Warehouses and Post-COVID Investment Opportunities for Minority Investors like Amit Raizada

Five months into the COVID-19 pandemic, it’s become apparent that some aspects of our economy will be inexorably changed. While life may eventually return to a sense of normalcy, the pandemic’s long-run effects on consumer behavior and propensities have yet to be discerned. Will consumers, even after COVID-related restrictions are lifted, really be willing to return to crowded movie theaters, amusement parks, and shopping malls?

The shape and structure of our economy have shifted seismically in the last five months, and aspiring investors should use this as an opportunity to gain a foothold in the markets, ventures, and firms that will define the success and trajectory of the post-COVID economy.

We sat down with Amit Raizada, a pioneering venture capitalist and CEO of VC firm Spectrum Business Ventures, who recalled for us an insightful case study in how he applied this strategy to a strategic venture in the pre-COVID world, and how investors can emulate this approach in the post-COVID investment paradigm.

“One of my principal investment strategies has always been to seek out ventures that carve out a lucrative space within an existing market,” Raizada said.

Raizada said that one of the best ways to profit in an emerging market is not to invest in a firm designed to compete with the industry hegemon, but to create one whose services the hegemon cannot do without.

“Often, these are tertiary firms that help a given industry’s blue-chip firms run smoothly—providing services for which the major players are more than willing to pay,” he said.

By closely observing emerging market trends, for example, Raizada intuited that online shopping would be the wave of the future. Knowing, though, that competing with Amazon or eBay would be near impossible, Raizada employed a different approach to enter this market.

“In my case, this meant warehouse space,” he said.

But Raizada qualified that he didn’t just invest in any given warehouse. He explained that as online retailers like Amazon continue to grow—and consumers more adamantly demand quick delivery times—companies will overstock popular inventory in key markets in a bid to preempt online orders and quickly deliver products. This introduced a key caveat to Raizada’s warehouse approach.

“I only sought out warehouse space within ten miles of major airports,” Raizada said. “In order to offer customers perks like one-day shipping, companies like Amazon began overstocking in-demand inventory in key markets. But that inventory needs to be stored somewhere, and Amazon—a fiscally shrewd company—aims to spend as little as possible transporting their inventory from airports to storage facilities.”

Raizada explained that his warehouses provide retailers a solution to this dilemma.

“Being ten miles or less from the airports, companies can quickly and cheaply move inventory from the tarmac to the facility—allowing them to lower shipping costs and supply marque markets with goods and services delivered in less than a day.”

This approach, Raizada said, helped Spectrum Business Ventures gain traction in the online shipping industry without having to put up a challenge to the Amazon juggernaut.

“The old adage - ‘when you can’t beat them, join them’—is often a great way to think about investing,” Raizada said. “I urge aspiring investors to think about how they can apply this model to the rapidly changing post-COVID economy.”

As speculation mounts that traditional brick and mortar establishments, like shopping malls, could ecome a relic of the past, opportunity exists to employ Raizada’s strategy to back key service providers in the new economy.

“Here’s an idea,” Raizada said. “People aren’t flying anymore, and airports—significant plots of land in most cities—are sitting empty. As the brick and mortar economy increasingly moves to outdoor spaces, how can you take advantage of this confluence of new realities?”

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