Restaurants: A Year in Review

Amit Raizada

December 27, 2020

In my more than twenty years as a venture capitalist and entrepreneur, I’ve always felt a strong affinity for the restaurant industry. I’m a foodie at heart, and I love being able to back the ventures that help share the wonders of food with the world.

Restaurants have always comprised a significant portion of my investment portfolio—and, as such, I write a lot about the industry. Back in February, I wrote an article about developing successful restaurants in which I stated that restaurants should work to cultivate a unique atmosphere and embody a certain energy.

Wow—to think how much has changed in the last ten months! Little did I know that no less than a month after writing that piece, restaurants around the country would be asked to close their doors upon the coronavirus’ arrival in the United States. Little did I know that most of these restaurants would go months without accommodating a single dine-in customer, that proprietors would need to devise a wholesale transition to patio dining just to stay afloat, and that millions of hospitality workers would soon lose their jobs.

The restaurant industry has been turned upside down in the time since I wrote that piece.

Now, restauranteurs and investors are constrained by a national patchwork of regulations and restrictions. In some states, restaurants are operating almost as normal. In others, like California—one of the nation’s culinary capitals—restaurateurs have been on a rollercoaster ride.

After only being permitted to offer take-out dining in the spring, most restaurants were able to accommodate outdoor dining during the summer months. Proprietors spent large sums of money on tarps, decks, and furniture to build attractive outdoor patios for diners. In late November, amid a nationwide surge in cases, outdoor dining was shuttered across the Golden State, leaving restaurants to pivot back to take-out only models.

As this troublesome year winds down, I wanted to share a few thoughts I’ve had about the restaurant industry, where it’s been, where it’s going, and how it can make the most of this inauspicious situation.

FOCUS WHAT YOU CAN DO

The COVID-19 pandemic has significantly constrained restaurants’ ability to operate in a normal capacity. While many of these restrictions are necessary to slow the spread of the virus and ultimately save lives, it benefits restaurateurs to focus less on what they cannot do and more on ways to maximize what they can still do.

In states like California, the answer may be that restaurants are only permitted to fulfill take-out or to-go orders. In other markets, restaurants may be able to accommodate the public on outdoor patios. Whatever the restrictions in your municipality may be, discern which functions are still permissible and leverage those to the best of your ability.

CREATE NOVELTY

In earlier iterations of my musings on restaurants, I wrote that proprietors should focus on cultivating within their establishment a unique and trendy atmosphere that transforms dining at your restaurant into a sharable, unique experience.

While new restrictions have recharted the ways in which this is possible, I encourage restaurateurs to figure out how to make eating at their establishments feel like a novelty—and something worth sharing with family and friends—during the pandemic.

This could involve a pivot in service or recalibrating your cuisine to better meet the needs of a pandemic era-crowd. Developing ambiance during a pandemic is far easier said than done, but must nonetheless be a priority for restaurants adapting to this era of uncertainty.

THINGS WILL GET BETTER

I know that the last thing any struggling restauranteur wants to hear during these trying times is a platitude, but with the Pfizer and Moderna vaccines already being administered to the public, the restaurant industry looks ripe for a resurgence at some point in 2021.

When the clock struck midnight last January 1, no one could have foreseen the struggle and discord the proceeding 364 days would have in store for our society, the boom to Zoom & at home fitness companies like Peloton, and our country. But we’re here now, vaccines are on their way—keep your heads up.

2020 is nearing its end. What’s going on with the economy?

Amit Raizada

November 28, 2020

As we begin to wrap up Q4, I can’t help but reflect on the state of the economy. After a whirlwind year that took us from business as usual in January and February to a spring, summer, and now winter mired in challenge and uncertainty, the caprices of the 2020 economy have left us in an interesting place.

While the markets have soared this week, their success belies the difficulties that many Americans still face. Millions remain out of work and countless others with few job prospects on the horizon.

