A New Investment Theme? You Tell Us.

At Foundry Group, we spend a lot of time thinking about our Thematic Investing Approach.  We both rethink our current strategies within existing themes and also talk about what big picture and transformative trends are occurring that may lead to new themes.

Previously, we’ve unearthed themes after we’ve made several initial investments in an area and have spent enough time that we’ve been satisfied that we’ve found an area of opportunity that we can invest in over a ten to twenty year life span.  Prime examples of this were our February 2011 unveiling of our Distribution theme and our April 2011 post about our Adhesive theme, which itself emerged out of our Glue theme.

Recently, we’ve invested in a couple of companies that have caused us to examine whether or not we’ve found an investment area that qualifies as a new theme.  But instead of holding our thought process behind closed doors as we normally do, we’ve decided to try a new experiment:  we are going to unearth our current thinking and solicit your responses.  Consider this “Foundry Group Thinking Out Loud.”

What’s the potential new theme?  For now, let’s call it “Marketplace.”

We’ve been spending a lot of time thinking about marketplaces – particularly in the past year, but really dating back to investments we’ve made over the past decade in companies such as Service Magic (now HomeAdvisor) and Trada.  Specifically, with the success of companies like Airbnb, Uber, and Etsy it appears to us that interesting and valuable companies can continue to be built by bringing transactions that have yet to be thought of as ripe for online disruption, especially if there are some specific scale or operational challenges in doing so that we believe can be solved to create a sustainable competitive advantage.

Not any old marketplace will do, however.  We believe that there must be an inherent suppressed supply as well as a demand – the market needs to work for both participants.  We’re particularly intrigued with markets where the goods or services in question exist already, where full demand has been difficult to obtain on an individual basis. In the case of Airbnb, people had an unfulfilled demand for places to stay outside of the traditional hotel market while others had spare bedrooms and homes to rent.  In the case of Uber, there was a massive supply of unused car service operators while people sat frustrated in cities that did not have enough cabs.  The “inventory” previously existed, but it was nearly impossible to expose it efficiently before nearly ubiquitous connectivity and computation came along.

In both these cases there is also a factor of time – the Uber driver can sell minutes that he is not otherwise working and if they don’t the supply simply goes unfulfilled. Airbnb has the same dynamic. We think of this type of market as “remnant asset monetization.”   When real-time demand and location are important to the equation, mobile is the “killer app” while other types of friction may be best served via more traditional web applications.

One of our first investments in a remnant marketplace was PivotDesk, which is creating a end-to-end marketplace for remnant office space offering leaseholders the ability to connect with small businesses in a way that previous has not existed.

Not all of these marketplaces deal with remnant assets, however.  (Some people have coined this remnant asset monetization as “collaborative consumption”).  For example, as Uber continues to mature, we see many operators buying additional cars to fulfil the demand.  Our recent investment in Sidetour has allowed the company to create a marketplace for people to discover and book unique experiences offered by hosts with specific expertise in their trade.  While to some extent this is fulfilling unmet demand, like Uber, Sidetour is seeing hosts come up with new ideas for experience that leverage their expertise which is akin to buying new cars to fulfill demand.

What we are focused on are large markets, with known supply and demand dynamics, that have some sort of friction that previously disintermediated buyers and sellers.  Additionally, we are not focused on regulated markets.  For instance, there is much inefficiency in the medical space, but the spectre of regulations makes this marketplace uninteresting to us.

So is this a new theme for us?  We don’t know yet.  We know that we are very interested in the dynamics here and have looked at a lot more companies than we’ve funded, but there feels like there is something “more” here than just a few one off investments.

Let us know what you think.  Even better, if you are an entrepreneur building a business like this, reach out to us.  We would love to learn from you.


  • Justin Sharpe

    This just made my day

  • andrewhyde

    I hate how I can’t even make a ‘the internet is big for cats’ joke for something *new* for you to do.

  • http://www.exvo.com Danny de Wit

    So is it yes or no on marketplace as a theme? If yes, then I think we might have something interesting for you to consider. Are you, or any of the other partners going to focus on this theme?

