Thinking about themes

Gil Dibner

Partner, DFJ Esprit LLP

@gdibner | gil.dibner@dfjesprit.com | www.dfjesprit.com

http://yankeesabralimey.tumblr.com/

What is a VC investment theme?

• A unifying idea that underlies the investment thesis for multiple potential investments

• Each theme arises from a set of “drivers”

• Theme gives rise to a set of “opportunities” – a sub-grouping of potential investments

• Broad enough to capture a meaningful portion of an individual’s/firm’s activities (perhaps 5%-30% at any given time)

• Narrow enough to serve as effective filters and hang together tightly as an area of expertise

• One investment may reflect multiple themes

Drivers(eg. proliferation of

smartphones)

Themes(enterprise mobility)

Opportunities(BYOD management,

app mobilization)

Investments(MobileSpaces,

Enterproid)

How would we (loosely) score a theme?

Category of

assessment

Individual

investment criteria

Theme assessment

criteria Examples

PeopleExisting team’s abilities to execute?

Ability to recruit necessary talent?

How difficult is it to recruit talent

within this thematic area?

Experienced data scientists are

expensive and difficult to find.

TechnologyTechnological barriers to entry?

Technological significance?

Roadmap development risk?

How significant is technology to

customers and acquirers in this

area?

Technological factors are significant

value drivers for database

customers and acquirers.

Market potential How big is the specific opportunity?How big is the aggregate set of

opportunities within the theme?

The financial sector is a major

component of GDP that has not

been sufficiently brought online.

Ability to penetrateStrategy for winning initial

customers and generating

credibility?

Do industry dynamics allow start-

ups to capture market share from

incumbents?

Innovators in the offline retail

technology industry face very long

sales and deployment cycles.

Ability to scaleStrategy for replicating revenue,

economies of scale, and margin

leverage?

Do industry dynamics allow start-

ups to scale revenues and expand

margins?

Data aggregators benefit from

economies of scale and significant

margin leverage.

Exit outlook IPO viability and likely acquirers?

What is the history of IPOs & M&A

in the space? Are there many active

acquirers?

Lack of broad base of acquirers in

the developer tools market.

GeographyWhere does the company need to

be located in order to maximize

success?

How does this theme map to a

particular geography’s HR pool and

tech eco-system?

Fraud detection companies in Israel

can draw on a very deep talent pool.

ValuationPotential for venture returns given

investment valuation?

Where is the theme on the hype

cycle? Is it over-invested or under-

invested?

Hadoop/NoSQL has been massively

over-invested over the past 3 years.

TimingIs the venture’s roadmap in sync

with the market’s maturation

trajectory?

Is the market ready / almost ready

for companies of this category?

Increased cord-cutting and online

video explosion may drive jump in

interactive video advertising.

Applying the hype cycle to VC investment themes

Time

Ex

pe

cta

tio

ns

Technology

trigger

Peak of

over-

investment

Trough of

disillusionment

Slope of

enlightenment

Plateau of

rationality

Descent into

irrelevance

Digital Society

Online Finance

BI Infrastructure

Data

Science

Data

Pipeline

Software is eating

the world

MobilityCloud

infrastructure

E-Commerce

New advertising

battlegrounds

Sustainability

Education

Legal tech

Pervasive

computing

Reinvention

of retail

PV generation

technologies

Social media

monitoring

Heightened

valuation risk

Heightened

general risk Unlikely to

generate

return

Zone of

balanced

risk/return

3D printing

A framework for scoring themes

• Generalizations upon generalizations – but potentially directionally useful

• Offers a general sense of potential headwinds and tailwinds faced by companies in each theme

Theme

Ease of

recruiting

talent

Potential for

technical

barriers

Typical

opportunity

size

Ability to

penetrate

Scalability

of models

Exit

potential (#

acquirors)

Hype cycle

status &

maturity Overall

Cloud infrastructure +1 +1 +1 +1 4

Online finance +1 +1 -1 +1 +1 +1 4

Mobility +1 +1 +1 3

BI Infrastructure -1 +1 +1 +1 2

Digital society +1 +1 2

Data pipeline -1 +1 +1 +1 -1 1

Data science -1 +1 +1 +1 -1 1

New advertising battlegrounds +1 1

Software is eating the world +1 -1 +1 +1 -1 -1 0

E-commerce +1 -1 +1 -1 +1 -1 0

Reinvention of Retail -1 -1 +1 -1

Sustainability +1 +1 -1 -1 -1 -1

3D Printing / Hacking hardware -1 +1 -1 -1 -2

Legal services -1 +1 -1 -1 -2

Pervasive computing -1 +1 +1 -1 -1 -1 -2

Education -1 -1 -1 -3

SaaS/Cloud Infrastructure

Commoditization of

hardware and IT

stack management

Meaningful cost, time

savings associated

with on-demand

infrastructure

Digital native

employees look to

cloud services

naturally

Cloud security

concerns transformed

from barrier to

opportunity

Secular trends

towards

infrastructure

abstraction and

hybrid architecture

Cloud securityCloud-based IT

service providers

Cloud-based business

infrastructure

Cloud IT management

solutions

Online Finance

Digital natives willing

to trust online

challenger brands.