There is, however, cause for cautious optimism. Pfizer and Moderna’s recent announcements that their COVID-19 vaccines have reached 90 and 94.5 percent efficacy, respectively, could spell an eventual return to normal.

With the year nearing its end, I wanted to recap a few thoughts I’ve had about the economy and the finance industry over the last year.

UNCERTAINTY

The last eight months have been defined by uncertainty, a feeling that is likely to continue until a vaccine is approved for mass use, scaled, and distributed to billions of global citizens. Uncertainty has a couple of effects.

For one, it causes investors to put their money in longer-term bids. Within the markets, this means betting on long-term assets like Treasury Bonds or even gold. Uncertainty also slows down economies. It also dissuades folks from making big purchases—like cars or houses—and slows down spending on consumer nondurables.

A few recent events have, at least somewhat, chipped away at our nation’s collective sense of uncertainty. The news about the potential COVID-19 drugs and the conclusion of the presidential election have helped flesh out a more tangible picture of 2021. While things are still far from normal, these events are helping reduce global and national uncertainty.

LOW INTEREST RATES

In mid-March, the economy looked dire. To bolster the rapidly declining economy, the United States Federal Reserve embarked on an expansionary monetary policy in March, lowering interest rates to near zero and purchasing securities to flood the country’s money supply.

Low interest rates incentivize economic activity by making it easier to borrow money, which lowers barriers to home-ownership and investment. Low interest rates have helped propel the stock market’s robust growth during this otherwise dreary chapter in our nation’s economic history. Federal Reserve Chair Jerome Powell has signaled that the central bank is reluctant to raise interest rates once again—a motion sure to keep the market on its current track.

With interest rates remaining at historic lows, many aspiring investors are looking to enter the market. I do caution aspiring investors, though, to look for the opportunities and ventures that will transform our economy in the long-run—the ventures operating at the cutting edge of technology, offering innovations once thought impossible. These ventures are far more lucrative—and rewarding—than investing in short-term IPOs.

LIVING HISTORY

Peruse any college economics syllabus right now and you are sure to find at least one lecture on the Great Depression—its causes, its effects, and its legacy. A century from now, I wouldn’t be surprised if March 2020 occupied a similar position of scholarly and cultural intrigue.

One year ago, our biggest worries when it came to the economy were slowing rates of economic growth in Germany and China and the Fed’s decision to cut interest rates by 0.25 percent (25 basis points, as investors would say). Who could have seen that an unprecedented global pandemic would grind the world economy to a complete and utter halt in just a few days?

Now, trillions in stimulus spending and millions of lost jobs later, we find ourselves celebrating Thanksgiving and the Holidays in one of the most peculiar economic situations in our nation’s history. While I have no doubt we will recover and continue to drive innovation throughout the twenty-first century, the end of this long year offers a moment of reflection—and I’d be remiss not to acknowledge this last year’s challenges.

IPO Mania: Tricky Investments and Long-Term Strategy

Amit Raizada

October 12, 2020

If you have been paying attention to the stock market at all these last few months, odds are that you’ve seen skyrocketing IPOs that seem to defy all logic. Snowflake (SNOW) IPO’s at $120 a share, then closes at $254 after reaching $319 at its highs. Lemonade (LMND), a tech/insurance hybrid, opened its big day at $29 and traded to highs of $64—a 132% gain on the day. These are the kinds of jumps investors dream about seeing once a year, let alone in one day.

Even in the midst of the deepest economic crisis we’ve seen in decades, IPO’s are having a banner year. September was one of the best months on record for IPO funding, and all signals are pointing to an October defined by the same astronomic impact. In fact, IPO tracker Renaissance Capital found that IPOs this year are enjoying 2.5x more first-day pop than the historical average. These head-turning debuts are exactly what financial bloggers and stock market reporters salivate over, creating headlines that catch even the most casual investor’s attention. Pair that with the meteoric rise of easy-to-use online, app-based brokers like Robinhood—which has an $11 billion valuation itself—and you have a recipe for quick success (and in many cases, ensuing disaster).

