It's rugby.

Sorry, this is a bit of a stretch but I wanted to illustrate a basic learning many cleantech VCs have had to go through over the past few years (myself very much included).

I hear some investors say all the time that they're looking to "hit 'em where they ain't."  That quote comes from "Wee Willie" Keeler, a professional baseball player from a century ago, and when used by VCs, they're typically meaning that they're going to be looking for investment opportunities in sectors and market segments where other investors aren't also placing bets.  The theory being that therefore you can get out ahead of the crowd and establish investments in early leaders in a fast-emerging sector.

It's a fine theory, but it's getting hard to spot any real gaps in the outfield these days.  When I started out doing cleantech venture capital six years ago it was still relatively easy to find sectors and markets that had been pretty unaddressed by other VCs, but these days where there's a capital gap it's usually not about a technology or market, but more about the limitations of applying the venture capital model to certain markets and business opportunities in the first place.

So hitting 'em where they ain't is getting harder, and it's unclear that the remaining gaps don't exist for very good reasons.

The metaphor also belies a core but increasingly tenuous assumption many VCs have, that simply being into a market early is sufficient to gain a key advantage on the rest of the VC herd.  Hit a ball into the gap, and just start rounding the bases!

But the right way to think about it isn't baseball, but rugby.  As with baseball, in rugby there are times where a player will want to kick the ball where defenders aren't, to gain a key advantage.  But the big difference is, in rugby you have to run like heck to go cover that kick — to go where you kicked the ball, and grab it and try to make something out of that momentary advantage.  It's not sufficient to just have kicked it where no one is standing.

Okay, it's a bit of a stretched analogy.  But the serious fact is that it's a lot easier said than done to successfully invest in a technology or market niche where VCs haven't previously invested.  

1. There will be unforeseen challenges in developing, productizing, and commercializing the technology, and the Board and oftentimes the management team will likely be unprepared for the serious delays versus plan when they encounter these challenges. 

2. It will be difficult to find entrepreneurs, either already in the company or that can be recruited in, who will be both knowledgeable about the sector AND about how VCs work.  I've already had plenty of experiences backing industry-knowledgeable entrepreneurs who've never been part of a venture-backed enterprise before, and I've learned there can be serious expectations and knowledge gaps that can end up really fouling things up.  Especially when it comes to subsequent fundraising rounds, if the entrepreneurs don't understand how to raise that Series B, and/or they don't know why their Board is pushing them to take on more dilution, it can result in missed growth opportunities through a critical lack of capital (not that I'm a fan of overcapitalizing companies either, it's a fine line).  Venture capital is a bit of a black box, if not a black art, and it's tough for even very smart entrepreneurs to understand how it works until they've gone through it before.  And on the flip side, we've all already seen plenty of examples of serial entrepreneurs being brought into companies in sectors they're not already familiar with, and making critical mistakes by not understanding the market, the technology development challenges, etc.  So the inability to readily find entrepreneurs/ managers who ALREADY have both venture capital knowledge and domain expertise is one of the critical challenges of making investments in unaddressed sectors.

3. A lot of costly and time-intensive customer education and proselytism will be required, if your company is one of the first to offer a new product in an unaddressed market.  Customers may in fact NEED to see multiple vendors before an entire category of product or service offerings have enough validity for them to do any serious adoption.

4. And it can be almost as dangerous when and if the rest of the VC herd catches onto the sector and jump in.  The second wave of investors jump in and, attempting to catch up, throw a bunch of capital at accelerating commercialization of their own bets.  Which increases the pressure on the early movers to also pour capital into an attempt to stay ahead of the pack.  Next thing you know, those early Series A investors who initially colonized the sector are being sucked into larger and larger rounds of financing in markets that initially looked unpopulated but increasingly look crowded.  

Okay, far too many mixed metaphors in one column, apologies.  But I wanted to get across the point that simply being an early investor in a market doesn't ensure success.  And in fact, there are plenty of examples in venture capital's history where the first wave of investors did mediocre and the second wave of investors were the ones that reaped the benefits.  After all, Google wasn't the first search engine.  So rather than applaud VCs who talk simply about putting the ball "where they ain't", pay attention to what skillsets and unique attributes they're going to be able to bring to the above challenges.  In other words, how they're going to cover the kick and what they plan to do with the ball once they get there.

And by the way, rugby is much more of a contact sport than baseball anyway.