5 Ways to Find Rare Investment Opportunities in Niche Markets

While Robert Frost always declined to discuss his inspiration for writing one of his most-renowned poems, The Road Not Taken, it’s safe to assume that he probably wasn’t thinking of investments, private equity or venture capital funds. If you take another look at it from a contemporary angle, however, the final three lines actually offer some helpful guidance for investors:

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

Frost pointed out that taking a neglected or less-popular route can be very rewarding. For him, it was memories, learnings and experiences. For someone like myself — a long-time investor and founder of a venture capital fund — it means sometimes taking the investment path less traveled. And I’m proud to say that it’s been very rewarding but in a different way.

My direct experience as a Revere Partners’ Managing Partner has shown me that venturing down a less-traveled path can pay off significantly. As the world’s only VC fund focused on the oral health and dental technology sector, we’ve 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 captured little VC attention and the industry’s capital flow has been woefully insufficient. And as an investor with more than 18 years of experience working with startups, overseeing multi-million-dollar fundraising rounds and leading acquisitions, I was able to identify it as an untapped industry positioned for investment, innovation and improved care delivery. In other words, I found my niche market.

There are many other untapped investment opportunities in niche markets, and distinct needs are unmet. 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.

An example is the medical and dental fields, where fractured financial, insurance and payment systems have traditionally led to chaotic avenues of communication and unreliable billing and payment methods. It’s why innovation in revenue cycle management (RCM) is so important.

The four significant pieces — patient payment, patient finance, insurance verification and insurance claims/processing — are far less useful if they don’t speak to each other. Patients pay in multiple ways, providers are reimbursed in multiple ways and the practice has to reconcile finances eventually. Having RCM technology — basically fintech for these practices — will provide a streamlined solution that operates more efficiently and offers better returns.

Utilize your own specific expertise to identify communications and operational gaps that are ripe for innovation, as well.

2. Great(er) expectations

Look for areas where consumer demands aren’t being met.

An example of this in the oral health field is what the Smile Direct Club revealed about orthodontists’ need to be in the loop more, as well as a 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 teeth-straightening process and aligners.

How do you find these areas? Through lots of observations of the target (such as sitting in a dental/orthodontics waiting room), conducting interviews, surveying and analyzing reviews and forums. Always use iterative design going 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 one example. Another is sleep-related disorders. Many don’t know where to go to address the issue. Do they go to the dentist? Their PCP? And when they find out where to go, many find intrusive solutions (such as CPAP) and expensive care. There is an enormous opportunity for innovation here to provide more convenient, less cumbersome and less costly solutions. Utilize market research to compare the geographic incidence of a public health need versus claims data to show what’s actually being done.

4. A growing interest

Look for areas with significant annual growth rates.

Once again, orthodontics is a great 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 purchase it.

Another example is direct-to-consumer subscriptions. Although some analysts think the trend is leveling off, it’s expected that 75% of DTC brands will be offering product subscriptions by the end of 2023. Whether it’s a bubble or beyond a trend, we’re clearly in a DTC subscription era, and it’s an area to watch.

Related Link: Intuition or Data: How Do Venture Capital Investors Evaluate Investment Opportunities?

5. Look ahead

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

From personal experience:

• A large impact though underserved, is periodontitis. This impacts more than 50% of the U.S. population, and there is a direct link to systemic health, such as Alzheimer’s, yet it’s not routine to screen for or receive precision treatment for its underlying cause.
• Another example is robotics in dentistry. Many more people need these procedures than the current supply of dentists can serve, but the education and trust in new methods is not present yet.

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

Warren Buffett once said, “Risk presents itself when you don’t know what you’re doing.” Opportunities abound in niche markets. Go to your strengths, do your research and know your market so you can recognize the disconnects and shortcomings. But don’t be afraid to take the road less traveled.

Related Link: How to Thrive in Niche Markets