Why the future belongs to niche VCs - guest article

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

For years, the trend among many venture capital funds (VCs) has been to invest huge sums in start-ups in the hope of ever higher returns. Thematic focuses have often been secondary. However, society and the economy are becoming increasingly complex and diverse. It is becoming increasingly difficult for traditional VCs, who invest more in profitable markets than ideas according to the one-size-fits-all principle, to really do justice to this. This is because 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. The number of VCs who have recognized that there is more potential in niche investments than is apparent at first glance is growing. There are two reasons for this. Firstly, there is the market environment. This is often much smaller than that of hypotheticals, but also much less competitive. The low level of competition for deals and capital for financing rounds can lead to more favorable conditions 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 collaboration

The basis for such a development is first and foremost a healthy relationship between investor and founder. This should not only be based on key figures, but also 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 the business field exclusively to the cultural and nightlife sector. This approach has the advantage of being able to delve deeper into the sector. This allows us to offer real added value that goes beyond attractive returns. To make this possible, our team is put together in such a way that it is equally at home in the cultural landscape as it is in the business world. This is also not uncommon for niche VCs in other sectors.

Opportunities outside the mainstream

In general, niche VCs are often very closely networked and in regular contact with each other. This enables authentic relationships among investors and provides a supportive environment for shared learning and growth. These are all good reasons to take advantage of the potential that lies in niche investments. We should not be blinded by the size of the targeted market and chase after the next unicorn. The most effective opportunities often 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 the end of 2021. The Berlin-based VC is not looking for potential unicorns or quick returns, but wants to help shape nightlife in the long term by investing in consumer tech. With his experience in culture, start-ups, finance and consulting, de Silva has driven BNVC's global portfolio with co-investors such as Y-Combinator and Lightspeed. In addition to his work at BNVC, de Silva also acts as a consultant for various companies."