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Blog

The Markets You Can't See

Will Porteous

As venture capitalists, we have the privilege of partnering with exceptional entrepreneurs solving exceptional problems. Innovations come in all shapes and sizes and it’s our responsibility to be open to opportunities in whatever form they present themselves. RRE Ventures has invested in over 200 companies over the last 20 years across a broad range of sectors. We typically get excited when we see a combination of a brilliant team, a fast growing market, and novel technology that addresses established trends.

But sometimes you only get two out of three of those ingredients to start with. And while we can help recruit a strong team, and a strong team can create truly innovative products, neither of those matter if the market does not develop. This is probably the most common reason that venture investors pass on opportunities - a lack of confidence in the addressable market. But sometimes, you have to look past the market that exists today - and imagine the market that could be… 

At RRE, sometimes we do what others say is crazy. And sometimes a great new company emerges. We would like to tell a few such stories about startups that ultimately became successful RRE companies because they were a little weird. Each of these entrepreneurs looked at things differently, believed things that most others didn’t believe, produced a better product, presented it in a creative way, and opened up new demand in a previously uninteresting market.
 

In 2010 our team began to hear about the innovative things happening at NYC Resistor, a hacker collective. Bre Pettis and his co-founders were reimagining the essential components for 3D printing in ways that would make it vastly more accessible to consumers. And the community was rooting for them, as evidenced by the vast library of open source 3D designs on Thingiverse. In a period when we were hearing a lot about incremental advertising technology and the latest derivative social networking application, Bre and his team stood out. They were fearless entrepreneurs with a big idea. They wanted to change human behavior, and bring rapid prototyping to the desktop and our homes the same way personal computing and the Internet had revolutionized the economy two decades before. Many people thought the idea was a fad, just an expensive toy no one would buy (especially because you had to put it together yourself). After all, the 3D printing market in 2010 was dominated by machines costing $20,000 or more and tools accessible only to CAD designers. But we saw the extraordinary organic demand for those first MakerBot printers and we realized that this product was enabling the creation of a new, fast growing market in the shadow of this old one. 

MakerBot was acquired for $604 million less than two years after our initial investment.

In 2004 we made an initial investment in a company called Index Development Partners. The company was publicly traded, though it had no discernible business, and was on the verge of being delisted. The principal founder, Jono Steinberg, was well known to RRE though, and he thought deeply about how mutual fund management was starting to change. Jono and his team had assembled substantial intellectual property (IP) to define fundamentally weighted indices that would allow an investor to make very focused fund selections. They planned to launch a family of funds based on this IP. They faced the challenge of getting these novel products through SEC registration and building distribution for them in a market dominated by well established brands. Index Development Partners was an unusual venture deal: an investment in a failed public company building a new financial services business. Certainly the mutual fund market was unremarkable in 2004 from a venture capital standpoint. But the founders of the company that became Wisdom Tree had a clear vision of the future - one in which consumers might forego active fund management and the associated fees in favor of simple, index based products. The Wisdom Tree team worked tenaciously to create the reality in which they would be successful and uncovered massive latent demand. And a new high-growth market emerged such that Wisdom Tree’s 2010 fund launch was the largest in the history of the New York Stock Exchange. 

Ten years later, Wisdom Tree has $35 billion in assets under management.

In 2010 the media industry was well into its current period of turmoil. Legacy media companies had begun to see subscription revenues collapse and online display advertising was already a weak business, getting weaker. There were lots of new media companies producing engaging content, but with very little revenue to show for it. This was not just an uninteresting legacy market, this was an industry collapsing. BuzzFeed started with a simple idea: understand and make things that people like to share. BuzzFeed’s founder, Jonah Peretti, had a remarkable history of identifying and creating content that people were willing to share – and he was building the tools to track and understand that sharing. When RRE invested in BuzzFeed, it wasn’t clear what sort of a business would emerge from this - there was no revenue and only the vague idea that advertisers would pay to have their ads ride along with content as it was shared. But Jonah recognized that a fundamental shift was happening – people were increasingly interested in discovering the news stories and content that their friends were reading and excited about. That’s when BuzzFeed started experimenting with content sponsored by brands that was funny and engaging. With the company’s deep analytic capabilities, brands could now understand how their advertising was being watched and shared. This was a far cry from “impressions.” Thus the sponsored content business was born, a new form of brand advertising and a rapidly growing market where none had existed before.

Today BuzzFeed reaches 150 million monthly visitors around the world.

RRE recently made a similarly audacious investment. Peter Platzer is a former CERN research scientist and hedge fund manager turned space enthusiast. Peter went from drawing concepts on a napkin to having his first satellite in space in under 12-months and, in the process, launched a company called Spire. Spire is a big data company powered by small satellites focused, not on satellite imagery, but on other remote sensing capabilities. By placing cheap, nano-satellites into Low Earth Orbit, Spire aims to provide high-frequency Automatic Identification System (AIS) data to track vessels and assets on the open ocean, as well as to monitor piracy, illegal fishing, maritime security, and even geopolitical conflicts in places like the South China Sea. Spire also fills an upcoming gap in the US national weather data set caused by the end-of-life of certain government weather satellites. And Spire solves this problem at a significant cost savings for the American taxpayer.

Now, tracking vessels and cloud formations is not exactly new stuff. These markets exist today and they are, frankly, relatively unremarkable. That is partly because there has been relatively little innovation in support of these applications until now.

As the Spire team builds its constellation of Nanosatellites, they are creating a future in which weather data remains cheap and accessible, in which highly precise asset tracking becomes possible on the open ocean, in which higher frequency AIS improves maritime security, and in which manufacturers always know where their products are, even when they’re inside containers on the open ocean. We believe great products in these areas can unlock substantial latent demand and spawn a new, high-growth market that rapidly eclipses the old one.

Whether it’s MakerBot, Wisdom Tree, BuzzFeed or Spire, the commonality in each of these companies is a tenacious founding team with a relatively unique point of view, and the capabilities to bring real innovation to the task of creating a new market. Markets don’t coalesce around ideas; great entrepreneurs create the conditions in which their vision can become reality.