Gains of this magnitude can paint a rosy picture over a rough canvas, highlighting the outliers while ignoring the true reality of the underlying economy. This primes amateur investors and get-rich-quickers to enter into IPOs purely based on the initial event, ignoring the inherent value of the company and long-run considerations. As I have frequently cautioned in the past, investing with a long-term time horizon in mind beats fast, speculative trades. Every. Single. Time.

As a venture capitalist and entrepreneur, I’ve long pursued opportunities in the economy of the future. At Spectrum Business Ventures, we see the world differently, closely monitoring the preferences of young consumers and emerging market trends to gain footholds in the firms and products that will come to define our economy in ten, fifteen, or twenty years—even if doing so means incurring short-term losses. I urge aspiring investors to do the same.

IPO deal hunters have the right idea—they just need to refine their approach. Investing in IPOs requires meticulous research and assiduous reading of market trends. Rather than funneling this energy into boom-and-bust stocks, though, look for the ventures promising to deliver innovation for the long-run.

FOMO-induced surges

The allure of 200 percent overnight gains has attracted many aspiring investors, and while some may have realized gains from these one-day pops, most are being dragged down by the subsequent crashes. As the legendary Jim Cramer says, you never have a gain until you actually take it.

Take hydrogen-powered vehicle company Nikola (NKLA), for example. After a significant run-up to $80 a share in early June, very shortly after its IPO, the stock now sits at a cool $24.15. This means that there are some people out there who got trapped at $80/share who are now sitting on nearly 75 percent losses. Those who bought at the top were not making decisions based on long-term considerations—they were jumping in on a short-lived rocket ride.

Shades of 2000-2002

The 2020 IPO landscape is demonstrating remarkable similarities to the tech melt-up of 2000-2002. Driven by simple online investing, unrestrained optimism, and manic buying, the current valuations of some tech stocks have soared through the roof.

I urge aspiring investors new to the stock market to look toward fair or underpriced businesses whose products or services have the potential to change the way we live. Some of these IPOs even have these traits, but make sure you are getting a good deal on any stock you get into. And if that means pinning the stock to your watchlist and buying in after a sharp decline, then waiting is the way to go.

Those in search of lucrative IPOs have the right idea—they’re searching, ultimately, for innovation. But I caution aspiring investors to look toward the long term. Search not for lucrative stocks to purchase for cheap and sell at a profit a few weeks later, search for the ventures and opportunities that are popular among young consumers and in emerging markets and that deliver innovative new products or services that improve peoples’ lives. Investing in these opportunities for the long-haul is when venture capital truly becomes worth it.

Investing in Health Care: A Once in a Lifetime Opportunity

Amit Raizada

August 21, 2020

The COVID-19 pandemic has prompted a healthcare revolution that could usher in the next wave of biomedical innovation and redefined healthcare investment opportunities. This shift has created a unique opportunity for investors to align capital with transformative medical advancements, ensuring a healthier and more resilient future.

As the CEO of Spectrum Business Ventures —a private equity firm that has been at the forefront of revolutionary trends in biotech, payment processing, real estate, and many other industries—I’ve always sought to use capital as a tool to improve people’s lives.

With more than 150,000 Americans dead at the hands of this virus, healthcare and medical technology are now the sectors in which this philosophy can be most effectively applied.

I urge venture capitalists to seek out innovative and entrepreneurial ventures in two healthcare subfields: preventative health and biotech. Now, more than ever, we need large scale private investment in medical technology to help build a healthcare apparatus capable of withstanding future shocks like the novel coronavirus.

Preventive Health

At one moment, we are witnessing both the most significant stress test our healthcare infrastructure has ever endured, and an unprecedented leap forward in technological innovations. The intersection of these two defining moments will inevitably lead to exponential growth in the healthcare sector.

