VC investment thesis: Homebrew

Tl;dr: Thematic investment thesis from Homebrew. It is centered on the concept of the “Bottom Up Economy.”

The Bottom Up Economy thesis states that as technology becomes more affordable, flexible and accessible, many industries that have not benefited from or been impacted by technology historically will finally do so. Software is eating the world in many cases but also enabling the world in others.

There are some more thought on the approach here.

Homebrew investment thesis

At Homebrew we believe in a Bottom Up Economy, the idea that technology is now helping individuals and small businesses drive economic growth and innovation.  For many decades, the cost, complexity and rigidity of technology limited its power and benefits to large corporations – a Top Down Economy. Today, we’re in the midst of a transformation where technology is increasingly accessible enough, cheap enough and flexible enough to empower individuals and small teams. Teams of 5, 50 or 500 can compete with organizations tens or hundreds of times their size or create entirely new markets with innovative products and services.  The Bottom Up Economy.

The Bottom Up Era

Opportunity and necessity are powerful forces on their own, but when paired together they are undeniably potent.  Opportunity is created by several catalysts driving a Bottom Up Economy:

• Supercomputer in Our Hands: For the 2.5 billion people already online, smartphones, tablets and other increasingly inexpensive internet-connected devices have been magical, but for the remaining billions getting online for the first time via these devices, they will be transformative.  As inventor Ray Kurzweil has said, “a kid in Africa has access to more information than the president of the United States did 15 years ago.”  Our bet is that the kid in Africa will use that information to become an entrepreneur…and we hope she looks us up.

“a kid in Africa has access to more information than the president of the United States did 15 years ago.”

• Trickle Down Technology: Enterprise technology used to be expensive to buy, complex to customize and frustrating to maintain. It was clunky and ugly compared to consumer tech.  Now APIs, cloud services and app platforms provide the opportunity for businesses large and small to benefit from unprecedented efficiencies and intelligence. For example, imagine a small, local business in Kansas City making beautiful glass lamps.  It can virtualize payroll, accounting and employee benefits with SaaS applications.  Production can be scaled via crowdfunding, as opposed to a small business loan.  The company can build a storefront on the web for less than the price of a few square feet of retail space on 5th Avenue.  It can use cloud-based customer relationship management tools and social media platforms to effectively manage its community.  A single employee can create and distribute online videos to a billion people without buying TV spots.  Technology lets a team of 10 hit the market with 100 times more force than just a few years ago.
• The Business of One: The work covenant used to look like this: you work for a company or the public sector at a fair wage and spend 20+ years with a single employer.  Even if you lost a job, there would be another available; not always with higher wages, but at least with a living wage.  Today, the efficiencies gained from technology and the growth of a global workforce mean that many jobs continue to disappear, especially outside of the most skilled labor.

Alongside opportunity, real necessity is a powerful driver of a Bottom Up Economy. Economies driven by technology and knowledge have different employment footprints than the world’s industrial past. Wealth aggregates with a minority of the population and many get squeezed out of the middle class. What’s left are service economy positions and jobs that are under salary pressure due to technical efficiency and global labor markets. Following the recent recession, low wage jobs are returning; middle wage jobs are not.  A recent survey of Americans revealed 59% of middle class families are concerned about dropping out of their “current economic class over the next few years.”

The path back to personal economic stability?  It’s no longer a career in middle-management and a pension.  We’d argue it’s entrepreneurial activity.  Being able to enter the marketplace not as part of a large corporation but as an individual, team or emerging enterprise.  Building small businesses or offering talent, time, creations or assets directly to customers with little friction.  Not a single wage, but many wages.  Supplementing or creating entirely new income streams.

An engineer or designer gets project work by offering his skills via vertical marketplaces. An entertainer sells music, tickets and merchandise directly to her fans online.  An underutilized car or apartment gets turned into cash via peer rentals.  Some participants enjoy the community aspect and a little extra spending money.  Others find a path to self-employment and financial freedom.  And a few even become employers themselves. A Bottom Up Economy is a self-starter economy, driven by a workforce that is being pushed toward innovation.

Bottom Up Economy is a self-starter economy, driven by a workforce that is being pushed toward innovation.

Homebrew’s Focus

Why has Homebrew started with a focus on the Bottom Up Economy?  It’s a combination of our personal experiences, a conviction about the investment potential of the theme and the nature of Bottom Up founders.

• Personal Experience: We’ve each spent nearly 20 years working on and investing in these concepts. For Hunter, Second Life, AdSense and YouTube were all about putting tools in the hands of people to help them build audience, community and economic returns from their creativity.  And as both an operator and venture capitalist, Satya helped bring products that empowered individuals and small businesses to the mainstream, including AdSense and Twitter.  We voted with our feet even before we started voting with Homebrew dollars.
• Investment Thesis: Growing, profitable companies control their own destinies, and that’s what we hope to help founders build. The transition from a Top Down to Bottom Up Economy will create many innovative companies that will lead their industries for years to come.  We also believe that as software eats the world, leaders in every business vertical find themselves facing ‘buy, build or partner’ decisions with innovative upstarts.  This dynamic creates fantastic strategic opportunities for founders in countless industries – retail, financial services, transportation, business software, media, etc. – as every leader and company will be paying attention to new companies disrupting their markets.
• Founder Mentality: We’ve observed that Bottom Up founders are disproportionately mission-driven in their work.  Their business models rely on creating real, tangible value for their customers.  They believe the problems they solve are empowering people.  We believe that being mission-driven is a competitive advantage for an entrepreneur. Mission-driven founders are better recruiters – they can explain the “why” not just the “what” and “how” of their vision.  Their convictions make them better leaders, and their employees more loyal, through the ups and downs of startup life.  Their passion adds energy to every room and every team.  And we just plain like hanging out with them.

Mission-driven founders are better recruiters – they can explain the “why” not just the “what” and “how” of their vision.

What Types of Companies Are Powering the Bottom Up Economy?

It’s not about a particular industry or business model.  A company could be helping a comedian sell her videos direct to fans or turning complex technology into an API.  It could be helping local retailers amass and manage their customer lists or a graphic designer find project work from a client halfway around the world.  That said, categories of companies included in the Bottom Up Economy are software-as-a-service for small business, API-based platforms, vertical marketplaces, direct-to-consumer businesses/services and peer or collaborative economies.  These types of companies often have key characteristics that we look for in our investments: strong network effects, rich data assets, inherently viral growth vectors and long-term defensibility.

Come Talk to Us

If you’re building a startup for the Bottom Up Economy please come chat with us.  If you want to work at a Bottom Up Economy, let us know.  Want to discuss how the Bottom Up Economy is going to change your existing successful company?  Yup, contact us.  Interested in debating our thinking – actually, especially if you want to debate – please get a hold of us.

Homebrew is open for business.
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