Paul Martino
4 min readMay 26, 2015

VICE. VIRTUE. VISION

The history of venture capital is filled with bold predictions of a future world espoused by both the visionary founder and the early investor. By contrast, when investing at the Post-Seed stage, frequently the prediction horizon is more like 12–18 months. As a result, the Post-Seed round is all about getting past that next near-term milestone.

That said, at Bullpen, on a rare occasion we attempt to predict the future. While our bread and butter is stage- and milestone-based investing, we do occasionally play in the traditional venture sandbox of “thematic investing.” And, as luck should have it, one of our most interesting yet controversial themes has been one largely ignored by the rest of the venture community.

After the Great Recession, triggered in 2008, we believed there would be a scramble by governments for taxes and sources of revenues, which in turn would lead governments to consider transforming what was once to be considered “vices” into “virtues.” Since then, the country has seen growing social acceptance and, in some cases, legalization of behaviors that were not mainstream just even a decade ago. Everything from societal attitudes toward marijuana to online gambling has been put under a microscope, and generational and attitudinal change in America has been reflected in the laws of many states.

At Bullpen Capital, we anticipated how this might unfold and therefore had the conviction to invest in this trend. In general, the conviction is the hard part of thematic investing, as an investor may literally be the only person in the world who sees this future world! From our experience with gaming pioneer Zynga, we saw a huge desire for new forms of casual, mobile, and social gaming and knew that this trend would continue. One of the interesting lessons of Zynga is that it replaced one “vice” (watching soap operas) with another one (buying virtual goods).

With this template in mind and a strong view of changing regulatory environment, we have since made investments betting that vices will become virtues over time, such new real money social gaming, horse racing, and sweepstakes. Our thesis that “vices will turn into virtues” isn't just national — it extends globally. Society has barely scratched the surface of what casual, social, and mobile gaming can be. The recession that started in 2008 wasn't just here in the United States, it was much worse in other parts of the world.

As social norms and laws shift, there’s also something about mobile technology, social networks, and the startups themselves that help remove the traditional dangers from vices. Many “vices” mentioned in this post are not bad in themselves but have risks associated with where and how they are pursued. Here, technology actually serves a way to take the “vice” out of vices and turn them into virtues, where users can even make a living from within an app. Many investment firms miss seemingly unfavorable categories like social gaming, for instance, because they are concerned about the stigma associated with these companies. Luckily for our founders and LPs, we don’t see the stigma — we see opportunity.

Yes, regulatory concerns must always be considered, but when money is the main underlying concern, we believe governments will legalize behavior, especially in recessions. We see significant white space in all sorts of data-driven e-sports, horse racing, lottery games, and sweepstakes, while there’s opportunity yet also uncertainty around cannabis and interstate liquor.

This is not, of course, to suggest all vices can and should be transformed into virtues — we believe that goes without saying, but just to be clear, we are saying it: Not everything needs to be a virtue.

We debated whether or not to publish this post. We expect some people to disagree with it, and that is OK. We are interested in starting a conversation around these issues.

The recession which triggered in 2008 has been deep and wide. Many of the old jobs Americans held aren't here anymore. This dislocation has forced our society to reexamine what we choose to focus on, what we choose to legislate. For games of skills where money is involved, the web and mobile technologies have — in our view — created new opportunities for the dislocated to earn a living. When we take a few steps back, is this really so fundamentally different than Uber or TaskRabbit creating new jobs for those who need them?

Arguments aside, the proof is in the pudding: a few of our best performing companies in both Fund I and Fund II are related to this broad theme. I think when you see one or two of them as public companies, in the near term, what was once considered vice is now a virtue, indeed.

Paul Martino

Present: Co-founder & GP at @BullpenCap, early-stage VC firm. Past: Founder of Aggregate Knowledge (sold), Tribe (sold), Computer Scientist.