Quora Answer: Does Venture Capital Choose Companies with No Competition or are Disruptive?

The following is my answer to a Quora question: “Do venture capitalists choose companies that have no competition or ones that are trying to disrupt a competitive market?”

Venture capitalists choose companies that are likely to make them money.  That does not necessarily mean they invest in companies with no competition or are disruptive.  Sometimes there is no competition for an idea because it is not feasible.  Sometimes, the market is not ready for it.  Sometimes, it is simply because consumer behaviour does not support it.  There is no competition if you sell a candlestick knuckleduster, but I doubt you would find investors lining up to put money into it.  Not everything disruptive is necessarily good either.  WeWork was supposed to disrupt how we viewed flexible shared workspaces.  The underlying financial basis was not profitable. 

What this means is that there has to be a niche for the product or service offered, and it can be scalable.  The money is either found in seizing market share, in which venture capital can cash cow, or there is hype in it, in which case venture capital will exit to another group of investors.  An example of the former is Amazon, which seized market share in an underserved segment and invented online retail as an industry.  An example of the latter would be Grab or Uber, who have never made a profit, but continue to grow revenue.