The core part of our website is our Blog, The reason is that we feel the environment is too volatile for a fixed investment thesis. Therefore we suggest that our thesis evolve in a dialogue with the market and it makes more sense for us to publish the conversation. Over the past year we have realized that some of the characteristics we look for in an investment opportunity have remained constant even as the market has continued to evolve. We though, would list those characteristics on separate posts in our blog with an eye to reexamining them. The first constant is our focus: INFORMATION TECHNOLOGY ENABLED SERVICES We invest in information technology. We do not invest in energy, biotech, materials science, or nanotechnology. Information technology is the world we know. We believe that when it comes to start up investing, success is dependent on understanding the forces shaping a developing market more than knowing the trade of investing. That conviction keeps us close to the markets we know best. Within the broad category of information technology, our current focus is on IT enabled services. We focus on IT enabled services because we believe that commoditized (cheap) IT infrastructure and ubiquitous connectivity have only begun to disrupt large markets like media, entertainment, marketing, information services, and financial services. Where there is disruption there is opportunity for start ups. We also believe that as the technology industry matures, it becomes more difficult to build value in a business that sells technology directly to others. By comparison, information technology enabled services are more capital efficient and can, if they have a compelling value proposition and/or a great search engine optimization strategy, avoid the tax of a distribution partner by reaching customers directly over the web. Finally, because the market for IT enabled services is still in its infancy, the business models are not well understood, and therefore the economics of financing these businesses have not been codified. By contrast, the model for financing core technology companies is so well understood (and so stable) that text books have been written about it. This means that more capital tends to compete for deals that fit that model bidding up valuations especially in comparison with early stage IT enabled services deals. We focus on IT enabled services because,
1. it is a market we know
2. the market is still in its infancy
3. there is less competition
Thoughtful people have questioned the attractiveness of IT enabled services as an investment opportunity because of concerns about the size of the opportunity and the defensibility of new services. These are legitimate concerns. We will describe how we try to identify scalable and defensible businesses in a couple of posts.