    • jasonmendelson

      Just saw the email. Back to you in a bit.

  • http://techstars.com/ DavidCohen

    I like to think of my investments in uber and pivotdesk as “imbalanced marketplace” bets (defined by too much power on one side of the equation). Others call these things “resource optimization” but I do think it’s just marketplace disintermediation.

  • freds4hb

    Why not “Marketplace Disruption” as the theme implies they must be disrupting to fit your theme anyway.

    • http://www.exvo.com Danny de Wit

      I like that. Marketplace Disruption

      • jasonmendelson

        I like that as well

  • Jeff Vail

    I think your MakerBot investment also fits this theme, though on a bit of a tangent. The cost of manufacturing setup, marketing and distribution for the “long tail” of products previously disintermediated the demand and supply of these goods. MakerBot is the tool that will animate this market.

    • jasonmendelson

      It definitely has some characteristics. I totally agree

      • http://twitter.com/jrideout Jacob Rideout

        I’ve been thinking of starting a marketplace along these lines. One could buy and sell spare capacity on their makerbot or similar machine. If anyone is willing to work on this with me, shoot me an email. I think the upside is targeting consumers rather than the hobbyist on the demand side. If you could get mass adoption of on-demand, locally created goods, facilitated by the rapidly growing the maker community and its soon to be created commercial offshoots then there is a truly large potential market to foster.

  • http://twitter.com/tobyruckert Toby Ruckert

    These businesses are matching the good old “Supply and Demand” value chain by bringing people, products and services together in a highly scalable but sustainable way which fulfills the desires of all parties involved.

  • http://www.samedaydr.com/ Rich Weisberger

    The theme i am working on is within the Mobile Dynamic Marketplace, mobile access to a marketplace with goods or services that are uniquely tailored based  on the native functions of the smartphone/device.  

  • http://blog.hegranes.com/ jonathan hegranes

    Love the thinking around this, and my vote would be to examine a theme centered around…

    LIQUIDITY.

    The classic examples provided above, especially Uber and Airbnb, speak to solutions that essentially provided an easier way to transact in these goods and services. Without the addition of liquidity, neither cars or rooms would be bought and sold at the same rate.

    Having tried and failed at building my own marketplace around services, I think one of the best points made in this post is the condition that “… intrigued with markets where the goods or services in question exist already…”.

    With that condition met, I’m curious to see where Foundry takes the LIQUIDITY theme… It’s straightforward, but also leaves a lot of flexibility for evolution.

    • jasonmendelson

      That’s a good one. I like the idea of “liquidity.” Will add that to the list as we discuss this further

    • http://www.virtuallybing.com/ Bing Chou

      Jason, it seems to me that Liquidity is more specific to what you’ve outlined in this post and its comments than Marketplace. You don’t seem to be looking to create a marketplace so much as reduce inefficiencies within an existing one.

  • http://twitter.com/rahulgchaudhary Rahul Chaudhary

    What do you think about a marketplace for buying and selling businesses; something like http://www.businessreel.com/ ? It’s a huge market in terms of money involved.

    • jasonmendelson

      Not really sure there is the demand side of the equation here. Market of people wanting to buy businesses seems smaller and I would have to deal with the legal issues.

      • http://twitter.com/rahulgchaudhary Rahul Chaudhary

        The number of transactions per year would not be as big compared to the other marketplaces, but the amount per transaction is much larger and that makes it high revenue opportunity.

  • DavesBlend

    Many of the market dynamics you describe seem to lend
    themselves to physical assets or services where their acquisition cost (in time
    or dollars) is significantly higher than the incremental borrowing or rental
    cost. And the demand, on an individual consumption rate and locality basis, is
    infrequent or random. With “long tail” dynamics and web/software continuing to eat
    and fragment “traditional” markets into finer grained niche markets, I think it
    gets tougher to find investment opportunities that scale in this space. We have
    looked at some niche plays like Airbnb for RVs and some with larger potential
    like disrupting the currently fragmented and antiquated “secret shopping”
    marketplace. (shockingly a service that hasn’t really been SaaSified, is ripe
    for cost reduction (currently it is out of reach for many SMBs) while unlocking
    a rich base of market intel and analytics, and requires a lot of individuals that can be called upon at will (mobile and time sensitive)). I’m still waiting for interstate distribution
    of craft beer to be solved but that regulatory hurdle will probably not be
    overcome in my lifetime.

