There are big, overarching top-down trends, and there are little baby trends that have a way of growing into bigger ones. For example, a big trend right now is that certain companies have handed out huge checks to startup founders in recent years, driving valuations sky-high. As it turns out, this strategy isn’t working as well as they expected, and some of these same companies are now breaking up with some of their partners and questioning their own investors for much less capital.
Another big trend? Venture firms investing more aggressively in publicly traded companies, given that many have seen their share prices fall during the downturn. (We started seeing this trend in January and the WSJ notes that this is only get on steam.)
Here’s a new baby trend that’s interesting: new companies that are so niche that at first glance it’s easy to laugh off their focus.
A venture firm that focuses solely on oral care and not something, um, a little broader? A company focused on technology that can help detect and control wildfires? (No way.) How about a venture firm dedicated solely to supporting and building psychedelic businesses?
Coincidentally, these outfits exist, and two out of three of them announced modest debut funds this week, while the third suggests it’s on track to do the same. Together they form a picture of what the industry could potentially look like over time.
Let’s take the first company, which focuses only on oral health. called Respect Partners, the New York-based outfit — which, by the way, includes Mark Zuckerberg’s dentist father among its partners — still appears to be raising funds. (In a press release issued in late September, it was announced that the “launch” his fund, which is the code for: we don’t precisely have another fund.)
In this case, you could imagine that many wealthy dentists are pooling their money to invest in technologies that they know can revolutionize their industry. That could well be what’s happening. But give credit where necessary. Dental care is a huge market that is growing with the average age of the world rises. It is expected to exceed $230 billion by the end of next year, according to the Office of the Actuary of the U.S. Centers for Medicare and Medicaid Services.
Meanwhile, there are many startup opportunities in the business – and not many breakthrough winners yet. (Think dental insurance, direct-to-consumer subscription products, telehealth services, private clinics, mobile dentistry, dental implant surgery companies, the list goes on.)
Or let’s take another niche fund, which focuses on wildfire technologies, convective capital. My first thought when I read about this was: forest fires? Really? I happen to live in Northern California where wildfires are a constant and very terrifying threat. It just seemed. . . very specific.
I wasn’t the only one with my skepticism. Founder Bill Clerico — who previously founded fintech company WePay and sold it to JPMorgan Chase — told londonbusinessblog.com earlier this week that the company’s stance was more polarizing than Clerico had anticipated, with some investors immediately understanding his pitch, while others thought. that focusing on wildfires too much was narrow. But he managed to raise $35 million in capital commitments for a debut fund and it’s easy to see why. Extreme heat and dry conditions have started fueling wildfires around the world, there aren’t enough firefighters (or technicians) to control these fires, and, as Clerico points out, companies working on wildfire solutions offer an easier investment opportunity. than climate technology intended to address oncoming problems.
Furthermore, the thesis Convective gives more leeway than would initially be thought. For example, one of the first portfolio companies is: story, a four-year-old Amsterdam-based startup that uses AI and satellite imagery to optimize vegetation management for its utility customers. (It brought a seed round late last year.)
As for the psychedelics company, it’s two years old, based in New York and Chicago Palo Santoa venture outfit focused solely on supporting and building emerging psychedelic therapeutics companies that just today completed the completion of a $50 million debut fund.
In the grand scheme of things, $50 million may not be too much to pour into an area that has taken a long time fascinated investors and founders. According to Crunchbase Newspsychedelics-related startups — mostly therapeutic companies — raised more than $236 million between July 2021 and July 2022, compared to the $96 million they raised between July 2020 and July 2021.
While most of those bets come from funds investing in other therapies or technologies, there’s reason to think that over time it could become a focus in its own right. Two psychedelics companies have already gone public: Compass Pathways and MindMed. Some of the industry’s brightest VCs pumping money into the industry, including early Compass investor Peter Thiel and SpaceX board member Steve Jurvetson (who told Bloomberg last year he decided to divide his own estate by giving about half of his assets to fund psychedelic science!). There is also a lot of excitement at the moment, particularly about the potential for MDMA, known recreationally as Molly or Ecstasy, as a treatment for severe PTSD or post-traumatic stress disorder. next year.
Either way, I get the sense that the possibilities for similar structured funds are limitless and they can be a new entry point for existing and new VCs with a unique specialty or perspective. (The venture industry is becoming more and more atomized by the year, thanks to special vehicles and rolling funds and a host of other ways for people to start their own businesses.)
As the major funds have grown in size in recent years, covering every stage and sector – even in public companies – it seems logical that one of the only ways to compete with them for the founders’ attention is to create the exact opposite. .
Last but not least, this is the kind of product that institutional investors might also welcome over time.
They have done well in recent years by pumping their capital into large venture capital firms. But those controls have been halted for now, and many institutions have overlapping interests in companies that seem overvalued. Writing some checks to smaller, specialized companies can be one way to make sure this doesn’t happen again. Stranger Things has happened.