due to increased pressure from CV-19, unique customer acquisition models given rising CAC on traditional social channels, and improved personalization of the consumer experience. The shopping experience is evolving quickly, and all aspects of a consumer journey—from discovery to purchase— continue to be ripe for disruption.
Finding New Themes
Our ongoing evaluation of themes means that our list will inevitably change. These last three months have given us the opportunity to finally take a deeper dive into a few new themes that we have been noodling on, but have never put pen to paper on.
So stay tuned for Part II of our “Thematic Investing” blog series to find out what new themes we see emerging due to macro moves in technology and society.