The 2010s was the decade of the Entrepreneur. The 2020s will be the decade of the Investor.
“No sector will ever be so important that merely participating in it will be enough to build a great company”
Peter Thiel
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Sector focus?
When I tell people that I do some PAYG1 angel investing a common question is, “What sector do you invest in?”
While it’s a fair question — some investors only invest in certain sectors — I’ve often struggled to come up with a good answer.
“Oh, no sector in particular” I say.
A smart way of saying that is, “I’m sector agnostic”, which I’ve never really liked either.
“I invest in companies I can understand and can help” is a bit better and I still come out with that one. But even that’s not ideal because, as I wrote here, the best startups are perhaps the ones I can’t help at all.
I’d like to come up with a better answer but I still don’t want to name any sectors in the traditional way. And I don’t want to be a ‘Current Thing’ investor saying I just invest in AI or web3, because I think that before too long that’ll sound as daft as saying I invest in internet startups that have websites.
So, what shall I say?
Well, here’s where I got to on the types of startups I want to invest in2.
The startup must be, or show the potential of being, a Star Business. That means it has a high market share in a market segment (that could initially be small and niche) that’s growing fast.
The startup must have a strong use for AI or already be using it. As AI in startups will soon become as normal as having a website or using electricity this is more to filter out the startup founders that don’t have an eye on what’s going on with AI.
Additionally it must have the potential for huge returns (at least 100x) and make our world better.
But what about the sector?
I still don’t want to. The closest I’ve got is that I want the business to be building a new standard3. A new standard filters out the founders who want to make something a bit better in an already large market.
Oh, and the ‘sector’? OK, OK, if I must… For me these Star Founders must be running Star (or Potential Star) Businesses in and around the future of finance, health, the environment, society and work. It’s a bit long-winded but I could also say which sectors I don’t invest in and that’s easier as it’s all the things I really don’t know about, can’t help and can’t do due diligence on, and not only that, if I saw someone else’s due diligence I wouldn’t be able to judge whether it was any good or not. That means anything too medical, manufacturing, food & beverages or anything where the brand is the most important factor.
What could people ask instead?
As you can tell, I've never been keen on the “What sector?” question. Maybe that’s because I think it's a standard and quite lazy conversation starter or maybe it’s because I haven't thought of a better answer but think I should have done.
However, I think the best reason is that that question obfuscates other more important questions — I can’t pretend that I was looking at the geocoding sector when what3words came along, but when it did I immediately knew they could be onto something big.
Below I’ll get into what those more important questions might be…
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