What type of market are you operating in?

When we look at investment opportunities, we need to consider the type of market that the potential investment is in. How much room is there for a market leader or leaders? Is it winner-takes-it-all or winner-takes-almost-all? Is there room for multiple potential winners?

Winner takes all

These markets are driven by network effects and only one company will win in the space. Examples of these winners include eBay (auctions), LinkedIn (professional networking), and YouTube (video). When these markets first emerged on the scene, there were dozens, if not hundreds, of companies vying for market share. Yet, only one dominant product survived.

Winner takes almost all

This market trend is happening across the enterprise where adoption is driven by end users, and not dictated from above by IT departments. In this case, a company or tool can emerge as a clear category leader, as word of mouth among satisfied users accelerates adoption across colleagues, departments, and companies. As a result, the tool can grab a large market share in a certain market segment or vertical. Think Mailchimp, Dropbox, Hightail or Unbounce for horizontal solutions or Clio, Jobber or Frontdesk for vertical products (disclosure some of those are portfolio companies). In particular, we see a winner takes almost all dynamic happening in vertical SaaS plays where word of mouth can quickly travel within one industry. For example, lawyers from different firms may work on the same case and spread exposure of favorite tools.

Multiple winners

When markets are not subject to network effects (or there’s minimal network effects/word of mouth), multiple winners can emerge. Today this type of market is mainly in commerce and enterprise IT.

The bottom line

As an entrepreneur, you need to understand what kind of market you are in order to create effective growth and fundraising strategies:

  • Growth strategy: Let’s say you end up being #2 in your market. While second place might be an enviable position for some, it’s essentially worthless in a winner-takes-all market. For this reason, you’ll need to be as aggressive as possible in the first few months after a category emerges to try to lock in the top spot before it’s too late. On the other hand, such an aggressive tactic doesn’t make sense in an e-commerce environment where there can be multiple winners. In this situation, you’re better off adopting a more conservative approach and ensuring you’ve reached product-market fit and nailed unit economics before accelerating.
  • Fundraising strategy: You’ll need to understand your market’s dynamics to know how much money to raise and how quickly. For example, in a winner-takes-all or winner-take-almost-all market, there’s a window to aggressively fundraise while the category is still open. However, once a category leader emerges, it will be hard to attract investors.

Of course, all of this is made even more complicated by the fact that it’s not always clear what the exact category is. For example, do Lyft, Sidecar, Hailo, and Uber all belong to the same transportation category or do they each define their own category? As an entrepreneur or investor, you’ll need to analyze the market and its current players to know how much room (if any) is left.

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Introducing our latest investment: Mattermark – Big Data Comes to VC

Image representing Mattermark as depicted in C...

Image via CrunchBase

Look across virtually any industry and you’ll see great examples where traditional spaces are being disrupted by software, access to data, and massive online communities. The net effect is powerful: it empowers all of us (no matter who we are or where we are) to learn more quickly, make better decisions, and operate more efficiently.

Thus, it should come as no surprise that we are now seeing Venture Capital being disrupted by these forces as well.

In the past (aka 1990’s), very little content on start-ups and VCs was publicly available. The fundraising process was closed and privileged: it all boiled down to who you knew offline. In his post The Disruption of Venture Capital, Albert Wenger described VC as “the club you had to be invited into.”

Today, the boom of information (i.e. start-up databases/networks like CrunchBase and AngelList) has led to unparalleled access to investment capital as more seed funds, angels, and syndicates emerge on the scene. People who are not traditionally in VC can now invest in startups with a higher comfort level, because CrunchBase and AngelList have made data on thousands of start-ups publicly available. In just a few clicks, you can find everything from the company’s tagline to information on founders and investors, number of employees, funding rounds, etc.

However, while we may be shifting from a closed system to a more transparent (and hopefully merit-based) environment, there’s a lot of noise being created along the way. Business data on start-ups, VCs, PE, financial markets, sales and marketing is being created at an alarming rate. Yet, most of this data is fragmented and inconsistent – making it difficult for decision-makers to leverage the information.

So, how can we use all this data to make better decisions? Or more specifically, how can we as investors better identify and find those start-ups that are primed for success?

Enter Mattermark: where “Big Data Meets Venture Capital”

Mattermark is a web-based platform that helps VCs weed through the vast amounts of data to identify potential investment opportunities and track existing start-ups and private companies. The product collects, cleans, and curates data from news sites, SEC filings, Twitter, LinkedIn, Facebook, AngelList, CrunchBase, and more. It offers custom reports, real-time updates, specific filtering, and easy organization of start-ups based on stage, vertical, geography, and Mattermark score (a proprietary index that measures momentum).

Mattermark was launched in the Fall 2013 and is led by Danielle Morrill, Kevin Morrill, and Andy Sparks. The team are alumni of Y Combinator S12 as well as Batch 5 of 500 Startups in 2012. You can read about the company’s background on VentureBeat and TechCrunch.

Why we’re excited

The Version One portfolio is full of examples where software/online platforms are disrupting specific verticals – from Top Hat (education) to Upverter (hardware development), Figure 1 (healthcare), Jobber (field service), and Clio (legal). But, Mattermark is disrupting our own industry and giving us the tools to do our job more efficiently.

For starters, Mattermark allows us to be more proactive. Like with most VCs, our inbound leads come from our network. While we greatly appreciate these introductions from fellow VCs and entrepreneurs (who are great curators in their own right), inbound leads are inherently reactive. We’re relying on others to send what they think are the right opportunities for us.

