Forerunner Ventures, a prominent venture capital firm, has its sights set on a future dominated by digitally native franchises, according to a recent interview with Brian O’Malley, a veteran VC at the firm. The company, known for its early investments in successful startups like Jet, Bonobos, and Glossier, has adapted its investment strategy to keep up with the changing landscape of commerce.
O’Malley expressed a particular interest in what he refers to as sleepy but very large categories – traditional service businesses such as travel agencies, therapists’ offices, and plumbing companies. Despite their conventional nature, O’Malley sees potential in these industries, noting that many local businesses in these sectors are already bringing in significant revenue with healthy profit margins.
The question that arises is whether these traditional service businesses can now be considered viable investment targets for venture capital firms. O’Malley believes they are and explained his reasoning during the interview. He discussed the concept of a digitally native franchise, which combines the advantages of working for oneself with the support and resources of a standardized digital platform.
This model resembles that of a real estate franchise, where businesses like Coldwell Banker or Taco Bell provide the brand and support while individual owners handle operations. O’Malley believes that digital platforms can further enhance these franchises by offering a centralized digital back end that streamlines workflow, facilitates digital marketing, and fosters a supportive community among franchise owners.
O’Malley argues that the time is ripe for the rise of digitally native franchises. The lack of available capital in today’s market necessitates more efficient business models. Furthermore, advancements in artificial intelligence (AI) can automate many of the tedious tasks associated with service businesses, allowing a wider range of people to operate them without extensive individual expertise.
However, O’Malley acknowledges the need for a platform partnership to ensure the success and longevity of these emerging businesses. The platform advantage should keep operators engaged and prevent them from seeking alternative solutions or branching out independently. One example O’Malley cited is Alma, a company in the therapist space that negotiates with insurance companies to help therapists ensure insurance coverage for their clients. This partnership ultimately increases customer stickiness, benefiting both parties involved.
There is a significant opportunity in enabling the next generation of local entrepreneurs, especially as a significant number of these service businesses are currently owned by baby boomers who are expected to retire within the next decade. The digitally native franchise model can provide aspiring entrepreneurs with a prescribed playbook and a technology platform that supports their business ventures, fostering the growth of new service-based businesses.
In conclusion, Forerunner Ventures sees potential in investing in traditional service businesses that can transition into digitally native franchises. By leveraging digital platforms, supporting standardized workflows, and incorporating AI technology, these franchises can empower individuals to work for themselves while benefiting from the advantages of a comprehensive support system. As the landscape of commerce evolves, so too does Forerunner Ventures’ approach to investment opportunities, ensuring its continued success in the venture world.
