Firm News

Why We Invest In Themes, Not Sectors

Mike Smerklo
November 8, 2021
August 29, 2022

For decades, the question, “What type of work are you in?” had a straightforward answer. "Oh, I'm an encyclopedia sales rep." (RIP door-to-door encyclopedia career paths.)

Most people did a specific job for a business in a defined industry. If you started a business on your own, it was in a particular sector: travel, food, retail, etc.

Similarly, business investors followed the same path. The old venture capital model focused on sectors. The Wall Street Journal still tracks investment by sector, dating back almost 30 years.

But, today the world looks very different, and we aren't just talking about trekking through a global pandemic together.

We believe the best ideas aren’t confined to a single sector, but instead are disruptive across multiple industries. So, we implemented an approach to investing that doesn’t focus on sectors, but instead, themes.

“So, we implemented an approach to investing that doesn’t focus on sectors, but instead, themes.”

Thematic investing has been around for a while, and we can’t claim any credit for its creation. Even back in 2008, The Foundry Group defined thematic investing and why they do it.

At Next Coast Ventures, we have followed that same model over the years. When we started the firm, we began with seven themes.

As innovation is not static, we are continually reevaluating our themes and constantly look out for new ones. This requires us to conduct extensive research, regularly consult experts across industries on specific emerging technologies, and monitor how a theme grows in strength or dissipates. Markets change, new technology appears and society goes through big transformations—sometimes in just a few months. In the wake of a global pandemic, we see this truth more than ever.

Some Themes Persist

Many of the investing themes we published in 2015 have persisted today.

For instance, we called one of our themes the “Future of Work”. This theme embodies both emerging trends and technologies. At the time we settled on it, we recognized that remote workforces were going to become more prevalent and the advent of technologies like 5G and VR/AR would support a gradual move to more remote teams.

Little did we know then that a global health crisis like CV-19 would accelerate the trend to remote work and solutions like video conferencing would be adopted overnight. It is fair to say now that remote work is here to stay in this new operating environment, and already we are seeing a second generation of tools specific to supporting distributed workforces.

Retail (R)evolution is another example of how the thematic approach works in the face of rapid change. When we first put it forth (again in 2015, pre CV-19), we primarily saw two forces changing the retail industry: (1) Amazon’s aggressive “market share” taking machine and (2) the rise of a digitally native generation with major buying power.

One of the first innovative solutions to those forces that many VCs  (including Next Coast Ventures) invested in was the “Direct to Consumer Brand.” Our portfolio companies like BOXT, GOJA, DOSH, Eterneva, and Chargeback are examples of companies rethinking the brick and mortar model and go-to-market strategy, all in very different industries.

Far from a “retail apocalypse,” the next wave of change will have consumers experience retail in entirely new ways, with atomized brands offering curated experiences and influencers marketing to specific niches. The shopping experience is evolving quickly, and all aspects of a consumer journey—from discovery to purchase— continue to be ripe for disruption.

Both of these are great examples of themes we loved “way back when” in 2015 and our love has been rewarded...and both are good examples of “refreshed” themes (see below)!

Finding New Themes

Our ongoing evaluation of themes means that our firm’s list will inevitably change. This year, we once again took the opportunity to deep dive into some new themes.

Drum roll, please.

We are proud to reveal Next Coast Ventures’ newly defined themes, and you can read them all right here.

Mike Smerklo

Click here to read the article.
Co-Founder and Managing Director of Next Coast Ventures

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