Startup Spaces That Make Sense

One of the amazing perks of working in venture capital is the sheer number of intriguing ideas that pass across your desk.  Some smaller VCs may vet as few as a hundred deals a year while larger VCs can look through upwards of 5,000.   Speaking of which – ever wonder why your cold e-mail didn’t get a warm and lengthy reply? Don’t take it personally.

Over the past couple of months, I’ve started to categorize a large number of the startup trends we see into big buckets.  In this article, I’m going to outline the three major buckets, and why I’m personally a fan of all three.  I will then warn all you entrepreneurs out there that in my view these represent the low-hanging fruit of the current startup environment, which means that barriers to entry are low and VCs will be expecting you to really bring something extraordinarily differentiated to the table to make your company special.

Peer-to-Peer Marketplaces

I call it the AirbNb effect, but it basically goes like this: we all have a lot of material objects.  We also have a lot of interests.  We may even have other assets like our job experiences that we want to monetize.

This effect also has another name: “take under-monetized Craigslist verticals and turn them into blockbuster companies.”

Remember the “crafts for sale” link on Craigslist?  Think Etsy.  Autotrader stole the luster of their “cars for sale” page.  TaskRabbit has run off with their services section, HomeAway with vacation rentals, and the list goes on and on.

This is where we see a lot of companies.  And it’s great because these are large, potentially billion dollar marketplaces.  Unfortunately, the only proprietary element is critical mass.  This means that we see a lot of companies that say, “we’ve built a marketplace that allows people to monetize X,”  which is cool – but: how do you get there, who are your evangelists, and how do you compete with the two dozen other firms who can also get it built for $150k?  These are the questions you need to be able to answer. In a two sided marketplace, VCs want to see your growth plan, not a product demo.

A slight twist on this model is the hybrid sales marketplace.   In Chicago, good examples of this would be ParkWhiz or SpotHero who have put in considerable effort signing up parking lot operators.  GrubHub is a blockbuster example, and I’m personally an investor in Furnishly, which deviates from a true P2P marketplace by also offering exclusive content from local consignment shops which you can’t find elsewhere.

On-Demand Services:

I’ll keep this one easy, too. I call it the “Uber effect.”

I am finally starting to see this category pop (understandable as it’s been ~18 months since Uber started to take off).It’s basically an idea that nearly all localized services – whether hailing a taxi, getting a car towed, finding a locksmith, or having your computer repaired – should be geo-targeted and on-demand.

The concept makes a lot of sense.  As a consumer, all one truly cares about is: (a) what are my options nearby, (b) how quickly can they get here, and (c) how I can ensure they’re reliable.

Uber’s solution answers all these questions – a real-time geo-locational feedback tool which lets you know the closest driver, expected wait time, and that drivers’ crowdsourced rating.  These same tenets can and will be scaled to new verticals, and I am actively on the lookout for them.  Lyft & Sidecar, based on the West Coast, are using similar tools to build the ride-sharing market.  Mobile adoption has finally scaled to the point where critical mass is possible and where merchant adoption is both sensible and low-cost/low-risk for them.

This is a more complicated niche than peer-to-peer marketplaces, as these companies require a high level of selling and some degree of technological innovation/behavioral shifts.  I do believe that a great company will be built around on-demand, geo-located car repair, for example. I simply haven’t seen it yet.

Digitizing Legacy Communication Systems

A somewhat harder category to describe, but it’s basically the art of taking traditional scheduling/management systems and digitizing them to improve communication and efficiency.

At a high level, think of CRMs such as recently IPO’d Workday or Chicago-based Future Simple.

On a more micro level, consider the communication difficulties many industries face – for example medical professionals with their patients or non-profits with their volunteers.  Yammer was developed to solve inter-office communication.  Many industries have complex communication needs – think legal services with a variety of clients or partners on each deal.  Or financial services that need to seamlessly toggle between clients, executives at companies, analysts, etc.

Industries need great tools for planning, communicating and executing.  If you’re currently building one, or are developing a biz in either of the prior two categories, I’d love to hear from you.

But heed my warning: the question isn’t so much about what your product does, but what makes you special.  And don’t confuse being special with exclusive features.  Features can be copied easily.  What makes your biz special is your plan for growth, visionary outlook, and deep experience in an industry which convinces potential users that you deeply understand how both merchants and consumers think.

About the author

Ezra Galston
Ezra Galston

Consumer focused hustling @Chicago Ventures, Young Entrepreneur @Foundation Capital, Class 18 @Kauffman Fellow, and Chicago Booth MBA. Former professional poker player, with 4 years experience doing marketing/biz dev in the online gaming industry. Launched a "poker hedge fund" in 2011, a record label in College, and produced a festival screened short film in 2006.

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