A q I often get asked is "What verticals do you like?" The truth is there are some ideas in our sweet spot in lots of verticals & many that are not. One axis I care a lot about as a small fund is capital leverage. Most new entrepreneurs should care about this too.

Let's dig in:

1) Let's take the prepared meal industry. It's a real need obv. Ppl need to eat. Ppl enjoy eating. Ppl will always eat prepared meals through eternity.

The most obv idea is a restaurant. But I wouldn't invest in a restaurant. Why not?

2) Restaurants tend to have 3-20% margins & expensive real estate. It can cost upwards of $500k just to get started depending on location. Forget COVID - it's expensive to set up & there is limited upside. There's a limit to the # of ppl who can sit & eat at your restaurant.

3) This is why VCs don't invest in brick & mortar. There's an upper bound to your upside for a given location. (This is also why I'm baffled by why VCs invested in WeWork). Expansion requires finding more real estate and rinsing and repeating which is addl cost.

4) Ok, so let's reduce our capital costs. What about food trucks or ghost kitchens? Your real estate costs are lower (i.e. truck or lower cost location) You still have low margins on food. And in many cases, still have high marketing costs.

5) This is better - margins are now 10-20%. Capital requirements more like $100k. But still very limited in upside (truck can only drive so far) & kitchens have limited reach. Still not good leverage on a $1.

6) Ok how can we change this more? Well what if we partner w/ chefs & sell them say acct sw? So low capital costs. High SaaS margins. Your customers have all the high cap costs & low margins.

But it's tough to sell into markets where your customers have no money.

7) Ok how we can change this more? Well do our chefs need to pay for real estate? Can we help them save on their costs of backoffice, bulk food orders, etc?

How can we help them reduce their costs and charge in the difference?

8) Maybe we can help new budding chef entrepreneurs (and in this market - there are probably a lot) get started in their own kitchens w/ cottage food laws & microenterprise laws. Maybe we get them all the permits / inspections / take care of backoffice. Get them bulk food pricing

9) Their capital costs are now near 0. Margins are still low for them but they have a bit more wiggle room to pay us. Our margins are still high and we can get started w/ no capital (2 ppl in a garage).

10) And now, upside is potentially infinite -- if you can get millions of chef entrepreneurs on this, location isn't bounded. Sw will scale up taking care of their ops.

This is how a VC thinks. How much leverage can you get on your $? How far does it go in set up? and upside?

11) Before everyone starts pitching me this exact same biz back to me, the pt is that I would highly encourage all new entrep who are struggling to get capital to think in this way - how can I reduce cap costs? How can I even do this w/ out investors or very little $?