As we embrace this new reality—a reality in which we understand the true impact a novel virus can have on our world—we are also hyper-aware of the need to establish resources that keep us healthy.

That’s where preventative health comes into play.

Telehealth companies are an interesting new vertical within this field that fit well within the COVID and post-COVID reality. One telehealth company, Livongo (who is now in talks to merge with industry titan Teladoc), is leading the way with a revolutionary platform that helps people with chronic conditions reduce their risk for future diseases with alerts and lifestyle tips based on user data. It also helps organize health reports for doctors, streamline the purchasing of supplies, and connect patients with live coaches.

Companies like Livongo make prudent investments in the post-COVID paradigm, deliver key services to those hungry for innovation, and help mitigate public health concerns before reaching crisis-level proportions.

Biotech

COVID-19 has shown us all just how disruptive a public health emergency can be to our lives and institutions. We must place an emphasis on staying healthy now if we wish to hedge against an unpredictable future. At the same time, biotech companies like Gilead, Moderna, Abbvie, and many others are in a race for what has the potential to be the most profitable vaccine ever created. While the winner of this race has not yet been determined, other companies are undeniably looking toward the next virus, investing in R&D for new drugs that we don’t even know we need yet.

Any time there is an opportunity to invest in, and in turn, catalyze life-changing innovations, I jump at the chance. That’s why I have sought out biotech companies making innovative strides. The COVID-19 virus has awakened a newfound, widespread interest in what these incredible companies do. When a new industry becomes inundated with demand, we can expect an unprecedented influx of capital into that sector. As we saw with tech at the onset of our century, healthcare could very well be the industry that defines the next decade. Don’t miss the chance—this could be the only one in our lifetimes.

Investing in the Personal Fitness Industry

Amit Raizada

August 19, 2020

Over the years, I’ve come to view the gym as something of a sanctuary. After a long day at the office, it always feels liberating to lift some weights, take a spin class, or go for a run.

But like many fitness enthusiasts, my daily workout routine changed drastically in mid-March, when gyms and workout facilities across much of the country were ordered to close amid COVID-19 stay-at-home orders. For the most part, gyms—which make up a $30 billion annual industry in the US—have remained shuttered, and individuals have been forced to devise new ways to get their daily workouts.

With thousands of gyms around the country closed for the indefinite future, there exists a significant opportunity to disrupt the personal fitness industry. As an investor, I’ve always been an advocate for creative destruction—the process of discovering innovative, new ventures that revolutionize and inexorably change well-established markets. As consumers increasingly turn to personal exercise equipment and supplements as substitutes for traditional gym experiences, aspiring investors should consider how they can enter this burgeoning new market.

From fitness tech to nutrition products, these case studies will help aspiring venture capitalists think critically about where to seek innovative opportunities in this new vertical.

Fitness Tech

I’ve always maintained that effective investors should look for ways to revolutionize and existing markets—and that’s exactly the effect that the proliferation of tech has had on the fitness industry over the last decade.

Take Peloton, for example. Stationary bikes are nothing new—they have been a gym staple for decades. But Peloton has devised a way to marry this time-honored piece of equipment with the latest technology. Pairing their stationary bikes with Wi-Fi and LED monitors, Peloton offers hundreds of live-streamed fitness classes in which users can interface with trainers and compete with other athletes from around the world—all without having to leave their homes.

This model propelled the company to a nearly $1 billion revenue haul in 2019.

Peloton—literally speaking—did not have to reinvent the wheel to achieve such success, it merely had to reformulate an extant product for a changing market. I advise investors to look for firms that integrate up-to-date tech into fitness products that can easily and efficiently be deployed from home.

Refueling

Proper nutrition is essential to staying fit, and as Americans increasingly turn to exercise as a method to cure quarantine boredom, demand for high-quality nutrition products will almost certainly increase.

