5 Under-hyped Companies I’d Invest In at a Wild Valuation
Tons of chatter recently about the remarkable growth of companies like AirBnB and Square. I’m big fans of both, and love how ambitious those companies are trying to be (and progressing nicely). Even if some folks perceive the market as frothy, I think it’s a great thing that there is so much attention around entrepreneurs taking big swings at problems that really matter.
This got me thinking about some of the other companies that I love that might not get as much fanfare. Either because they were founded a little while before the media rediscovered the internet, or because they aren’t perceived as “sexy” products, or both. This thinking led me to remark on twitter:
“Not much talk about Yelp these days. But I think it has a decent shot to be worth more than Groupon and Foursquare long term”
Based on my @replies, there were pretty mixed responses. So I thought I’d expand and share my top 5 under-hyped companies I’d love to invest in, even at a crazy valuation. Disclaimer, I am not an investor in any of these companies, and tried to remove any companies I have a major affiliation with from consideration. Also, I am a seed stage investor, and all of these companies are private and mostly later stage, so I have little real information to go on aside from my observations and gut :)
1. Yelp Not as hyped as Groupon, or FourSquare, but I think realistically far more useful for me as an end user and greater sustainability long-term. The content that the site has amassed (and continues to build) is a very strong sustainable competitive advantage and one that is very difficult to overcome, IMHO. Groupon monetizes better at the moment, but I worry about the barriers to entry and what will likely be declining open rates and gross margin in that category of businesses. FourSquare is cool, but just doesn’t have enough coverage of local businesses to be consistently useful enough for me. To me, Yelp is the LinkedIN of the local space. It’s slowly and steadily going to emerge as a fundamentally sound and very durable business.
2. Tripadvisor: Ok, very similar themes to Yelp, so I guess this speaks to my own personal biases. The company is being spun out as an independent public company later this year, and I think it has been significantly undervalued within Expedia. The company scores very well on Bill Gurley’s “revenue scorecard" and has been wildly profitable for years. The biggest knack on the company is that the product experience isn’t great and the reviews are too generic. I see this as an opportunity for the company, which is remarkably successful despite these drawbacks. As un-sexy as people think the product may be, I do not book a hotel room without first checking Tripadvisor (and I usually do this very close to the end of the research funnel). Furthermore, I love that the founder Steve Kaufer has stayed at the helm of the company even after having his “exit” many years prior - you have to bet on the dogged persistence and vision of a motivated founder.
3. DropBox: Ok, I’d say that Dropbox probably does have a reasonable amount of hype. Then again, that may just be because everyone I know uses it. It’s an amazing service, with high switching costs, very predictable revenue, and a very lean operation. As I’ve said before, I’d probably invest in DropBox at any valuation the market would bear.
4. Behance: My last two choices are more under the radar. Behance is a New York based company that is emerging as the dominant platform and community for creative professionals. It’s not really in the public spotlight, but everyone I know in the design/creative industry is well aware of the company and a participant in the network. I also love Scott Belsky's vision for how the creative process should evolve (and by extension, how creative professionals can capture more of the value they create in the industries that rely on them).
5. Pinterest: Pinterest is a very new company that is seed financed. We did not participate in the seed round, because I only recently heard about the company. I’ve said before that I think experiential shopping is a big opportunity, and the process of buying stuff like art, furniture, fashion, etc should be very very different than what we typically see from e-commerce today. The day before I heard about Pinterest, I was literally thinking about how to create a product that merges the best of SVPPLY and Polyvore for the market for home-goods. I’ve been using Pinterest for this purpose ever since. The product is beautiful (if a little slow), the content I’m finding from other users is inspiring, and I’m noticing mainstream friends of mine signing up for the service way more than some much more hyped companies like Instagram. It’s super early, but I think the company is on a great path.
Special mention: CSN Stores. I’m conflicted in saying this for a bunch of reasons, so I’ll just quickly state my opinion that CSN is also wildly underhyped, for what I think is likely to be one of very few ecommerce companies to break out to Zappos-like scale or better.