Why niche VCs are the future - guest article

Many VCs are still hoping for the next unicorn when choosing investments. But it doesn't always have to be the biggest returns, says our guest author. There is often more potential in the small than is apparent at first glance.

For years, the trend among many venture capital funds (VCs) has been to invest huge sums in startups in the hope of ever higher returns. Thematic focus has often been secondary. However, society and business are becoming increasingly complex and diverse. For classic VCs, who invest more in profitable markets than ideas according to the one-size-fits-all principle, it is becoming increasingly difficult to really do justice to this. After all, a good market environment may lead to quick returns in the short term, but it does not guarantee profitable growth in the long term.

The potential of the niche

In today's venture capital environment, we should not forget that diversity also creates room for specialization. For example, there is a growing proportion of VCs that have recognized that there is more potential in niche investments than is apparent at first glance. There are two reasons for this. First, there is the market environment. This is often much smaller than that of hypotheticals, but also much less competitive. The low competition for deals and capital for financing rounds can lead to more favorable terms and deeper relationships for both sides. In addition, a smaller market favors rapid development: where there is less competition, companies find a good breeding ground to grow quickly and establish themselves in the market.

The greater the synergies, the more fruitful the cooperation

The basis for such a development is first and foremost a healthy relationship between investor:in and founder:in. This should not only be based on key figures, but on shared knowledge, shared experience or - even better - a shared vision. The deeper the industry knowledge on the part of the investor, the greater the understanding of the business idea or typical market developments, for example. This in turn leads to more informed decisions and more effective advice. But knowledge alone is only half the battle. Ideally, founders and investors share the same passion for a topic. This can accelerate growth and help solve problems.

At Best Nights VC, we have made a conscious decision to limit our business field exclusively to the culture and nightlife sector. This approach has the advantage of being able to dive deeper into the sector. As a result, we can offer real added value that goes beyond attractive returns. To make this possible, our team is composed in such a way that it is equally at home in the cultural landscape as in the business world. This is not uncommon among niche VCs in other industries either.

Opportunities outside the mainstream

In general, niche VCs are often very closely networked and in regular exchange with each other. This enables authentic relationships among investor:ins and provides a supportive environment for shared learning and growth. These are all good reasons to take advantage of the potential that niche investments offer. We should not be blinded by the size of the addressed market and chase the next unicorn. Often, the most impactful opportunities lie outside the mainstream.

About the Author:

Lorrain de Silva has been Managing Director of Best Nights VC (BNVC), the VCV of Jägermeister Mast, since late 2021. The Berlin-based VC is not looking for potential unicorns or counting on quick returns, but wants to help shape nightlife in a sustainable way by investing in consumer tech. With experience in culture, startups, finance and consulting, de Silva has driven BNVC's global portfolio with co-investors such as Y-Combinator and Lightspeed. In addition to his role at BNVC, de Silva is also an advisor to several companies."