Aspiring venture capitalists should consider ways to tailor this demand to better meet the preferences of young people, an especially health-conscious cohort that generally avoids products high in sugar, carbs, and fat. Ventures that makes inroads with Millennials and Gen Z—the consumers of the future—could well be the firms that will define the direction of the economy in ten or twenty years.

With this in mind, I invested in TuMe Water a couple of years ago. TuMe offers a range of hydration products that inject turmeric into water, offering consumers an easy, appealing way to incorporate the herb into their daily diets.

Venture capitalists should look for similar opportunities that leverage the ever-growing demand for post-workout refueling products and nascent consumption trends to develop a winning product.

Space

With the protracted closure of gyms, many Americans have taken matters into their own hands, purchasing weights, bench presses, and even Pelotons for their own personal gyms. But many taking this approach have run into a similar problem—space.

Those who live in high-density, urban areas often lack the requisite square footage in their apartments or condos to store their home gym equipment. This often becomes a limiting factor.

Aspiring investors should seek out about strategic ventures aimed at mitigating this issue. With myriad new technologies at hand and a corresponding demand now sweeping the country, innovative entrepreneurs will likely seek out high-quality models to store equipment and maximize exercise space. Will you be there to help?

Millennials and Markets, Part III: Investing in the Source

Amit Raizada

July 6, 2020

In the second article in this series, we looked at how millennials prefer to search for investment opportunities that match their own lived experiences. Likely a consequence of the adverse economic conditions in which they were raised, younger generations have looked to cryptocurrencies as a solution to alleviate some of their economic fears, like inflation and bank failures.

In an economy where cradle-to-grave employment is all but gone and individuals have become accustomed to switching jobs every few years, brand loyalty has been deeply eroded among younger generations. Millennials and Gen Zers tend to support “the little guy,” over the blue-chip, name brands. Eschewing the rigidity inherent in many of these brands, they prefer to work, and invest, on their own time – supporting gig economy firms like Uber and Postmates.

In the final installment of this series, I wanted to face the cornerstone of the millennial capital paradigm – using investment to create social change – head-on. Many young investors have sought out ventures that directly address the societal inequities they hope to redress.

Directly Investing in Social Change

Millennials have long been known to directly invest in social change. Perhaps the most striking example of this was found during the movement for justice after George Floyd’s death. We witnessed the powerful impact of crowdfunding and social organization, allowing young people to leverage their money for social causes they cared about. ActBlue, the Democratic National Committee’s main fundraising wing, saw one of its largest fundraising hauls in the days after the initial protests. Young investors are becoming significant benefactors of nonprofits and advocacy groups, choosing to place their money not into corporations, but into institutions that will drive the change they wish to see in the world.

As a vocal proponent of tolerance, I am incredibly optimistic about the trends in giving that we are witnessing among the younger generations. We are seeing that they are not afraid to give directly to the social causes they care about; And, as technology continues to make the giving process even simpler, we will see millennial support for charitable causes grow exponentially.

Millennials are truly revolutionizing the investment landscape, leading with their values and eschewing all companies, commodities, and causes that don’t align with those values. As I have always said, the secret to investing is really no secret at all: Always keep your finger on the pulse of younger generations’ tendencies and the trends that emerge from them. By keeping this in mind as you make your next investment decision, the upside will be forever in your favor.

Many millennials and young people fell they were dealt a poor hand. To be honest, I can’t say I blame them. But they were also born into a period when consumer technology has taken off, when green energy has challenged the traditional oil barons, and when society has begun to value social awareness over capital gains.

Whether we choose to understand their preferences or not, they are the future of the US economy, and their propensities will dictate whether firms take off or sink for the next fifty years. These preferences, while different from my generation’s, are no mystery. With shrewd observation, venture capitalists can identify these preferences and invest in firms that advance them. The millennial investment wave is coming – it’s up to us whether we get left behind.

