Riches in Niches

The thesis that narrow verticals are systematically underpriced — that a market too small to interest venture capital can still support a very good business, and that the internet has made those markets larger and more reachable than they used to be.

Kyle’s own line, from Capital Allocation Is Dead: “The internet has supercharged niches… Riches in niches turned out to be real.”

This page exists because the idea was scattered across six places and owned by none of them — two published essays, a research companion, a saved tweet, a third-party deck, and a draft. It is the home for it now.

The argument

1. Capital concentration creates the opportunity. The mechanism is stated most cleanly in the research behind the essay: “The more relentlessly capital concentrates at the top, the larger and more underserved the long tail of opportunities at the bottom becomes.” Niches are not underpriced by accident — they are underpriced because the capital stack is optimized for outcomes they can never produce.

2. The size floor for a good business is far below the size floor for a venture-backable one. Building Mighty Small Businesses makes this concrete with Think-cell, a Berlin company that built a PowerPoint plug-in: used by a large majority of the Fortune 100, ~800K users, roughly 75 employees, $200M+ revenue at very high margins — and it never raised money. Kyle’s framing of it is the part that matters: “In our world of $10B+ outcomes and trillion dollar markets? Think-cell is a small business. That is achievable.”

3. The operating pattern is buy-and-professionalize, not build. From Capital Allocation Is Dead, the “Leverage Aggregators” bucket — a HoldCo with balance-sheet capital rather than a fund, which “don’t chase the highest-quality assets or the hottest narratives” but hunt for distribution, vertical ownership and stickiness. The two worked examples:

• Equestrian software — a tool for horse trainers. Profitable, slow-growing. Acquired, sales team professionalized, pushed upmarket into enterprise training operations; now dramatically larger, still highly profitable, and 100% owned.
• Funeral-home software — three sleepy players, none of them hungry. Bought all three, combined them, and produced pricing power none had alone.

That is the Constellation Software engine run at small scale.

4. The demand-side proof is a person, not a company. The mushroom-foraging TikToker with a million and a half followers clearing half a million a year is in the essay for a reason: it shows the niche is not merely servable but natively profitable at one-person scale once distribution is free.

Where it butts up against its neighbours

• Long Tail is the demand-distribution idea (Anderson): infinite shelf space makes the tail commercially reachable. Riches in niches is the investing thesis that follows from it — the tail is not just reachable, it is mispriced. Related, not the same.
• Vertical SaaS is the software category that most often expresses this. The Diagonal deck archived under Modularization of Software uses the phrase verbatim — “Vertical SaaS: deeper, not wider — there are riches in niches” — and then names the limit: still centralized, one-size-per-vertical, expensive to build per industry, and not customizable per client without services. That limit is the strongest counter-argument on this page. A niche is only rich if serving it doesn’t cost as much as serving everyone.
• Micro PE and Small Business are the acquisition vehicles; Holding Company is the ownership structure that lets the returns compound instead of being harvested — see On the Nature of Long-Term Holds.

Where it shows up in venture

The phrase is usually an operator’s idea, but it has a fund-side expression: a thesis narrow enough to mean something. ex/ante — Zoe Weinberg’s $33m fund built around “agentic tech” (human agency and rights, not AI agents) — is the case archived on Building a Product-Led Venture Fund, and it is also a caution: the phrase she coined was captured by an unrelated meaning within two years. A niche fund’s differentiation can be taken from it by the market’s vocabulary.

⚠️ The open question worth being honest about. Capital Allocation Is Dead already argues this thesis in public and argues it well. Any new draft in this territory needs a claim that essay doesn’t make — the most promising candidate is the cost-to-serve objection above, which the published essay does not engage.

Also referenced

• The Barrier to Buy &… (tweet) — Matt Bennett’s link roundup (Dec 2020) lists “Riches in niches: @asanwal”, which is where the phrase enters the corpus from outside.