What’s More Investable?
The debate rages on without ceasing. Which one is the better investment opportunity… a crazy idea with huge potential that creates a whole new category or a “better mousetrap” idea that has high potential, but is in an existing market that is already proven? Investor responses will undoubtedly vary, based on their individual track record.
Here in the Southeast, and probably in many other places, one of the first objections raised to startup companies pitching investors is that of market size. Investors are notorious for not believing the market size projected by entrepreneurs, just as entrepreneurs are notorious for overestimating their market size.
While pitches are rejected for many reasons, often times investors turn down opportunities because the market size simply isn’t large enough. Of course there are plenty of instances where this decision makes sense. However, we believe that in many cases, market size simply doesn’t matter, especially when it comes to genius ideas that seem a bit crazy in the beginning..
Think about the huge wins of our time and times past. Uber is basically renting out your private car (crazy idea). Twitch is watching a live stream of people playing video games (crazy idea). Air B-n-B is renting out a room in your house (crazy idea). Snap features messages that disappear (crazy idea). Bitcoin, digital, trustless, & anonymous asset transfer are all examples of ideas that opened up a new category (a.k.a. crazy ideas).
Certainly money remains to be made with many non-crazy, traditional ideas. However, as an investor, I believe the most investible ideas are the ones that move the needle for us as a society. These crazy ideas are the ones that make no sense to people on the surface. These are the ideas that are so asinine, that only a select crazy group of people can actually execute them These are the ideas that people laugh at in the beginning and cry about missing when they come to fruition. These are the ideas that excite us and here’s why:
- New Markets — Crazy ideas open up new markets where none existed before. New markets provide new opportunities to new people.
- New Jobs — Because of the new markets opened by crazy ideas, an incredible amount of new jobs are created. Uber drivers, Uber fleet owners, Uber rental companies, Uber food delivery, etc. While it’s easy to attribute all job gains directly to the new market there are usually about 3x as many ancillary jobs created from a new market being opened up.
- Wealth Creation — New markets and new jobs mean one thing: wealth creation. Any time you can give people the power to create wealth on their terms, via your platform, you have built something revolutionary.
- Advancing Society — Finally, it’s the crazy ideas that move us ahead, like electricity, automobiles, and space exploration. Piping natural gas into your home was crazy, the Hyperloop is crazy, and space elevators are crazy. In the end, these are the ideas make life better for everyone.
We investors can sit around & talk about the need for large fully developed markets, but that misses the point of technology. Technology can certainly be used very effectively to serve the already existing large markets, but the real power and the real change lies in the unseen, untapped and un-tough of market. Next time you’re sitting in a meeting realizing there is no current market for what this entrepreneur is selling, stop and ask yourself if they are crazy enough to build this market from scratch or if they are just out of their minds. It’s possible that their insane idea just might work. It’s also possible that there’s a little crazy in them as well. However, as the old Seal song goes, we’re never going to survive unless we get a little crazy