Every few months, a new trend takes the startup world by storm.
Remember when subscription meal delivery was all the rage? Dozens of startups popped up – HelloFresh, Blue Apron, Sun Basket, Freshly, The Purple Carrot – and received hundreds of millions in VC funding.
I must have seen or heard about at least two dozen “meal delivery kit” pitches that year.
But I didn’t invest in any of them.
Why? Because by the time these startups were pitching to me, the space was already getting crowded.
More than that, though, I was put off by one thing: the trendiness of these companies.
All too often, angel investors line up to invest in the hottest new trend. I think that’s a mistake.
Luckily, I know of a much better (and much safer) strategy: invest in “ugly” businesses.
Let me explain. I don’t mean that you should go around throwing money at companies that are boring or directionless.
Rather, you should invest in startups that solve real problems for real people. Sometimes, those solutions aren’t as sexy as what’s on trend right now – but you can bet that they’ll make you more money than a company that’s just riding the wave of popularity.
Eventually, trends die off. If you’re locked into a deal with a startup that fizzles out before making it to an exit… you can say goodbye to your return.
That’s why I always look for startups that are solving problems. They don’t have to be sexy, trendy, or particularly interesting – they just need to have an effective niche.
One startup I’ve had my eye on lately fits this description to a tee. It’s a software platform that uses artificial intelligence (AI) to help enterprise clients keep the customers they are at the greatest risk of losing.
If you’ve ever worked in sales, you know that customer retention is, arguably, even more critical than customer acquisition. In other words, it’s easier and much more lucrative to hold onto an existing client than it is to sign a new one.
As you can imagine, the sales industry is ready and eager to pay up for this startup’s services – after all, it’s the only company out there leveraging this new tech for this specific purpose.
Maybe that’s why this tiny company’s revenues have grown more than 350% in one year. I think it could be well-positioned to take on dozens of huge clients and grow much, much more.
There’s still time to lock in a ground floor opportunity with this small company; in fact, they’re actively accepting investments from anyone who sees value in their mission.
Until next time,