    • jasonmendelson

      It’s certainly a good point. This is one of the issues that we are thinking about as well. How many of these opportunities are there?

  • http://twitter.com/gregcohn Greg Cohn

    I think of it as “fragmented supply”. Going alongside, in many cases, “frustrated demand”. Interestingly (to me, at least), the frustration part often coincides with a situation where there are large players and/or a consolidated industry that are insufficiently responsive to their consumers’ needs — e.g., the travel industry, vs. people who want more personalized, interesting stuff; the taxi & limousine commissions of the world; large manufacturing & retail distribution chains.

    • jasonmendelson

      Not all that different from how the record companies didn’t evolve and had their business taken from them. Good point

  • james

    Marketplace is “new”? Weren’t you around in 1999?

  • http://sparksvc.com/ Chris Sparks

    I have been thinking a great deal about reputation in the collaborative consumption space lately. Trust is at the heart of every transaction that takes place. Using Airbnb as an example, if we see a long list of glowing reviews we will place a higher perceived value upon that listing and it will be easier to convince the customer to boil water (make the initial contact that begins the transaction process).

    Seller review accumulation has historically been a major barrier to entry for all marketplace incumbents (think eBay) and they have a strong incentive to remain silo-ed. At the same time, I believe this represents a monetization opportunity as there is a major informational inefficiency which would be valuable to both sellers (save time/effort) and buyers (larger sample sizes).

    However, the problem of aggregating reputation across platforms has not yet been solved. To use a terrible analogy, think Klout for Reputation. Your reputation should follow you around the web. There have been some temporary hacks with using the social graph but this is an imperfect measure for obvious reasons. Curious if anyone is working on this, there has to be some sort of solution on the horizon.

    • DanielHorowitz

      I agree that airbnb has a ton of really valuable reputational data…

  • DanielHorowitz

    I think for Cars, remnant asset or collaborative consumption is Getaround, Wheelz, and RelayRides.

  • DanielHorowitz

    I think parking spaces will work as well, although there are at least five players in this space too. http://techcrunch.com/2012/04/23/parking-spot-finder-parking-panda-raises-seed-round-expands-to-d-c/

  • DanielHorowitz

    I like Loosecubes because they are already dealing with shared space, http://techcrunch.com/2012/06/05/loosecubes-series-a/

  • DanielHorowitz

    I’m a big fan of this, https://www.scienceexchange.com/ , Scientific instruments are often very expensive and hard to use, making them inaccessible to many people. Additionally, they often sit idle a lot of the time. Big opportunity here.

  • DanielHorowitz

    http://www.getable.com/ is pretty interesting as well

  • http://twitter.com/eBossWatch eBossWatch

    Jason, the Marketplace theme sounds like a great idea. There are plenty of markets ripe for disruption. For example, at eBossWatch we are building a platform that will disrupt the recruiting market.

    Although reference checking is a crucial and extremely valuable part of the job interview process (it’s one of the only ways employers can receive objective information about job candidates), most companies refuse to divulge any information to hiring managers about previous employees due to the fear of defamation lawsuits. Hiring candidates with undiscovered problematic backgrounds or toxic tendencies is a huge problem that costs companies dearly.

    eBossWatch will therefore provide a P2P reference check service for recruiters and hiring managers that will enable them to conduct reference checks on job candidates via the candidates’ previous subordinates and/or coworkers (as opposed to via the candidates’ previous employers).

    Demand for reference information on the part of company recruiters is obviously huge and currently unmet, and our experience at eBossWatch is that the supply of people who are willing to provide detailed reference information about previous managers/coworkers is equally large.

    Interesting in hearing your thoughts about this…

  • http://twitter.com/doublejay57 Jeremiah Johnson

    I love it guys!

