Catharine Dockery, the former head of private investments for Andy Dunn (founder of Bonobos) and Walmart executive, recently raised $25 million for a new investment fund called Vice Ventures. According to Axios, the New York-based fund has a unique focus: cannabis, alcohol, sextech and gambling, or what is known in the investment community as "vice" companies.

This is significant news because traditional venture funds -- those that focused on startup companies -- are typically backed by pension funds, institutional investors and even religious organizations, all of which have had an aversion to investing in the types of companies that straddled a moral fence.

Vice Ventures, however, is pushing that boundary by not only including but investing in only these vice industries. By focusing on industries that have historically been shunned by institutional investors, the firm hopes to take advantage of the lack of competition and artificially low valuations.

So what can entrepreneurs learn from this news?

Vice Industries Are Booming

For starters, whether you agree with the services and products in these industries, vice industries currently offer some of the best growth opportunities. Need examples?

  • According to the Brewers Association, craft beer is now a $24 billion industry and has increased its overall market share from 5 percent in 2010 to over 13 percent in 2018. 

  • Even with that growth, however, craft beer is being outperformed by cannabis, which has already surpassed beer in tax revenue in Colorado -- the epicenter of the beer industry. 

  • Moreover, in 2018, the Supreme Court struck down a 25-year federal law largely outlawing sports betting outside Nevada. In May, New Jersey surpassed Las Vegas in sports betting.

  • And, then there is Juul, the controversial vaping company and most notable vice industry "unicorn," which was recently valued at $15 billion.

This is just a small snapshot of vice industries, but examples of the growing acceptance and demand can be found everywhere. 

Money Talks

While investors of traditional funds will most likely continue to limit investments in vice industries, a significant amount of private investor money is on the "sidelines" and has been waiting for a place to invest since the global recession of 2018. 

How much? According to MarketWatch.com, in 2018, there was about $19.4 trillion in gross "cash" and equivalents. At the same time, the Fed estimated the market value of all U.S. stocks at $41.7 trillion. To put this in perspective, almost 50 cents for every one dollar invested in stocks is "on the sidelines waiting to be put to work."

Moreover, Vice Ventures is backed by well-known investors, such as Marc Andreessen and Bradley Tusk, and several industry-specific incubators and funds have already launched. According to Cannahedge, there are more than 60 funds that invest in cannabis companies alone. 

Image is Everything

While these "vice" industries still have a bad reputation, especially among older generations, Millennials and the GenZers, both of which represent the largest consumer generations since Baby Boomers, haven't been shrouded and influenced by the paradigms and stigmas of the past. 

Moreover, the label of "vice" is subjective, and as Dockery stated in VentureBeat, "In a world where the most mundane of companies can cause social harm, is it simpler for us to look for evil in companies which make products that society disapproves of?"

In other words, labeling vice companies creates a problem, because they are not all created equally. Big tech companies, for example, continue to be plagued by poor behavior in terms of failing to protect and misuse customer data and even enabling extremist groups to leverage the technologies for nefarious purposes. 

How is this worse than any other "vice" company.

In the end, what is perceived as a "vice" company comes down to how the entrepreneur decides to operate and brand it. Establishing a moral vision and mission for the company, convening an able team behind that mission, and setting out to have -- and to actually make -- a positive impact on the world can elevate a company above any perception a label might carry.

Published on: Jul 1, 2019
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