David Schwab, who launched Vertical Venture Partners a couple of years ago after 20 years at Sierra Ventures, says he did that so he could pare down his investment focus.
Micro-funds are the place to be, he believes, and it’s better to go deep into relieving specific industry “pain points” than to try to sell across multiple vertical markets.
Why did you start Vertical Venture Partners and what is its focus?
There’s really three fundamental tenets of the fund and they all come from 20 years of experience in the school of hard knocks.
The first important thing is that smaller is better than bigger when it comes to venture. This point is actually embodied in the data. If you follow the field of venture and you plot returns, smaller funds do better than bigger funds. That’s not disputed. So the first idea here is to get back to basics in venture and do smaller rather than larger funds.
The second fundamental tenet of this fund, and it’s embodied in the name itself, is that vertical is better than horizontal. Companies that sell into specific vertical industries like retail or financial services or insurance are better companies and better investments than the companies that try to sell to everyone. It’s a bit counterintuitive because vertical markets are obviously smaller than horizontal markets. But you get this huge benefit of domain expertise in that particular vertical. For a whole bunch of reasons, it’s a better place to be. So the fund is called Vertical Venture Partners.