  • http://www.semilshah.com/ Semil Shah

    Cool that you guys are (1) thematic to begin with and (2) opening it up to the crowd to help you distill it. Why not “(Re)inventing Marketplaces”? It can include those disrupting existing marketplaces, those bringing efficiencies to existing ones, and those who are creating entirely new ones.

  • Julie Lerner

    Gentlemen, you all are identifying thin and/or nascent markets that suffer from a lack of market access and price transparency. There are hundreds of liquidity-challenged and fragmented untapped markets, even US and international physical commodities. This article I wrote describes why it hasn’t happened yet and why CMDirect is the platform to make it work. Happy to take this conversation offline if interested- I’m obviously pretty passionate about this topic. http://www.procurementleaders.com/blog/my-blog–julie-lerner/the-future-of-online-commodity-trading

    • jasonmendelson

      I don’t know anything about physical commodities, so maybe this is similar, might not. What I think is that commodity trading isn’t anything to do with remnant inventory, rather trying to take an antiquated system and make it new. Much of what I find interesting in our marketplace analysis deals with remnant inventories.

      • Julie Lerner

        Jason—I agree 100% that agricultural commodities are antiquated! However, it seems that a lot of the examples that you give above are commodities- even the services. Perhaps we could say that remnant inventories are niche commodities? I’m convinced they are, especially as you seek “large markets, with known supply and demand dynamics,
        that have some sort of friction that previously disintermediated buyers and
        sellers.”

        I know you are in the process of identifying which markets to disrupt, but I’m saying that once that’s done, there are some fundamentals of the functionality that are imperative. Over the past year, we’ve discussed our platform with several investors, users and potential licensees. I’ve learned a lot about what works online, what doesn’t, and why experts from sugar and scrap metal to biodiesel and financial markets like what we’re doing. I’ve found that building liquidity is not just offering what the buyers or sellers think they want online, it’s incorporating those needs into functionality that provide the most transparency, efficiency and thus liquidity.

        Just offering to help avoid re-inventing the wheel. Let me know if you’d like to discuss it further. I’m local.

        • jasonmendelson

          I don’t think we disagree. There needs to be functionality – that’s a baseline to even get in the door. Assume that is “easy.” (Nothing is easy, but none of these marketplaces demand rocket science tech). It’s really about the market and the business model.

  • http://www.facebook.com/jinzora Ross Carlson

    Fantastic idea guys!

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  • Jim B down in CS

    I have a very big idea in which incedentally ‘reminant asset’ is exactly the language which describes what I think can be done. I have discovered one with potential billions to unlock. However, I am not exactly sure where/whom to go.

    • jasonmendelson

      If you have an executive summary, we are happy to take a look and see if it is something that we are interested in.

      • Jim B down in CS

        Thanks Jason, I may do that. If the idea ends up having legs, I’d really like Colorado money behind it and benefiting from it. The nuts and bolts of it is, that we have excess (and infact idle) capacity in certain sectors of technology. I want to add both efficiency and revenue for that excess.

  • Sagar Shah

    I’m a little late on this post and a lot of smart things have already been said, but I thought I’d comment anyway. I’ve often thought about this theme myself over the past year. One of the companies I love under the underutilized capacity category (as I call it) is ZocDoc. ZocDoc addresses underutilized capacity for a high priced service and removes marketplace frictions (confirming insurance networks, calling without insight into doctor availability, etc). It’s amazing to think that picking up a phone can be such a huge marketplace friction, but it certainly is when demand requirements are immediate, suppliers are fragmented, and/or supply availability information is not readily or centrally available.

    What’s next? Some markets that come to mind – auto repair (costly, required immediately in many cases, fragmented), beauticians, and mentorship (think scheduling office hours with people who want to give back).

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  • http://mirror.me/liveplanit C.P. Spencer

    Integrate gaming with health apps?

  • Inez Degosha

    This sentence: “We’re particularly intrigued with markets where the goods or services in
    question exist already, where full demand has been difficult to obtain
    on an individual basis” is particularly appropriate for the company that I want to introduce to you and your team. Would like to talk with you further about it.

  • Not Me

    You guys are clueless!