Maine

Venture-capital backed startups almost all cluster in the same handful of industries, mostly various types of software. This leaves a variety of large and economically important sectors with almost no venture-capital backed startups. That means those industries see fewer new companies and new ideas; they must rely on either growth from existing firms, which are unlikely to embrace disruptive innovation, or on startups that bootstrap and/or finance with debt, which tend to grow slowly.

Venture capital firm Fifty Years has done a nice job cataloging exactly which industries see the most, and least, investment relative to their size. Here is their picture of the US economy by industry market size:

Now their picture of which industries get the investment (though unfortunately, they aren’t very clear about their data source for it):

They use this to create an “Opportunity Ratio”- current market size divided by current startup funding:

They call the industries with the largest Opportunity Ratios the “Top Underfunded Opportunities”:

I don’t necessarily agree; some industries face shrinking demand, prohibitive regulation, or other fundamental issues making them bad candidates for investment. Conversely, investors haven’t just focused on software randomly or through imitation; they see that it is where the growth is.

Still, herding by investors is real, and I always like the strategy of finding a new game instead of trying to win at the most competitive games, so I do think there is something to the idea of investing in an unsexy industry like paper. Growing up in Maine and watching one paper mill after another close, I always wondered how they managed to lose money in a state that is 90% trees, and whether anyone could find a way to reverse the trend. Perhaps related technology like mass timber or biochar will be the way to take advantage of cheap lumber.

Thanks again to Fifty Years for releasing the data.

No big post this week, I’m in the Maine Woods without reliable internet or electricity.

The one economics angle to all this is that like many seemingly ancient Maine forests, the one I’m in used to be a farm. Notice the barbed wire running right through the middle of a huge old tree; the farm was abandoned so long ago that the tree had time to grow that big around it.

Why was the farm abandoned? Maine is cold and our soil is rocky, so agriculture tends to be unproductive relative to the Midwest. Many people left their farms in the late 1800s and early 1900s for new land in the West or, more commonly, manufacturing jobs in the cities. Maine used to be half farms, but now its land is 90% forest.