5 Ways to Find Rare Investment Opportunities in Niche Markets

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While Robert Frost has always refused to talk about his inspiration for writing one of his most famous poems, The Road Not Taken, it’s safe to assume he probably wasn’t thinking of investments, private equity, or venture capital funds. However, if you look at it from a contemporary angle, the last three lines actually provide some useful guidance for investors:

“Two roads diverged in a forest, and I,
I took the one less traveled,
And that made all the difference.”

Frost pointed out that taking a neglected or less popular route can be very rewarding. For him it was memories, lessons and experiences. For someone like me – a longtime investor and venture capital fund founder – it sometimes means taking the less traveled investment path. And I can proudly say that it was very rewarding, but in a different way.

My direct experience as a Managing Partner of Revere Partners has taught me that going down a path less traveled can pay off significantly. As the world’s only venture capital fund focused on the oral health and dental technology sector, we have tapped into a niche market ripe for investment and innovation.

Related link: Why focusing on underserved or niche markets can be a winning strategy:

As a longtime practicing dentist, I knew that dental health has attracted little attention from VC and that the flow of capital in the industry was woefully inadequate. And as an investor with over 18 years of experience working with startups, overseeing multimillion-dollar fundraising efforts, and leading acquisitions, I was able to identify it as an untapped industry positioned for investment, innovation, and improved healthcare delivery. In other words, I have found my niche market.

There are many other untapped investment opportunities in niche markets and specific needs are not being met. How do you discover them? How do you discover your road less traveled and experience the rewards? I have a few tips:

1. Can we talk?

Look for areas where systems don’t talk well to each other.

One example is the medical and dental sector, where broken financial, insurance and payment systems have traditionally resulted in chaotic communication channels and unreliable billing and payment methods. That is why innovation in revenue cycle management (RCM) is so important.

The four major components – patient payment, patient funding, insurance verification, and insurance claims/processing – are much less helpful if they’re not talking to each other. Patients pay in several ways, healthcare providers are reimbursed in several ways and the practice ultimately has to get its finances in order. Having RCM technology—basically fintech for these practices—will provide a streamlined solution that works more efficiently and provides better returns.

Use your own specific expertise to identify communication and operational gaps that are also ripe for innovation.

2. Great(er) expectations

Look for areas where consumer demands are not being met.

An example of this in the field of oral health is what the Smile Direct Club revealed about the need for orthodontists to be more informed, as well as the need to be more efficient with chair time. A need for affordability and convenience led to innovation, culminating in SDC’s wildly popular, at-home tooth straightening process and aligners.

How do you find these areas? Through many observations of the target (such as sitting in a dental/orthodontics waiting room), conducting interviews, researching and analyzing reviews and forums. Always use iterative design to and from the target and key stakeholders.

3. No Inhibitions

Look for areas where affordability and access are limited.

The Smile Direct Club approach is an example of this. Another is sleep-related disorders. Many do not know where to go to tackle the problem. Do they go to the dentist? Their PCP? And if they know where to go, many find intrusive solutions (such as CPAP) and expensive care. Here lies a huge opportunity for innovation to provide easier, less cumbersome and less expensive solutions. Use market research to compare the geographic incidence of a public health need with claims data to show what is actually being done.

4. A Growing Interest

Look for areas with significant annual growth rates.

Again, orthodontics is a good example. This space is on fire, from new aligners to treatment planning software to patient engagement. Data can usually be found in publicly available news sources, but you can also buy it.

Another example is direct-to-consumer subscriptions. While some analysts believe the trend is leveling off, 75% of DTC brands are expected to offer product subscriptions by the end of 2023. Be it a bubble or past a trend, we are clearly in a DTC subscription era an area to watch.

Related link: Intuition or Data: How Do Venture Capital Investors Assess Investment Opportunities?

5. Look Ahead

Look for areas with significant potential impact, but underserved or ahead of their time.

From personal experience:

  • A major impact, although underexposed, is periodontitis. This affects more than 50% of the US population, and there is a direct link to systemic health, such as Alzheimer’s disease, but it is not routine to screen for or get accurate treatment for the underlying cause.
  • Another example is robotics in dentistry. Many more people need these procedures than the current range of dentists can serve, but the training and confidence in new methods is not there yet.

Healthcare, both in emergency and in application, is constantly changing. Innovation is vital and we need to fund these innovations in a way that helps the industry succeed.

Warren Buffett once said, “Risk arises when you don’t know what you are doing.” There are plenty of opportunities in niche markets. Go to your strengths, do your research and know your market so you can spot the flaws and shortcomings. But don’t be afraid to take the road less traveled.

Related Link: How to Thrive in Niche Markets

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