If you enjoyed our book series then please check out our Millennials and Markets Parts 1 and 2.

Millennials and Markets, Part I: Introduction and Sustainability

Amit Raizada

June 9, 2020

2020 has been unlike anything our country has seen in a generation. Between a global pandemic and unprecedented economic uncertainty, this year has been a dismaying and disillusioning time for our younger generations, who are now tasked with building a life and achieving financial stability amidst great insecurity.

Despite these difficulties, young people are still choosing to invest their money – and their faith – in the market. But some of the ways they’ve chosen to do so, undoubtedly informed by their experiences, have been markedly different from those exhibited by generations past. For younger investors, it’s no longer just about the monetary return. Young people today see investment as a tool to induce societal change.

Gordon Gekko’s famous "greed is good" doctrine is out, replaced by an investment mantra that privileges social impact over raw returns.

In this series of three articles, I look at ways young people, who came up amid the economic uncertainty of two major recessions and a global war on terror, choose to invest their money, and what these changes mean for the venture capital industry.

For the last few years, we’ve seen report after report about millennials’ reluctance to jump into the market, with many young Americans opting to hide their extra cash in the sofa and savings accounts. Yet, others have been holding out for the right moment, citing an overvalued market and an eagerness to "buy low." Well, for those who have been holding out, their time came this March as the stock market crashed nearly 30 percent due to the worsening reality of the coronavirus pandemic. As fearless millennials began to flood the market with investments, we were finally able to get some insight into their investing habits—what they value, and just as interestingly, what they don’t.

As CEO of Spectrum Business Ventures, I saw that, as the market bottomed out, there was an opportunity to place new strategic ventures at a time when others saw fiscal collapse. And, to my surprise, many millennials did too. But unlike generations past, millennials don’t choose their investments based purely on ROI; the invest in the firms and ventures that will help shape the world in accordance with their social and political preferences. In this first article, we look at one of the primary ways that millennials have “put their money where their mouth is” and made social statements with their wallets during this volatile period: sustainability.

Sustainability

Young people value sustainability to such a degree that green living has become an indelible component of the millennial experience.

As I’ve noted before, following emerging trends is one of the most important things an investor can do when searching for the next big company. It’s no surprise that some of the biggest winners over the last year have been millennial favorites like Tesla and Beyond Meat. Their financial success is a prime indicator that market sentiment is swaying toward sustainable, eco-friendly products and services. And millennials are leading that surge: SoFi Invest (a millennial-specific financial firm) noted that Tesla has been the most purchased stock on its platform for significant periods at a time.

On the flip side, we also witnessed the price of crude oil take a severe dive as falling demand and oversupply hit the once-dominant energy commodity (remember when crude was trading at -$37 a barrel?). In my opinion, this didn’t just come about because a slowdown in global activity—this was a culmination of investors’ fears of changing spending habits among the next generation. Millennials are rightly asking themselves why it’s necessary to fund ecologically harmful fuels when sustainable alternatives are viable and increasingly available. This is exactly why sustainable funds have outperformed their less sustainable peers during the pandemic.

It’s time to diversify your investments

Amit Raizada

May 20, 2020

The novel coronavirus has given way to some unusual business and economic headlines over the last two months. A rollercoaster couple of months for the stock market. Speculation of an impending housing or rent crisis. The possibility that Jeff Bezos may become the first trillionaire due to Amazon’s surge in revenue.

Yet, perhaps nothing was more unexpected than last month’s precipitous drop in oil prices. In late April, overproduction and decreased demand caused the per barrel price of crude oil (for contracts to be delivered in May) to slip below $0. Investors on both the macro and micro-scale, from the governments of Saudi Arabia and Russia to small local capitalists, were left reeling as their petroleum assets lost literally all their value overnight.

While prices somewhat recovered in May, this episode illustrated a crucial concept in investment that all prospective venture capitalists should consider: diversification.