Growing volumes of

social data available

online

Existing fee structures

too high to be

sustainable; fraud

costs remain high

Financial products are

an ideal “digitally

delivered” service.

Increasing

centralization and

automation of

financial controls and

processes.

Digital banking,

payments, & wallets

Innovative asset

management and

insurance companies

Fraud & credit

analytics

Digitally enabled

credit: lending &

factoring

New currencies and

value-stores

(Bitcoin?)

Mobility

Proliferation of

mobile devices and

operating systems

Drive towards

outsourcing and

porous enterprise

boundaries

Mobile device is

becoming a preferred

data consumption

device

Consumerization of IT

by digital native

generation

Increasingly mobile

workforce operating

from home and from

the road

Enterprise application

mobilization

Website mobilization,

refactoring

BYOD / mobile device

management

Dedicated mobile

security providers

The digital society

Growing population

of digital natives

Rising structural

unemployment,

particularly among

youth

Coding and web admin

becoming second

languages

Online trust:

Willingness to

communicate,

transact, and relate

via digital means

Societal trend

towards self-reliance,

entrepreneurship,

and “making.”

Everyone is a web

master, e-commerce

shop owner

The P2P economyEnabling digital cottage

industriesThe maker movement

Digital intimacy and

relationships

The Data Pipeline

Enterprises are

increasingly

leveraging structured

data from multiple

3rd party sources

Massive quantities of

data exist

unstructured on the

public web

Storage is getting

cheaper, but preparing

data for analytical

applications remains a

challenge

Business users

increasingly demand

access to data and

analytics

Data complexity

keeps rising

Dataset creation

tools & platformsData marketplaces Data integration

API management

tools

Next-generational

departmental and

enterprise reporting

and visualization

Data Science

New sources of data:

APIs, public web,

social data, etc.

Cheaper storage and

compute

Data analytics is in

fashion

Proliferation of

analytical DBs

Success of data-

driven businesses

Data science as a

service

Democratization:

Making it easier for

more users to apply

data science.

Verticalization:

Industry-specific

applications of data

science techniques

Machine learning

platforms

Embedded data

science applications

New advertising battlegrounds

Proliferation of

smartphones, tablets,

smart TVs, wearable

computing, and cord-

cutting.

“Online” attention

fragmenting across

identities /devices

Proliferation of “walled

garden” online

environments (istore)

& failure of traditional

tracking tech.

Increasing new data

types (location,

usage, social, etc.)

and analytical power

Inevitable shift of

brand-oriented

advertising online

Interactive television

and TV advertisingStatistical attribution

Automated campaign

and landing page

optimization

Traffic arbitrage

“Software is eating the world”

Increasing number of

enterprises and

individuals are

writing code

Commoditization of

basic (cloud)

computing

infrastructure

Recognition that

“software/IT” can

drive value creation

across many industries

Continuous

deployment &

integration are

widespread

Greater use of open-

source and third-

party code & binaries.

CI/CD/Devops: Tools

to help deploy code

faster, better,

cheaper

Developer tools::

Tools to help

developers create

value faster

Analytics:

“BI for the software

production process”

Reinvention of (Online/Offline) Retail

Ubiquity of

smartphones; e-mail,

and other digital

channels

Consumers expect

personalization

Online retail taking

greater wallet share

Availability of big data

analytics

Every physical retailer

is now an online

retailer as well

Highly personalized

CRM

Enhanced in-store

experience

Next-generation

loyalty programsNext-gen point of sale Social commerce

Sustainability

Expanding global

middle class with

higher expectations

Widespread

recognition of

sustainability and

environmental issues

Rising commodity

prices

Increased consumer

interest in organic

and locally sourced

food

Approach of grid

parity in some

alternative energy

areas

Agricultural efficiency

SW

Food-tech: New food

production

technologies and

delivery systems

Locally-sourced food

retail

Renewable

generation tech

Power consumption

efficiency

technologies and

solution

Pervasive Computing

Rapid prototyping

and crowd-funding of

hardware

WiFi and GSM

connectivity is

everywhere

Sensors and processors

are getting more

varied and cheaper

Consumers and

workers are carrying

powerful devices with

them everywhere

Manufacturers

increasingly seek the

benefits of devices

that “phone home.”

Infrastructure for the

“Internet of things”

Networked Consumer

Electronics

Wearable computing,

quantified self

Smart cars, drones,

and other vehiclesConnected home