Investors Don’t Like Opportunistic Investments Until They Do
“The young man knows the rules, but the old man knows the exceptions.” – Oliver Wendell Holmes
I constantly hear from investors about staying focused. Not straying from your thesis. Sticking to your asset class.
And I get it.
It’s hard to watch an entrepreneur lose focus. Someone creates a lemonade stand, and after two good days of sales they’re ready to franchise nationwide, open a burger joint, and start an insurance business. In reality, they need to stay focused on the lemonade market for years before lifting their head up to look at other opportunities.
But like most things, it’s never black or white.
What if Apple’s board forced them to stick with desktop computers?
What if Amazon’s board forced them to only sell books?
Great entrepreneurs (and investors) are able to decipher when straying from your “core” is a worthwhile risk versus a distraction.
Focus and expertise are great. But it’s self-centered to think the world will present opportunities that fit into the confines of whatever you’re an expert at. You have to bring your skills to wherever the world presents opportunities. Which often means going places and doing things that fall outside the traditional boundaries of your business.
We see this all the time in investing.
Union Square Ventures recently invested in Tucows, a 23-year-old public company. Why did an early-stage VC firm invest in an established public company? Because it was a good opportunity. USV wrote:
We are investing in Tucows because we believe they have built a great business, but also because they have been a stalwart defender of the open Internet. We are excited to be working with them now because they are challenging the incumbent access providers and the conventional wisdom, by building modern fiber networks in local communities across the U.S.
Another interesting example includes Google Capital. As a firm, their focus is providing growth capital to private startups. But they recently invested in publicly traded Care.com. Asked why Google Capital is interested in a public company, partner Laela Sturdy told the New York times, “We’ve been focused on growth-stage companies, and really our only criteria is their having Google-sized aspirations.” That’s where the opportunity was, in other words.
You may shake your head at this. Investment managers are hired to do a specific thing, and venturing outside of that thing can be irresponsible.
But there’s an important difference between not knowing what you’re doing and applying what you already know to a bigger pond.
USV knows Tucows’ industry. It’s qualified to assess the technology and potential. But it took its expertise to a larger pond of opportunity than most VC firms choose to fish in. Done responsibly, that’s a competitive edge.
This highlights two points critical for success in today’s world.
Opportunity doesn’t care about your background, your strategy, or your expertise. It comes and goes whenever it pleases, wherever it wants. Opportunity tends to reside where competition isn’t, so it’s more likely to live outside of people’s traditional hunting grounds. Accepting that intelligence is not an automatic magnet for opportunity is the first step toward fishing in a larger pond than you might be used to.
Knowing the boundaries of your skills is important in a world where opportunities exist outside your comfort zone. Everyone has to understand the difference between extending your skills into a new zone versus wandering into a zone that requires new skills. Doing so is more art than science, and requires an opposing combination of humility and bravery. There is a subtle difference between “I’ve never seen this before,” and “What is this?” The first is a sign you’re fishing in new waters. The second is a sign you’re in too deep.
So we challenge ourselves, and we challenge you: Take what you already know and extend it to someplace new.