Diversifying your portfolio and investing in a plurality of industries can be an effective insurance policy against wholesale financial ruin when the economy begins to contract. When your money is spread across a multitude of sectors, rather than concentrated in one narrow market, odds are that at least some of your assets will stay above water when a recession hits. The more diverse your portfolio, the greater the odds your assets will continue to perform.

A shrewd investor should never, as the old saying goes, place all your eggs in one basket. I spend a lot of time considering many scenarios, but I had not factored in a global pandemic. Diversification helps protect against both the known and unknown.

Here are some of my strategies to help you diversify your portfolio.

1. Follow emerging trends, they’ll lead you in new directions

Diversifying your portfolio can often be a difficult task. While every investor wants a diversified set of assets, finding new industries in which to place your resources is often challenging.

An innovative way to go about this, though, is to follow emerging market trends. In my case, I often look toward the consumer products and experiences in which my kids demonstrate an interest. I use their preferences to help craft long-term investment strategies that pursue the products and experiences that will dominate the market in the coming decades.

This approach leads me in directions I would’ve never expected. A decade ago, I never imagined that I would have been invested in online video gaming or in fast-casual restaurants like Tocaya Organica. But by following nascent investment trends – and the things kids like to do or eat – I was led to two lucrative ventures that helped further spread out my portfolio.

You can follow suit simply by closely watching consumer trends – particularly those of future generations.

2. Take risks in pursuit of bold ideas

Investors can always diversify their portfolios by taking some calculated risks.

This could mean investing in a startup with an innovative new product that may not be profitable in the short-run. It could mean looking for investment opportunities overseas or in products that may face regulatory hurdles.

At my firm Spectrum Business Ventures, we strive to see the world differently. We look for investments in ventures that others overlook, we look for opportunity where others see none. And to do so we take risks – calculated risks.

When it comes to diversity, these risks often take us into uncharted territory. They’ve propelled us into rocket and satellite technology firms, biomedical R&D companies, novel restaurant and entertainment models, innovative consumer shopping technologies and improbable real estate acquisitions. Above all, though, our pursuit of cutting-edge innovation has broadened SBV’s portfolio.

Aspiring investors should do the same. Take smart risks in pursuit of bold new products or industries. You’ll end up with a well-rounded, diverse portfolio that has invested your money across a spectrum of industries, ensuring that you’ll have some cushion the next time we hit an economic bump in the road.

How I Helped Fund The Creation of a Whole New Gift Card Genre

Amit Raizada

May 6, 2020

It’s hard to understate just how drastically gift cards changed the retail industry. Portable, easy to mail, and easy to give, gift cards gave consumers an unprecedented level of flexibility. Once gift cards were introduced, shoppers no longer had to guess which shirt someone wants from Nordstrom or which handbag would be considered “perfect” from Bloomingdale’s. Gift-givers had to simply pick the store, buy the card, and voila: the perfect gift.

For consumers, it’s that simple. But for the businesses themselves, it’s a little more complicated.

When the gift card industry emerged in the early 90s, it brought a range of benefits to consumers and retailers alike: new shoppers, new marketing, flexibility, and a ton of cash. At first, customers were happy with store-specific gift cards. But like every industry, the gift card industry needed to evolve. That’s when Visa and other credit card providers jumped into the industry to provide widely accepted “gift cards” that looked like credit cards. While these cards provided the ultimate flexibility for shoppers, they also came with a significant drawback: exorbitant fees.

Around 2003, I was approached by an entrepreneur who had a novel idea. He suggested setting up a system in which gift cards could be used at any store within a given mall. That way, a recipient could choose a store from the dozens or hundreds of stores housed within a specific mall.

Intrigued by the entrepreneur’s Kansas City-based startup, Store Financial, I provided an early investment in the hopes of helping this start-up take-off. Quickly, an ace team of industry experts developed the necessary structure to allow individual malls to implement this kind of system, allowing individual stores to accept both their own gift cards as well as mall-specific gift cards through the same credit card processing system.

