Five Themes for New Investments in Mid-2023

What we're spending time thinking about at Footwork, as of halfway through the year.

Jun 28, 2023

Welcome to issue #46 of next big thing.

Whenever someone asks me what I like most about being a VC, the answer is easy, because it’s stayed consistent since the day I started: finding the next investment.

Does the entrepreneurial nature of building a venture firm get me fired up? Of course. Does working closely with founders through good and bad times feel meaningful? Yes. But the thrill of discovery, of unearthing a company that I think could be the next big thing, is incomparable.

It’s in that spirit that I thought I’d share a bit about the five areas in which my partner Mike and I have been seeking out new opportunities as of this midway point of 2023 at Footwork: Aging, Climate & Sustainability, Education, Consumer, and AI-Enabled. We’ve made three investments so far this year, each of which fits into one of these five themes.

From a stage standpoint, we focus at Seed and Series A, where we lead and co-lead rounds. We rarely invest pre-product; we like to see a product in market with some early signs of customer love and product-market fit. If you’re working on a company in any of these areas that fits this stage, please do reach out (you can reply to this email, leave a comment, or find another way to get in touch with us). And we’d love feedback on what does or doesn’t interest you about these themes.

Aging

The global population aged over 60 was 1 billion people in 2019, and is expected to double to over 2 billion people by 2050. In the U.S., those aged over 60 control the majority of consumer spending and net worth. And that set of people is increasingly tech-native and living longer (though not necessarily healthier). We believe this presents many opportunities for new products and services to improve the lives of older adults, as well as their loved ones and caregivers. Across areas such as caregiving, assisted living, healthcare, fitness and wellness, financial services, and community, we’ve been spending a lot of time looking for investable opportunities where we think enormous companies can be created.

Climate & Sustainability

Last week we announced our investment in WindBorne, a smart weather balloon and weather forecasting company. It’s the flavor of climate tech company that gets us very excited to invest: solving a big problem with a novel solution, a number of early signs of product-market fit, and the chance to build a large, N of 1 company, if the team can execute on its vision. We’ve looked at a number of software companies in the climate space, but we also are open, as evidenced by WindBorne, to investing in companies with hardware or novel technology, after some level of technical risk has been mitigated through a product already being launched in the market.

There are some climate-focused investors who think of the category very narrowly (e.g. that a company must have a certain potential emissions impact for it to be investable for the fund). We don’t, and that’s why we want to call out that we’re open to investing in sustainability companies that have a climate impact. Mike and I were on the board of Imperfect Foods (now merged with Misfits Markets), for example, which helps fight food waste through grocery delivery. We’d love to find more consumer-facing companies like this to invest in, and are also interested in software companies that help ensure less waste is produced in companies’ supply chains and businesses (e.g. through better inventory management, better pricing and forecasting tools, etc.).

Education

One of the first investments of my venture career was leading the Series A in ClassDojo back in 2013. The company has evolved from a communication platform for teachers, parents, and students, ubiquitous in K-12 schools globally, to building virtual worlds for kids. It’s eschewed a lot of the commonalities in “edtech” businesses, by monetizing with parents instead of schools.

But 10 years later, edtech is a very different market. The pandemic forced schools and districts to re-evaluate their technology stacks, and the speed at which they make procurement decisions. There are several software companies that have scaled to over $100M in ARR, primarily selling into schools and districts, very quickly in the past few years. And while school budgets have risen, the requirement for schools to rise to meet students’ and families’ needs has also risen. Schools feel increasingly like the most important community centers, where students and families turn to for help with their mental health, learning differences, nutrition guidance, transportation, and other challenges they face. We’re excited about the opportunities that lie within, and aren’t afraid of the school go-to-market channel.

Consumer

Mike and I have always had a bias towards wanting to invest in consumer-focused companies, given our backgrounds (Mike’s time as COO of both Stitch Fix and Walmart.com, and my time working on Artsy & investing in companies like Canva, ClassDojo, and The Farmer’s Dog). Yet less than a third of Footwork’s portfolio companies are purely B2C. Why? Well, it’s no secret that it’s been a tough several years for consumer tech startups. Incumbents wield heavy power. Channels for mass distribution are few and far between. It’s extraordinarily hard to build a business reliant on paid marketing for customer acquisition, especially in a post-ATT (App Tracking Transparency) world. And consumer attention just feels harder than ever to capture for a sustained period of time.

But we’re more excited to invest in consumer tech companies right now than we have been at any other moment since we started Footwork. We humans have an innate desire for connection, and this feels like a particularly important moment for companies to be built that help foster that connection. People seem lonelier than ever coming out of the pandemic, and in a world of so much content generated by AI, perhaps it’s real humans and IRL experiences that will be more novel and interesting, and will yield products and companies that capture the world’s imagination. At the same time, there’s also the potential for AI-driven consumer applications to make people more productive, happier, healthier, and maybe even less lonely. We’re watching these trends carefully, playing around with several new applications ourselves, and eager to meet more builders.

AI-Enabled

Per the above point, we have an interest in AI-enabled consumer applications, as well as the intersection of AI and the other investment themes described here (AI x Education, AI x Climate, and AI x Aging). Our firm belief is that at the application software layer, particularly focused on verticals and niches that are less of a priority for larger incumbent tech companies, lies exciting new company opportunity. It feels like the legal vertical is one where generative AI and large language models are already making an impact, with exciting AI-enabled software companies like Casetext (acquired this week for $650M by Thomson Reuters), EvenUp and Harvey making strong progress. But there are lots of other verticals and niches that have the chance to be reinvented with AI-enabled software. We’ve made one investment in this theme already (in AI x Healthcare), and would love to find more.

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