
Bain Capital Ventures’ Kevin Zhang: The ‘Unlockable Potential’ in Lending, Investing, and Insurance
Kevin Zhang, partner at Bain Capital, assess the technological tailwinds for emerging players in lending, investing, and insurance....
I’ve found that many of the most useful venture investing insights and wisdom come from practitioners outside of the world of VC. One of my core theses, for example, is inspired by the ex-public equity manager, Nick Sleep. This thesis, which is most relevant to Series B and beyond investing, is to find ‘Perpetual Growth Machines,’ which is a term that Sleep used to describe Costco in his write-up on the company in 2005 (A 3.). (I assume he coined this term, but he may have borrowed it himself).
There are businesses in all sorts of markets, leveraging different business models, and serving customers in various geographies that exhibit these attributes. This is a primary reason why I like the idea of looking for Perpetual Growth Machines; instead of constraining the investment opportunity set by some sector or market categorization (e.g. vertical SaaS, B2B marketplaces, etc.), it constrains the opportunity set based on current and/or potential business quality.
Venture/growth is an asset class defined by Power Laws. A handful of companies define each generation of startups and generate the vast majority of returns. Virtually all of them can be described as Perpetual Growth Machines: companies that grow at exceptionally high rates, with high revenue quality, for far longer than the other companies. Again, the beauty of this framework is that it applies to all sorts of business models and product categories. SpaceX is a perpetual growth machine (hardtech). Stripe is a perpetual growth machine (payments). Airbnb is a perpetual growth machine (consumer marketplace). Rippling is a newly forming perpetual growth machine (horizontal SaaS). Back in the early 2000s, Google was the definition of a perpetual growth machine (internet) (A 4.). Identifying opportunities with this framework applies to every area of innovation.
Q: What do other market participants or observers misunderstand about these categories?
A: "One main thing that people forgot in the mania of the post-covid tech bubble is what constitutes a high quality business. Businesses of drastically different qualities were valued similarly throughout 2020 & 2021. I am just as guilty of this as anyone else. I’m not so sure that people have remembered or learned their lesson on this front in this new market environment.
Investors get so caught up in what is growing fast today or what is a hot market today, that they often fail to be thoughtful about the long-term durability & quality of what they’re looking at."
Deel, Drata, Oyster HR, Papaya Global, Remote, Rippling, Secureframe, Tugboat Logic, Vanta
2. See HRB's 'The Best Entrepreneurs Are Missionaries', here.
3. See Nick Sleep's reference to Costco as a PGM, here.
4. See Everett Randle's Twitter thread assessing Google in the 2000's, here.
Kevin Zhang, partner at Bain Capital, assess the technological tailwinds for emerging players in lending, investing, and insurance....
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