Some new venture firms are going really, really (really) niche

There are big, overarching top-down trends and there are little-bitty baby trends that can grow into larger ones. A big trend right now is centered on firms that gave huge checks to startup founders in recent years and drove valuations high. Some of the same firms are splitting up and asking their own investors for less capital because this strategy doesn't work as well as they thought.

Is there another big trend? Many publicly traded companies have seen their share prices plummet in the downturn, so venture firms are more aggressive in their investments. The WSJ notes that the trend is only picking up steam.

It is easy to laugh off new baby firms that are so niche that they are hard to notice.

A venture firm focused on oral care but not much else. Is a firm focused on technology that can help detect and contain fires? I don't think that's possible. There is a venture firm dedicated to backing and building businesses.

Two of the outfits have this week announced moderate-size debut funds, while the third is on a path to doing the same. They created a picture of how the industry might look in the future.

The first firm focuses on oral health alone. The New York-based outfit, which counts among its partners Mark Zuckerberg's dentist father, is still raising funds. We don't exactly have a fund yet, but it is launching its fund in a late September press release.

You might think that a lot of wealthy dentists are pooling their money together to invest in new technologies that will help their industry. It is possible that is is what is happening. Credit where it is due. As the world's median age increases, the market for dental care will grow. According to the Office of the Actuary at the US Centers for Medicare and Medicaid Services, it will be more than 200 billion by the end of next year.

There are a lot of startup opportunities in the business. Dental insurance, direct-to-consumer subscription products, tele-health services, private clinics, mobile dentistry services, dental implant surgery companies are all included.

The one that focuses on wildfire technologies is called Convective Capital. I thought about the fires when I read about it. Is that really true? I live in Northern California and it's a very frightening place to live. It sounded very specific.

I wasn't the only one who was skeptical. The founder of WePay, who sold the company to JP Morgan Chase earlier this year, told TechCrunch earlier this week that the firm's thesis was more divisive than he expected, and that some investors thought focusing on wildfires was too narrow. $35 million in capital commitments for a debut fund was pulled together by him. Extreme heat and dry conditions have begun fueling wildfires across the globe, there aren't enough firefighters to contain these fires, and companies working on solutions to wildfires present a more straightforward investing opportunity than climate tech intended to tackle oncoming problems.

More wiggle room is given by the thesis. Overstory is a four-year-old startup based in Amsterdam that uses artificial intelligence and satellite imagery to improve vegetation management for utility companies. Last year, it raised a seed round.

Palo Santo, a venture outfit based in New York and Chicago, took the wraps off a $50 million debut fund today.

$50 million is not a lot of money for an area that has fascinated investors and entrepreneurs for a long time. Between July 2020 and July 2021, the amount of money raised by psychedelics-related companies was less than the amount raised between July 2016 and July 2020.

While most of those bets have come from funds that invest in other therapies, there is reason to believe that it could become a focus over time. The two companies that went public already have a lot of followers. Some of the smartest VCs in the industry and pouring money into the sector include early Compass investor Peter Thiel and SpaceX board member Steve Jurvetson. The FDA is expected to approve the use of MDMA, also known as Molly, as a treatment for post-traumatic stress disorder as early as next year.

I'm pretty sure that the opportunities for similarly structured funds are endless and that they could be a new entree point for existing and first-time VCs who have a unique perspective. Special purpose vehicles and rolling funds are just some of the ways in which the venture industry is getting more atomized by the year.

As the big funds have gotten bigger in recent years, it seems logical that one of the only ways to compete with them is to create a different kind of company.

This is the type of product that institutional investors might like.

They poured their capital into venture firms. Many institutions are sitting on stakes in companies that look overvalued now that the checks have stopped. One way to make sure that doesn't happen again is to write some checks. There have been strange events.