Friday, August 22, 2008

The Next Big Thing is?

Giant secular change. That is what Wall Street pays strict attention to, particulary when it comes to evaluating IPO candidates. In my investment career, I have seen a few of these. The eras of biotechnology, Internet, alternative fuels, commodity inflation are some of the big ones. I mention this because I routinely am presented with business plans for perfectly good companies. And yet, my firm, Clearstone Venture Partners, regularly passes on these 'perfectly good' businesses? Why? Because we are looking for the kind of businesses that are tapping into a giant secular trend that will provide substantial growth and earnnings power.

These opportunities don't come along very often. And when they do, it is easy to miss them. I have been a VC for a long time, and I can tell you that the fantastic business ideas do not come with a bright ribbon on them saying "Please open, this is the next Google, Microsoft, Paypal, ect". To see the hidden value of a business, particulary an early stage one, an investor must have a view of the mega trends unfolding in the world. How is the business under consideration positioned to take advantage of whatever large trend it is playing to? Entrepreneurs would do well to think through this concept before meeting with investors.

2 comments:

Adriana said...

I liked your view. But do you think all the investors seriously "have a view of the mega trends unfolding in the world". Putting the entire Internet indexed in a Computer did not sound so good if email works just fine...
I would be interested to know how you get the info, "Temperature", and trends with so many data around. Thx for your thoughts anyway. Adriana Freitas

William Q said...

Adriana, tracking trends and figuring out which ones will be winners for venture capital backed companies is one of the more difficult aspects of my job. As to where I acquire my perspective on emerging mega trends, frankly, it comes from watching TV, listening to the radio and doing lots and lots of reading. Most bankable trends, at least from a VC perspective, don't have a label on them. It takes insight - sometimes brilliant insight to spot a massive new market opportunity when it is early. I try to keep my mind open to new ideas and of course listen to entrepreneurs to help fine tune where the right spaces are to be making investments.