I'm noticing a trend where VCs try to stay away from vertical markets. Is it true or is it my skewed experienced?
How does one go about finding potential investors for a vertical market business?
Actually, VCs don't necessarily care. Of course verticals can be too small, but horizontal markets can be unattractive as well. If a vertical is big enough to support a business model that, if executed exceptionally well, has the potential to generate $20-50 million within 3-5 years, then you might have an interesting business to VCs regardless of the vertical. They look to the entrepreneur to understand the vertical well enough to articulate the value and execute against the opportunity. In fact, some VCs prefer investing in businesses that have the potential to quickly dominate market share for an entire vertical. I once heard a VC say something along the lines of, "I don't care if you're selling software to pig farmers, as long as it's at least a $10-15 billion market and you have a chance of dominating."
I think Genadinik's comment sums it up well lol, it certainly is "the size of the niche that matters".
I have had recent experience raising venture money for http://www.comehike.com The biggest bit of feedback I had was that it is too niche. Investors wanted the goal to be a gigantic opportunity. So they always asked me if I wanted to expand into other outdoor markets, etc.
So it isn't a matter of vertical niche. It is more a matter how popular or big is your niche. Hiking in my case is a relatively small niche. All outdoors is a much bigger niche.
Does that help understand it? Its not the niche, its the size of the niche that matters :)
Many (not all) west coast VCs focus on consumer based businesses. They work for companies that "need eyeballs" and have to attract a user base first. I've found that many east coast VCs build on companies that also target businesses, revenue streams upfront, and vertical markets.
For instance, you can see that this company focuses not only on the consumer side of things but also on B2B plays: http://firstround.com/portfolio/ I guess it depends on what vertical you're referring to and if you're B2C or B2B.
Vertical markets come about from acquisitions by big companies being swallowed by bigger companies. I'd say VCs aren't set up for it. They don't have the knowledge base or capital to safely enter into such a venture, and they probably don't trust that you do either.
If by "vertical markets" you mean shoes, apparel, payment processing, virtual farms, iPhone camera apps, travel services, costume jewelry, electric vehicles and the like then yep; not much VC activity there.