• Ethan Lu

The Next Big Thing in Venture Capital


The next big things in venture capital

Being a professional investor for the past five years, I have seen 1000+ companies from countless spaces. The topics over dinner tables at friends and family gatherings are always around "what is the next Uber?" and "what companies do we invest next?".


After having to answer those questions many times, I decided that I can just democratize capitalism and share my insights with everyone as a front line soldier fighting these startup battles with lots of scarves.


Mental health improvement technology


It is no secret that people today are living with tremendous anxiety caused by stress. Stress is also one of the top illnesses of adults in the United States. The symptoms of stress range from a lack of energy to problems with sleep, and the inability to maintain healthy livings of adult workers are costly to employers. Just thinking about how many coaches and yoga instructors that big techs are hiring now. Looking through my deal pipeline on google sheet, I was not surprised to see how many meetings I had in the past year were about mental health-related technologies. It was 13.8%, to be exact.

How many of those companies did I invest? The answer is none, and I'll tell you why.


There's no doubt that Calm.com will continue to thrive in today's environment. There are full of people who would love to incorporate meditations apps to improve their quality of life. Since the barrier of entry is lower on the tech-side, and fundraising remains challenging, new players are flooding the market. The meditation app market shares would eventually either getting split by two giants players in the space or dominated by one big incumbent with the most marketing budget. Also, in the long run, companies not only have to compete with their tech peers but also defend their market share against legacy healthcare providers. It's just brutal, and the fight for market share has already started!!

Meditation

On the other side, companies, such as Talkspace, with more proprietary techs, working on medical angels, and collecting massive data about end-users would win big in this market by targeting different audiences than Calm.com. Their customers are often with more critical needs, a lot higher lifetime value, and very little churn rate.


Data portability technology


We all have seen big techs getting grilled by governments across the globe lately caused by the rising concerns on privacy. What the governments have little clues on is that our data are out there already, and it ranges from as simple as names or social securities to sensitive data like medical records or financial info. According to Harvard Business School, an algorithm can identify 99.98% of the Americans with as few as 15 demographics. With this data, tech companies know us better than ourselves and are fully capable of predicting our behaviors. So what is left to protect? Not much. This is why I think the future is in data portability.

Harvard business school quote

Data portability will enable us to switch services at zero or little cost. If you are an influencer on Instagram, data portability means that you can take your followers, likes, comments, and contents to go. Data portability technology will allow you to switch to another platform within a few clicks.


Cutting off the middle players (Marketplace)


We all know about the gig economy and e-commerce. These sectors have been goldmines for venture investors and will continue to be. But what's so unique about them? Let's talk about the gig economy first. Uber and Doordash are among one of the thousands of on-demand apps on the market, and yet VCs are still actively looking for the next Uber or the next Lyft.


Traditionally, in NYC, cab drivers are required to have city-issued licenses, also known as medallions. Some drivers own their medallions. But due to the high prices on medallions, more than $1 million each, drivers often lease it from companies that operate fleets of taxis and left with extremely thin margins on taxi fares. Drivers have no incentives to lower the price and provide better customer experiences, which ultimately causes consumers to suffer. Taxi companies became the sole beneficiary of the ecosystem until Uber.


Uber

Another good example is Doordash. Doordash opened the doors to operators with low capital to open their unique remote restaurants that can reach millions of people through smart devices. Franchise business models are no longer the only option for people who want to start their businesses with limited money in which franchisors markup and control the prices of raw material. Eventually, the high raw material price and countless of limitations on what franchisees can do eat into franchisees' profit margins. Franchisors have no incentive to lower the cost because money is coming in regardless. Doordash allows those small-cap operators to set their own price, sell anything they want to, and market to more people.


The biggest reason that VCs are obsessed with marketplaces now is that it creates a business model with lots of hubs and spokes connected with each other. This is called Network effect as you might know this term.


By increasing users on the supply and demand sides, you can effectively boost the value provided by the network exponentially. One thing that founders need to be cautious about is that the network effect essentially is silenced if all the spokes are only pointing back to the same hub.


My take


There are many other emerging industries, and I pick two spaces that have the most potential and share them with you guys. However, if I have to pick one from these fantastic industries, I would say the data sector is the most underrated and most bullish. I think it's crucial to make decisions with the analytic approach and quality data, whether in life or business and yet, very few people are actually doing it. Indexing every action you take is indeed how you can build a world-class startup.



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