Quickly after its launch, Store Financial became the largest mall gift-card provider in North America—eventually growing to several hundred mall locations in the United States and across Europe. Eventually, the Store Financial model evolved into a larger general purpose reloadable (GPR) prepaid card market, considerably increasing its market reach. The company was eventually acquired by another private equity group, which brought Store Financial’s business model to a broader global audience.

As an investor, I am always focused on how my dollars can make a lasting impact and help lift emerging markets off the ground. That was undoubtedly the case with Store Financial, which provided a substantial return and revolutionized the mall gift card industry, moving well beyond the paper gift-certificates that were cumbersome for everyone involved. My experience with the gift card market illuminates two principles that I urge aspiring venture capitalists to consider.

First, invest in emerging markets. Observe the products, experiences, and venues that interest young people and discover opportunities to monetize these interests.

Second, once you identify new markets, look for peripheral opportunities within these markets. My investment with Store Financial did not directly change the basic model of gift certificates. But it provided a novel service that the gift certificate industry needed to survive and thrive. While not directly at the center of the action, peripheral investments like Store Financial can create a ripple of changes across the industry, revolutionizing an industry and providing long-term returns on a risky investment.

Young investors today should look for these qualities in new markets. A venture that sounds outlandish today may very well create a change that echoes across generations.

Learning From Failure

Amit Raizada

April 17, 2020

There hasn’t been a lot of positive economics or business news lately. Between the millions filing for unemployment and the jaw-dropping daily losses on the Dow, many of hard-working Americans are ailing.

As a venture capitalist who’s spent much of my career investing in innovative startup ventures, what pains me most about this situation is knowing that the COVID-19-born economic downturn will prove fatal to many small businesses and newly minted firms. Innovative entrepreneurs who’ve worked hard and played by the rules will fail at the hands of the epidemic and its recessionary wake.

Yet, I urge entrepreneurs not to give up hope. After two decades in the VC business, I’ve come to realize that, in the eyes of an investor, past failures act more like prerequisites than disqualifiers. While I’d never encourage entrepreneurs to take uncalculated risks, every successful businessman has failed at some point. In many ways, failure is inseparable from the process of innovation.

There are ways, however, to fail and how not to fail. Be graceful, acknowledge defeat and look toward the future. Don’t chastise business partners or burn bridges.

Here are some of my tips on how to fail right and how to parlay failure into future success.

Own it and Learn from It

People often react to failure by simply shutting down. They block it out of their heads, refusing to think about what happened or to analyze what went wrong.

But a successful entrepreneur looks for the opportunity in failure. While losing a business is always heartbreaking, stepping away and refusing to conduct a postmortem will just make the situation worse. If you’re going to fail, you might as well own it and use it as an opportunity to examine what went wrong, what you did well, and how you can adjust your model for the future.

Owning failure is also key to preserving relationships with business partners and investors. Sure, it didn’t work out this time; but that doesn’t mean you’re consigned to failure in all future ventures. Your partners today could be your partners or investors down the line. Never unnecessarily burn a bridge.

Don’t Hide it from Future Investors

Just as you should be forgiving of your current partners, you should be forthcoming about your failed venture with future investors.

The conventional wisdom is that failure is a good way to get yourself blacklisted with venture capitalists. Reality, though, couldn’t be further from the truth.

While venture capitalists always engage innovators with proven track records of success, that true innovation is a process and the best strategic partners are those who have experienced—and learned from—past failures.

Think about it this way:

All entrepreneurs have failed at some point. But if you’ve failed in the past and have learned from your mistakes, the odds are slim that you’ll repeat those same missteps should I invest in your company – which puts my mind at ease.

What you shouldn’t do is cover up your failed former venture. Just be honest. You won’t scare investors away, rather, you may just attract them.