What Is “Thematic Investing?”
Now that we are up and running and making new investments, one of the questions we are often asked is “what types of companies do you guys like to invest in?” That is usually followed up with “what sectors do you find interesting?”
The easy question to answer is the first; we like to invest in seed and early-stage information technology companies in the United States and Canada. The harder question is the one about which sectors we invest in. We like to call ourselves “thematic investors,” which as an answer to the sector question is usually met with “huh?” Let us explain.
We view the traditional sector approach as a vertically focused and somewhat stove-piped view of the technology landscape. Common sectors include storage, semiconductors, enterprise software, consumer Internet, communications equipment, etc. While we think this is a perfectly reasonable way to segment the technology universe as a means of ensuring portfolio diversification (or specialization), it is perhaps more appropriate for larger funds with larger teams playing across a broader spectrum of technologies, markets, and company stages.
Because we confine ourselves to the software/Internet/IT “sandbox” when we consider new investment opportunities and because we are technologists ourselves at heart and are each comfortable within this chosen sandbox, we instead use a thematic lens to evaluate the companies and technologies we encounter.
Our themes tend to be horizontal in nature and are often based on an underlying protocol, standard, or market trend that we believe is on the cusp of widespread adoption that has the potential to drive a cycle of innovation and company creation for at least a ten year period. We try to focus on themes and their underlying technologies that are ready to be rolled out to consumers or the enterprise and are well beyond the science-experiment phase.
To make this concrete, some examples of themes we are excited about presently and historically include Protocol (which encompasses SMTP, RSS, XML, and other underlying technologies that power web services), Distribution (leveraging the power of other networks – including the web itself – to scale a product), and Adhesive (AdTech related companies that provide the glue for the overall AdTech ecosystem). You can see a full list of our current themes with a description of each on our Themes page.
Because themes are inherently horizontal, they have often have applications in the consumer and enterprise markets and can be delivered in myriad ways, whether it is via a web site, SaaS, a gadget, an appliance or good old-fashioned downloadable client or server software.
We usually have half a dozen or so themes active at any one time and are constantly looking for new ones. We seek to invest early in the lifecycle of a theme, and often make multiple investments early-on to provide ourselves with a broad perspective on the market dynamics as the theme develops, and to provide our companies with the opportunity to collaborate and learn from one-another as they actively shape and create their new market space.
We will continue to blog in detail about our active themes and will take you through the details of how we think about specific themes, past, present and future. Stay tuned.
And before you ask “do you ONLY invest in companies that fit neatly into one of your themes?” the answer is no. While most of our investment fit into one of our themes, we are looking first and foremost to find great companies and great teams to invest in, and we will not pass on a fantastic opportunity just because it isn’t easily categorized into one of our thematic buckets. In fact, we’d love it if you opened our minds to a brand new theme.