Themes vs Verticals: How to Stand Out as a VC Building a Thesis

There are more active VCs alive today than have ever existed in the history of modern human existence—and that dates back 300,000 years!

That means a lot of competition for the best deals and more difficulty in standing out. Add on the fact that some people theorize that the need for venture capital dollars will peak, or potentially already has, and then decline because of the ever-decreasing cost of technology infrastructure as well as the increasing capability of AI to replace expensive humans.

If we ever do get to the one-person unicorn, that’s going to be a lot of people trying to beat out Sequoia and Benchmark to fund its solitary round—a $2mm seed that it never looks back from for additional capital.

That would probably signal the end of the asset class. Until then, venture investors—GPs, Principals and junior professionals alike—have a lot of lanes to carve out to try to differentiate from each other.

Then, they need to figure out a way to project that brand up above the venture community, like a Bat signal calling for the best founders to come and pitch them.

Articulation of a focus area accomplishes a few critical things for an investor:

• Inbound content marketing for deal flow—because you want your brand to get you on a founder’s list of smart people to talk to, especially if you don’t think the brand of your firm and your position within that firm will guarantee you all the best deals.

• A focus and filter for networking—because otherwise, you’ll find that you could wind up in a meeting with anyone for any reason because any connection could theoretically lead to a future deal.

• It signals expertise—because the best founders like talking to someone they don’t have to explain remedial things to, let alone someone who at least has an interest in what they’re doing.

The question is what to focus on. This is something I talk about a lot with my VC coaching clients.

Ideally, you’re focusing on something that you believe has the potential for big future returns, but somehow isn’t the same thing that everyone else is focused on. Sectors don’t do a very good job of the latter. There are only so many sectors of a certain size and they’re widely known and accessible to everyone. There isn’t some secret $10 billion space in the market that only a small handful of investors is going to know about.

What if you could draw that same-sized opportunity around a different set of criteria—not a vertical, but a theme that affects multiple verticals?

When Roger Ehrenberg set out to professionalize his angel investing into a fund, he used “Data” as the theme. Data wasn’t a sector. He wasn’t only investing in businesses that sold data. His thesis would be that companies could leverage data as an advantage—and that might play out in various ways across a lot of different industries. He invested in lots of different areas, including Fintech, Adtech, and Proptech as well—verticals especially pervasive in NYC that were all going to get affected by the changing way in which we use data.

What was great about data as a theme was that it was differentiated at the time—I’ll bet he saw just about every deal that had anything to do with data whatsoever because data centric founders thought of IA first—but it also wasn’t limiting. You could drive a truck through the wide lane that focusing on data would allow you to do. Especially early on, that’s ideal. Over time, you might narrow your focus areas given that certain business structures or sub-sectors are more lucrative than others, but to start, you want to be able to look at as much as possible, where you’re the goto person for it all.

Themes can include changing demographics—like the aging of a population, the rise of women in the workplace—or changing behavoirs, like remote work. Remote work would allow you to invest in both a network of co-working spaces built within restaurants as well as a payments platform that allows for easy workforce payments across multiple countries.

It could mean focusing on combating lonliness, which could be a proptech focus and a social networking play.

What about the urbanization of everywhere—where you try to bring mobility plays outside of cities, but that you also leverage various marketplace models that work in cities outside of them, like what Doordash did.

Whatever your theme is, it has to be simple, easy to understand, but something that others can get excited that you’re working on. I’ll talk more about the way that you can lead a parade around a theme again in the future.