Seeing the Invisible Market

Colourless Forest Nature Trees Fog Forest PathIt’s the last day of 2018 and it’s tempting to write a wrap-up post.  I will not, particularly because it has been an embarrassing year for this blog.  Let’s see how 2019 turns out in terms of blog productivity.

Instead, I’ll write about a sentence I saw in @fredwilson’s post this morning about their experience in trying to gauge Airbnb’s market opportunity:

We made the classic mistake that all investors make. We focused too much on what they were doing at the time and not enough on what they could do, would do, and did do.

As early-stage investors in technology companies, we find it a constant challenge to extrapolate the market power a startup will have once it achieves its goals.  Those goals are usually super ambitious, to begin with.  To evaluate the second order opportunities past the obvious goals is difficult.  However, some of the biggest historic returns in VC have been the result of new markets that opened up once a venture succeeds in its initial plans.

My tool for dealing with this challenge is evaluating the first market, but weighting the market size factor lighter than we used to.  We are probably less likely to decline an opportunity purely due to market size.

Every day is a school day.  Happy 2019!


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