February 25, 2024 | Read Online
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By GrowthCurve.io
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Smart money
This week on the Prof G Podcast (one of my faves), Scott Galloway featured Bradley Tusk a former politician, writer, philanthropist, and tech venture capitalist.
Tusk’s firm, Tusk Venture Partners, oversees a $200 million venture capital fund.
The firm invests in companies whose success depends on favorable regulatory legislation like transportation, gaming, insurance, cryptocurrency, and more.
These companies often need to lobby lawmakers to clear the path for innovation and new business models.
Tusk's connections and background provide a unique advantage to companies who fit this profile.
The pitch is compelling:
Pay six- or seven-figure fees to lobbyists to drive legislative changes you need to succeed. Or accept $5 million from Tusk Venture Partners, and we'll do it for you.
Startup founders need more than money to succeed.
They need smart money.
Industry-specific expertise.
Government insider relationships.
Operational and technical expertise.
It's a mind-bending idea, but investment firms compete with one another to give businesses money in exchange for equity.
And the competition is fierce.
The partners who run these firms are some of the best salespeople I've ever worked with.
To win deals, they have to convince company founders and owners that they will be best partners to help the company achieve breakout success.
The original use case for venture capital was to fund private companies pursuing moonshot ideas.
High-risk, high-reward projects in software, hardware, telecommunications, etc.
But over the past decade and half, during the so-called zero interest rate period ("ZIRP"), SaaS companies predominantly used outside funding to gain market share in crowded industries.
I'm talking about products like marketing, scheduling, project management tools, and now, thin wrappers around ChatGPT masquerading as specialized AI assistants. Most SaaS tools are undifferentiated products with no protective moat.
Tech companies aren't developing groundbreaking new tech or solving deep, meaningful problems for society. They're building better mousetraps.
Meanwhile, thanks to open source software, inexpensive cloud platforms, and AI, the cost and complexity of building software is plummeting [1].
The capital that companies raise is not used for deep product innovation. It's used to grab market share.
Expensive paid advertising on the big media platforms. Sprawling sales teams. And what amounts to cost subsidies for early adopters [2].
To support these efforts, private investment firms offer expertise to their portfolio companies by way of operating partners and advisors who consult with portfolio companies.
In business, differentiation is the key to winning, and it comes in two forms:
Post-pandemic, the SaaS industry is maturing and normalizing.
Growth at all cost is out.
Efficient growth is in.
The sales and marketing expertise that investors bring to the table is still valuable, but it's no longer a significant differentiator for them. Everyone's doing it.
But there is a new wave of private investment firms coming along.
Those that do more than hock capital and push expensive, sales growth strategies.
These are firms that offer unique value in well-defined niches.
Like Tusk Venture Partners.
What differentiated value do your investors provide?
Is it smart money?
🤘
[1] This week I sat in an engineering demo to review new features of our product whose prototype UI and accompanying source code was generated completely by AI tools.
[2] You can see how this plays out by looking at consumer services like Netflix, Disney+, and Amazon Prime who captured customers with low fees during ZIRP. They are all now raising prices and cracking down on account sharing to improve their unit economics and bottom line.
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