If you were starting in Growth / VC today, which layer would you want to focus on: application, vertical, or infrastructure?

Based on the most insightful WSO threads and current trends in tech and VC, here's a breakdown of how to approach this decision:

1. Layer Focus: Application, Vertical, or Infrastructure?

• Infrastructure Layer:
  This is where the strongest tailwinds currently exist, especially with the AI buildout, advancements in data tooling, and the repatriation of manufacturing. Infrastructure investments often have durable moats due to high technical barriers, long development cycles, and the critical nature of these tools for other layers. If you're looking for long-term defensibility and a steep learning curve in technical domains, this is a strong choice.
  Why it’s compelling: AI model infrastructure, compute, and data platforms are foundational to the next wave of innovation. Early expertise here could position you as a go-to investor in a high-demand space.

• Vertical Layer:
  Industry-specific software and vertical AI are still attractive, especially in sectors like healthcare, fintech, and climate tech. These areas often have strong customer lock-in due to tailored solutions and regulatory complexities. If you’re passionate about a specific industry and want to build deep domain expertise, this is a great option.
  Why it’s compelling: Vertical SaaS companies often have sticky revenue and can scale efficiently once they dominate a niche.

• Application Layer:
  While horizontal apps and workflow tools have historically been popular, the market is more saturated, and differentiation is harder. However, AI features embedded in products (e.g., generative AI in productivity tools) are creating new opportunities. If you’re drawn to consumer-facing innovation or product-led growth, this could still be a viable path.
  Why it’s compelling: Applications are where end-users interact, and there’s potential for massive scale if you back the right product.

2. Best Learning Curve for an Early Investor

• Infrastructure: Offers the steepest technical learning curve. You’ll gain insights into how foundational technologies are built and scaled, which can be applied across multiple industries.
• Vertical: Provides a mix of technical and business learning. You’ll develop expertise in a specific industry, which can make you invaluable to startups in that space.
• Application: Focuses more on product-market fit, user acquisition, and growth strategies. While the learning curve may be less technical, it’s highly relevant for understanding consumer behavior and scaling businesses.

3. Where Durable Moats Are Forming

• Infrastructure: Moats are forming around proprietary data, AI/ML models, and high switching costs for foundational tools. Companies like Snowflake and Databricks exemplify this.
• Vertical: Moats are built through deep industry knowledge, regulatory barriers, and integration with legacy systems.
• Application: Moats are harder to establish unless the product achieves massive scale or network effects (e.g., Slack, Zoom).

4. Career Optimization: Optionality vs Long-Term Outlook

• Career Optionality:

  • Infrastructure provides the broadest optionality, as the skills and knowledge you gain are applicable across multiple sectors and layers.
  • Vertical expertise can limit optionality but positions you as a domain expert, which can be highly valuable in niche markets.
  • Application layer experience is more transferable to product management or growth roles but may not offer the same depth of technical expertise.

• Long-Term Outlook:

  • Infrastructure is likely to remain relevant for decades, given the ongoing evolution of AI, cloud computing, and data platforms.
  • Vertical markets will continue to grow, but the pace may vary by industry.
  • Applications may face more volatility due to shifting consumer preferences and competitive pressures.

5. What Would I Do Differently?

If I were starting today, I’d anchor on infrastructure for its long-term defensibility, technical depth, and relevance across industries. However, I’d also keep an eye on emerging verticals like climate tech or biotech, as these could offer unique opportunities to combine technical and industry expertise.

Final Take

Given the current moment in tech, infrastructure seems like the most strategic layer to focus on for long-term growth and impact. However, your decision should align with your interests, strengths, and where you see yourself adding the most value. If you’re passionate about a specific industry or enjoy working on consumer-facing products, vertical or application layers could still be great choices.

Sources: https://www.wallstreetoasis.com/forum/venture-capital/early-stage-vc-101-5-questions-you-better-be-able-to-answer?customgpt=1, What to expect at VC interview?, Bottoms Up | The Daily Peel | 9/28/22, https://www.wallstreetoasis.com/forum/venture-capital/vc-is-a-laughable-shitshow-change-my-mind?customgpt=1