Lunchroom Investing: Beauty and the Geek

Remember back in high school? The cool kids sat together in the front of the lunchroom where all the actions and eyeballs are. They were chic, popular, and good looking. Everyone just wanted a piece of them. In the back of the lunchroom were the nerds, geeks, and losers, who only wished to take a glimpse of the “real charmers.” What neither of the groups knew was that their popularity, or the lack of, in high school meant nothing, and the nerds will probably be the boss sooner than they think.

Today’s hot investments sit in the front of the lunchroom. They’re the darlings of investors everywhere. The less popular opportunities are sitting in the same room, overlooked by investors who just want to hang out with the cool startups. These “nerds” are ripe for the picking by savvy investors who are willing to take a risk on something that isn’t the whiz-bang fad everyone’s talking about.

In my previous post, I summarized Mercury News’ interview with Sequoia’s Mike Moritz, who seems to have a thing for frugal founders and “unfundable” startups. While everyone was whispering about the new-fangled “world wide web”, Moritz was investing in a manufacturing-services company called Flextronics. Today, while everyone is swooning over social media, Moritz is putting money into a contact center called 24/7 Customer.

Of course, Moritz has made numerous investments in the social web. But he’s also keeping tap on less popular trends and investing in “boring” startups that fill market needs. These startups just might emerge as the “boss” one day, just like the nerds who sat in the back of the lunchroom back in the high school days.

With the media frenzy about popular startups, it can be quite a challenge to find people who aren’t talking about them. So, if you want to keep up with emerging trends to guide your investing but don’t want to throw your money at “cool” startups that are likely overrated and overvalued, what do you do?

A good place to start is to go through Paul Graham’s “Startup Ideas We’d Like to Fund.” Some ideas are less exciting than others; nonetheless, they address market needs/flaws. Have you come across any startups that are homing in similar issues? If so, you might want to look into them.

You’d also check out futurists, and consumer and market trends at The Trends Research Institute, TrendHunter, and TrendWatching. These sites could help you spot those back-of-the-lunchroom emerging trends that other investors have overlooked.

What other sites would you add to the list?

Links:

• Startup Ideas We’d Like to Fund
• The Trends Research Institute
• TrendHunter
• TrendWatching