Does Lateral Capital Target Specific Industries?
No. This is broadly contrary to conventional wisdom which says, “You should invest in what you know.” But honestly, we haven’t seen this approach work very well for other Early Stage investors. We think this is why:
- What investors know is completely out-of-date – every Monday morning.
- Investors in what they know tend to be over-confident. They think about how it “used to be” – and assume that’s still the world.
- When you don’t know, you ask dumber, better questions. Perhaps Columbo would have been a good investor.
While we’re on the subject, we also work hard not to invest in “what’s hot” – segments which are the current equivalent of AI or cryptocurrencies. Hot categories have previously included home food delivery, “green energy” and LED lighting – all industries that turned out to be disappointing from an investment standpoint. One reason for this is that these so-called “hot” sectors tend to attract so much attention that price/value expectations make it difficult to achieve for a 2.6X return. Moreover, the concept of “picking the right industries” has proven less important over time than “picking the highest potential companies,” irrespective of industry. So we look for great businesses first, second and third.