But with Mattermark, we can now leverage the vast amounts of publicly available data to identify the rising stars and compare them to other companies in their vertical. Mattermark is never going to replace our own network, relationships, and gut, but it does make us much more efficient in sourcing and researching opportunities. We’re now able to generate more outbound leads.

Danielle Morrill has said that Mattermark’s goal is to create a company that is the equivalent of Bloomberg for start-ups and Venture Capital – providing investors with the tools to discover, research, and track start-ups. We’re excited for the possibilities.

To learn more about Mattermark, visit http://www.mattermark.com or follow @mattermark on Twitter.

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The future of education: the distributed school and customized learning

Ever since my friend Albert and his wife Susan have started to homeschool their kids, I have been thinking about the best ways to make custom learning more accessible to kids, families, and adults alike.

Albert and Susan have taken an innovative approach to homeschooling (if interested, you can read more about their experiences here).  They recently devised the idea to hire individual guides for each of their three children. Part concierge, part program manager and part learning specialist, these guides are responsible for creating a learning program tailored to each child.

Guides need to explore the child’s specific areas of interest (which means finding and coordinating time with skilled experts and arranging field trips), as well as building the child’s basic skills in reading, writing, presenting, researching, and analyzing in pursuit of their interests. In this way, the guide doesn’t necessarily have to have specific expertise in the child’s areas of interest, but they need to be able to coordinate access to the right tutors, experts, and resources. This goal is to give each child a fully customized education that encourages them to grow and learn by pursuing the topics that mean something to them.

Running this level of a homeschooling program is no easy feat. Parents need to find and select the right guides; the guides need to coordinate the right tutors and experts for each child. On an individual level, it can be extremely costly and time-intensive. But what if there were a distributed school that followed the same principles? For example, a school or learning platform that gave parents easy access to available guides and tutors for their kids to create a custom education.

This school could be tied to a physical space, although it’s not necessary. It would be a mix of online and offline teaching. It could offer existing courses from other institutions if there was a fit. And to make the program more affordable, a guide could be shared by 3-4 kids, and specialized tutors could be shared as well.

The prospect of such a custom learning experience makes me very excited and I hope that somebody will build a distributed school soon. Our family would be one of the first customers.

 

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Announcing our latest investment: Clio

At version one, we are big believers in the vertical SaaS opportunity. Small to mid-sized businesses have long been underusing technology. A mobile-first approach, combined with a laser-like focus on a specific vertical, can create the right toolset to help SMBs achieve huge productivity gains (I wrote about this nearly a year ago for TechCrunch).

That’s why I’m excited to announce our new investment. Clio is the leader in providing legal practice management software in the cloud. 80 percent of the legal market is made up of solo practitioners and small firms. These professionals have little support staff and no IT department…meaning they’re typically overwhelmed with all the administrative parts of their business.  That’s where Clio comes in. They’ve moved all of practice management to the cloud, including time tracking, invoicing, case management, client contact, etc.

Over the past two years, I’ve been sitting on Clio’s board for ActonCapital (who led Clio’s Series B). Over that time, I’ve been incredibly impressed with the ambition of the two founders, Jack Newton and Rian Gauvreau, as well as their amazing customer and product focus. While the legal industry has been slower to keep pace with technological advancements, it’s definitely ripe for disruption – and smaller firms are quicker to adopt new tools than larger ones. Clio now joins fellow vertical SaaS companies in the V1 portfolio, including Front Desk (scheduling/client management) and Jobber (field service).

Leading this round is Bessemer Venture Partners, with Trevor Oeschlig and Brian Feinstein joining Clio’s board. I’ll be remaining on Clio’s board for Acton and am looking forward to helping Jack and Rian build an even more impressive company and product.

Please join me in officially welcoming Jack, Rian, and their entire team to the version one community.

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New investment: Upverter, a cloud-based platform for the hardware revolution

Image representing Upverter as depicted in Cru...

Image via CrunchBase

Over the past few years, numerous innovations (Arduino, Raspberry Pi) have made it easier for anyone to develop hardware. Faster prototyping and cheaper manufacturing are empowering a new generation of hardware experts to gain hold in an industry once ruled by large corporations.

We are at the beginning of a new hardware revolution, and at Version One, we believe that platforms are key to accelerating this revolution by commoditizing and simplifying all the steps needed to take a product from prototype to mass production (Boris wrote about this topic earlier this year for GigaOm).

In the design phase, we believe that hardware engineering will follow a similar path as the open source software community that built GitHub. A platform that combines collaboration and data-sharing with a massive public repository and cloud-based design, is not only necessary as engineers continue to design more complex physical things, but it’s also inevitable.

That’s why we are thrilled to officially announce our investment in Toronto’s Upverter, a cloud-based platform for sharing hardware design. Specifically, Upverter is a collaborative schematic capture and printed circuit board layout platform that lives entirely in the cloud and is aimed at companies, hobbyists, students, and the open source hardware community.

A good analogy for Upverter is “GitHub for hardware,” as hundreds of thousands of hours of engineering design are stored in, worked on, and discoverable through Upverter making it easier for individuals and teams to design better hardware, faster. Intel, ARM, Oracle, Facebook, Quirky, and Texas Instruments are all on the platform.

Founded in 2010, Upverter is led by Zak Homuth, Michael Woodworth and Stephen Hamer, who met at the University of Waterloo and are also alumni of the Winter 2011 Y Combinator batch.

Version One is co-leading this investment with Golden Venture Partners, and joined by several angel investors. We are really excited to be a part of Upverter’s growth going forward as they help millions of makers, hardware engineers, and entrepreneurs launch their companies and fuel the radical innovations of tomorrow.

 To learn more about Upverter, visit https://upverter.com/ or follow @upverter on Twitter.

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