At the Money: Finding Overlooked Private Investments
Oct 2, 2024
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Soraya Darabi, a venture partner at TMV and early investor in notable firms, joins market expert Barry Ritholtz to explore the inefficiencies in private markets. They delve into the overlooked startup ecosystems outside traditional hotspots like California and New York. The conversation highlights the importance of investing in diverse founders and non-traditional geographies, revealing impressive returns from innovative investments in emerging cities. Darabi shares strategies for identifying promising opportunities beyond the usual VC narrative, encouraging a broader perspective in investment.
Private markets exhibit significant inefficiencies due to concentrated investment in a few states, revealing opportunities in overlooked regions for better returns.
Including diverse and non-traditional founders in the investment landscape not only enriches innovation but also leads to potentially higher financial outcomes.
Deep dives
Opportunities in Inefficient Markets
In venture capital, geographic focus heavily influences investment opportunities, with a significant concentration of funding going to just three states: California, New York, and Massachusetts. This leads to inefficiencies in markets beyond these areas, creating potential for better investment returns. Startups located in undercapitalized regions are often undervalued and overlooked, presenting unique opportunities for investors willing to seek out these hidden gems. By identifying and supporting founders from such geographical backgrounds, investors can capitalize on ventures that larger firms may disregard.
The Value of Diverse Founders
The discussion highlights the importance of including non-traditional founders from diverse backgrounds in the investment landscape. Notable success stories include startups founded by immigrants, illustrating how varied experiences can lead to innovative ideas and products. For example, companies like Duolingo emerged from universities outside the traditional VC hotspots, showing that exceptional talent and ideas can thrive in unexpected places. Promoting diversity in founder demographics not only enriches the startup ecosystem but also contributes to more robust financial returns.
Finding Success Beyond Established Circles
Investment strategies that extend beyond well-trodden avenues have proven lucrative, with firms like TMV achieving significant returns by betting on companies outside of traditional tech hubs. One example is their investment in a company focused on AI in the medical scribe industry that originated in Canada, showcasing how promising opportunities exist beyond the typical Silicon Valley narrative. These strategies emphasize the need for active engagement and relationship-building within the venture capital community to identify potential investments. By nurturing connections in diverse settings, investors can efficiently source deals that challenge the norm and yield high returns.
We all know Nobel Laureate Eugene Fama’s efficient market hypothesis for publicly traded stocks, but how efficient are private markets? As it turns out, not very.
In this episode, Soraya Darabi sits down with Barry Ritholtz to explain how she looks for market inefficiencies in overlooked founders and geographies. Darabi is partner in the venture firm TMV. She has been an early investor in companies that went public such as FIGS, Casper, and CloudFlare, as well as startups like Gimlett and Lightwell, that Spotify and Twitter later acquired.
Each week, “At the Money” discusses an important topic in money management. From portfolio construction to taxes and cutting down on fees, join Barry Ritholtz to learn the best ways to put your money to work.