Market Network: What It Is and How It Can Drive Innovation

One of the reasons why Silicon Valley is very successful is the fact that it has what we refer to as a “market network.” A market network is a combination of talent. You have local universities that have strong domain experience in IT or something of that sort and are graduating students that want to start companies. It has customers, somebody who’s going to be the early adapter and buy the new company’s products.

So, in Silicon Valley that might be Cisco or Microsoft or companies of that sort that are willing to buy from a startup some new compelling technology that they’re developing. They can give feedback to the entrepreneur about what features to prioritize and lets them manage their resource planning and product features more effectively. They get that immediate feedback.

It has what we refer to as a “pay it forward” network as well. They’re entrepreneurs who have been successful. They built or started their company 20 years ago. They went through the hell of starting a company. They succeeded and they sold. Somebody along the way helped them and helped solve a problem or was a key to their success and they feel a moral responsibility to help the next generation. They provide key tactical advise about things to concentrate on.

A market network also has a risk capital. It has people who understand technology, understand when something’s risky or when it’s really not that risky, and who are willing to deploy capital to support new companies.

So the combination of these four elements: talent, customers, capital, and a “pay it forward” network at critical mass makes a technology region very successful at bringing new innovations to market rapidly and at scale. There’s clear evidence in Silicon Valley that that is very strong.

iSelect’s Market Networks

At iSelect, we’re focused on closing the capital gap. How do we bring more capital from the region to companies?

But the other thing we’re focused on is tightening up the market networks in the region, whether that’s St. Louis or Kansas City or Cleveland. In each area there are elements of successful market networks but they may not know each other that well, they may not communicate that much, or they may be stuck on different sides of towns. There are lots of things that separate them currently. The more that we can draw the networks together both physically and virtually improves the efficiency equation around innovation.

So, for example, at iSelect we concentrate a great deal on agriculture, we concentrate on healthcare, we concentrate on energy. In agriculture, we’re building a market network in which farmers and commodity traders are starting to help evaluate the investments we’re making in agriculture and giving us additional feedback on what price would they pay for seed, what types of products are important to them.

If you’re an ag startup, you have to reach out to all those networks yourself. As an investor in ag, why don’t we just have that network pre-established and then match our startups with those companies to give them that extra little bump so that they can get to market quicker, get sales quicker, and learn from the sales process?

We also have a healthcare market network. The early adapters in healthcare are typically doctors. Patients often want new technologies but often the gatekeeper is a doctor. In healthcare, we have built a network of doctors in every major city. There’s a medical society and then the medical society represents doctors that are concerned about the field of medicine, they are concerned about education and new technology.

They’re quite numerous. In the St. Louis area, there are about 1,500 of these people in the key medical society. We’ve drawn them in so that we’re working on therapeutics and new technologies for healthcare. We need doctors that are experts in particular fields like Alzheimer’s or neurological diseases that can assist the companies. They think about their test procedures and patient reactions.

We’re doing research on immunotherapy for breast cancer and we need doctors that are radiologists who can help our startups understand the results of their trials. Then as we, our company, start to go to market, we need doctors that can bring patients for drug trials and help us understand the best patients to test something with. So we’ve built a market network around that for our healthcare companies.

We’re going to do that in all cases of all the major verticals that we’re working with because it helps manage resources effectively. It helps the company grow faster and is essentially the same practice that’s used in all successful innovation markets.

Consideration

With 2021 well underway and with public markets still strong, we think it is an important time to highlight some of the key private market, venture investment themes that iSelect fund has identified for the year. We believe technologies transforming the Agriculture, Food and Wellness markets will flourish, with a focus on four areas: technologies that enable better food choices to drive better health outcomes, technologies that drive better, more profitable farm operations, technologies that drive the Consumerization of Healthcare, and biome-based treatment technologies. At iSelect, we invest for impact AND performance. We offer qualified investors access to emerging growth companies through our national venture capital strategy. Our unique structure allows our investors to continue to invest in these companies as they develop.

Timing

Why is now the right time for venture? The answer is that now is not explicitly the right time. Venture is something we need in our economy at all times. Now is not better than any other particular time. The question is, why ever stop? When we look at the challenges we’re facing in food and healthcare the reality is there is someone, somewhere who has an insight about how to build a product that will solve those problems. And if they put the right resources to it, they will succeed. As long as we need new technology to make life better or make our lives more enjoyable, we need venture capital to help fuel those entrepreneurs.

What is iSelect as a product?

iSelect is a very unique product, but when you break it into its parts it’s fairly easy to understand. On the front end we’re a traditional venture capital fund. We have a diligence process. We have an investment process. We have categories of industries where we have focus and real expertise, and we invest in companies in those areas that meet requirements for the fund. On the back end we’re unique in that we don’t raise a large amount of capital at one time and deploy it over the life of our fund. Each deal that we bring onto the fund, our investors have to prove and determine to invest in that deal. We have to constantly prove our diligence standards. It’s accessible, transparent and easy for investors to come in and see our comprehensive process.

What is the ideal iSelect company?

We are looking for founders that are passionate and we want the problem they’re trying to solve to be big, real, and painful. We want the solution to be revolutionary and we want our capital to be able to help them solve that problem. We want to know that they have customers involved and that the solution they’ve come up with actually meets those customers’ and market needs. And we want the team to be capital efficient with the money they’re spending.

What does the ideal iSelect company look like?

We’re looking for a company that has an opportunity to have a 10x return to our investment or greater in a period of three to seven years. What excites us at iSelect are companies that are solving big problems. We want companies that are going to be the Monsantos of the future. Not just in the size and the scope, but the impact they have on people’s lives. We want to create positive impacts on people’s lives, so we invest in areas like agricultural production and areas like producing healthy foods for our kids. They are problems that impact real people’s lives on a daily basis. That’s what we’re trying to do at iSelect. We’re trying to solve the big problems out there. Find ways to bring capital to the entrepreneurs who are the real heroes out there getting up every morning, beating away at these things that are problems that you and me and everyone else faces in their everyday lives.

What is iSelect?

iSelect is a venture capital firm. What that means is we look at hundreds and hundreds of different companies and we apply tough diligence standards to each of them, looking at whether the team has a good plan for growing the business, whether the team is qualified and credible, and more. We do that to resolve the few who provide the best opportunities for investors. And then iSelect takes that smaller set of investments and goes to investors who are interested in venture capital and provides a way for them to invest in these companies, either individually or all at once. We co-invest alongside other venture capitalists. We source transactions through to an exit where the company would become public or get bought. And we manage that whole investment process on behalf of our investors.

What Is a Market Network?