Unsexy, Boring, and Profitable: Why Alex Kirschenbaum of 81 Collection Is Investing in Hard Industries

81 Collection is investing in things that are hard to build. Doesn't sound very boring to me.

Between our obsession with tech celebrities and headlines full of scandals and failures, you’d think that venture capital essentially powers the U.S. I mean, backing 19% of the U.S.’s GDP is no small percentage.

But what about the other 81% of GDP contributors? What about the 97% of the U.S. population that doesn’t work in tech? What about the industries that weren’t affected by the demise of Silicon Valley Bank and First Republic?

The boring, less sexy industries are truly ripe for disruption, but are often “too hard” for VCs to invest in. They may have too much red tape to overcome in order to implement game-changing innovation. Or maybe the margin is too low for VCs to consider how they’d make outsized returns. And while it’s truly transformational to have a car with smart seats that can pre-warm before you even open the door, there are lots of other types of equipment that could use an upgrade or three.

Luckily, that’s what Chicago-based 81 Collection invests in: the unsolved challenges faced by the majority of companies contributing to the U.S. economy. “Much of the GDP and the economy is based on the things that consumers actually don't see,” says Alex Kirschenbaum, Principal at the fund. “And it's these unsexy, boring industries that are still getting done on pen and paper.”

Boring sounds pretty promising to me.

How and Why 81 Collection Started

Before joining 81 Collection, Alex had built two businesses: a college reels distribution company he started college, and an influencer agency while working in private equity. And the energy he got from running those companies was miles beyond any sliver of enjoyment he received from his finance job. 

So when Alex met 81 Collection founder Vijen Patel, he learned that Vijen also came from traditional finance—but was doing something about it. “He and I had similar revelations,” Alex says. “We were sitting around mahogany tables and private equity in boardrooms, judging all these operators, but none of us had ever built anything.”

Vijen left banking and consulting to start his dry cleaning company Pressbox (now Procter & Gamble’s Tide Cleaners). Even though it clearly grew to be an innovative and profitable business, he couldn’t secure VC funding in the early days. After selling and exiting the company before the pandemic lockdowns, Vijen launched the fund in 2022.

“Vijen had the right business and the unit economics, but because it wasn't a sexy FinTech or social media or CRM, venture firms didn't want to back it,” explains Alex. “And so we wanted to create a venture firm for specking the businesses that make things more efficient, and bringing a lot of these industries off from offline to online.”

The Advantage of Investing in the 81%

I’m a strong believer that VCs should be investing in things that are hard to build. But 81 Collection takes that much more literally, and for good reason. They’re seeking sound business strategies that both address difficult problems, as well as prioritize revenue.

“The biggest thing that a lot of startups forget about is cash flow,” says Alex. “As we saw during COVID, a variety of companies with negative $100 million of EBITDA had multiple-billion dollar valuations. But a lot of them have now come down to earth, which has been unfortunate for the job market, and you never want to see those things happen. But I think it brought a lot of investors back to realizing that cash flow is vital.”

Investors often look to venture capital as a high risk, high reward opportunity for generating outsized returns. But a proper business strategy is still necessary to achieve those returns, which is why 81 Collection may be a welcome, grounded diversification to any LP’s portfolio.

For many LPs, however, the biggest trade-off with investing in hard industries may be patience. The average lifecycle of a VC investment is five to seven years, and the investment is expected to generate outsized returns within that time period. Hard industries, however, require a longer time period, which won’t fit into everyone’s strategy.

But regardless of timeline, a truly innovative solution can create something that many VCs seek in opportunities: a moat. “Vijen ended up scaling to about 1200 locations before [Pressbox] got sold,” explains Alex. “There might not be this 35x multiple on it, but the unit economics are sound, and the cashflow was there. And so when you build businesses like that, a lot of times they look like they can't generate venture returns. But if you hold them for longer, and continue to dig into that moat, you are going to be able to generate those outsized returns between years 5 and 10 at valuations that are attractive in VC terms.”

Build Lasting Companies

When it comes to technologies that will be relevant 100 years from now, 81 Collection fits into my own thesis quite well. There is no shortage of industries that need efficient and innovative solutions, nor of entrepreneurs who could use an injection of capital and support.

Lucky for them, Alex and the 81 Collection team are always excited about receiving new pitches.

“If anyone feels like they aren't a venture-backable company because they're not building this asset light software or whatever it may be, there are a lot of people with us who want to see you succeed and build what you're building,” he says. “So reach out.”