“Which sector are you focus on?”. That is a very frequent question asked by many entrepreneurs we meet and this is very legitimate and logical to ask for it. And guess what? “Sector agnostic by design”, is our answer! But what does it really mean? This is the aim of this article, explaining why we have the conviction that our model is a great one for all the actors we interact with. For sure, sectorial focused VCs have their strengths (especially when they operate at the scale of the continent or of the world) but here are our key success factors:
1/ On a financial viewpoint, the market is not deep enough for the performance we target:
Statistics are clear, being a top performer fund requires to have at least 1 or 2 outstanding success in your portfolio. For funds of the size of daphni, outstanding success means unicorns. These specific investments drive the main part of the performance of the funds. That’s why we have decided to target companies with high potential which address big markets to create a lot of value and reach very high exits (let’s be honest, being super ambitious also implies some failures)
As our performance is driven by high returners, sectorial or geographical expertise would drastically restrain the number of potential targets. That is why we are European sector agnostic investors.
2/ Things are moving too fast for having a sectorial focus
On the one hand, all the markets and the technologies are in constant evolution while on the other hand, state-of-the-art expertise is very hard to maintain in the long term and on different locations. As innovation is made of constant disruptions, newcomers gradually replace the former disrupters. At daphni, partners have managed sector funds in the past and have the conviction that the competitive advantage is only temporary.
3/ We have our magic tip to get the right expertise at the right time: our community
Don’t misunderstand us, we are not (all) fools! We know that sectorial expertise is critical. On that side, we rely on a great community, our Daphnipolis, composed of 300+ amazing experts who are the reference on their market and have aligned interests with us since most of them are investors in our fund. As they are insiders of the market and they have a very good judgment to the real level of disruption, the product-market fit, the competitive environment, the potential of the market, etc … offering us unique insides. This model is great also since it allows to be super reactive to add new expertise when needed which is also a precious help for entrepreneurs.
4/ Investors’ job is to take a step back and being sector agnostic is the best position to do it.
Being sector agnostic means being involved in the evolution of very different markets, different models and different technologies. For entrepreneurs, it means that we are not mentally stuck into a specific model because we only know this one. Actually, it especially helps us to give another perspective by drawing comparisons between the evolution of different markets using insider information.
For us the technologies are toolboxes, so we do not privilege one technology over another except the disruptive technologies (deep tech) which represent in themselves a whole ground of opportunity.
For our investors, it means that we can choose the right timing to invest in a specific sector and that we are not dependant on the development of a market or technology. The risk would be to be stuck to invest in a specific market while the opportunity is actually in another one. And we all know it, in investment timing is key!
5/ Leveraging European DNA
European values, culture, mindset, behavior and DNA better fits with the challenges the world face around social, economic and environmental issues. Our belief is that new behaviors and usages are clearly driving Tech 4 Good companies growth, both in Consumer and Professional spaces. By being sector agnostic daphni supports European startups that will leverage this European strengths to build competitive advantages and be in a position to become worldwide leader on their market.
Freedom is a challenge which can offer potential superior outcomes
At daphni, we want to be opportunistic: why set constraints when no one knows what will be tomorrow’s major disruption. We assume that tomorrow’s innovations can affect any industry and we do not want to lock ourselves into a restrictive sectoral investment strategy. This strategy requires a lot of work and a specific model that we have with our daphni’s community. But we think that this position can also offer us a position to bring more value by taking a step back which is our position as an investor.