Is there always something that's "hot"?
I'm about 30 and starting my first big boy job in VC (was briefly an analyst many moons ago but doesn't really count, didn't have my own thing going on and was just kind of following orders). I really started paying attention probably in like 2019? And at that point crypto was nuts and the markets were tearing. And before that I expect there were a lot of things that were "hot" too - like SaaS, fintech, and consumer internet. And then many moons ago networking.
And some of these "hot" things panned out, and some didn't. But my question to anyone on here who may be older than me is, is there just always something that's hot? I mean even in the last year, AI has been hot, in what was otherwise kind of a weak period. Should I just get used to the feeling of, there's capital chasing something hype-y and it's up to you to decide whether it's warranted (like fintech/SaaS/internet) or not? Have there ever been real periods where there's just no innovation going on and nothing to invest behind?
Thank you!
Based on the most helpful WSO content, there are always trends or sectors that become "hot" in the investment world. Here are some key points to consider:
Historical Trends:
Cyclical Nature:
Current Trends:
Innovation and Investment:
Periods of Low Innovation:
In summary, there is generally always something "hot" in the investment world. The ability to evaluate whether the hype is warranted is crucial for making informed investment decisions.
Sources: Distressed Investing: This Time It's Different, Are the heydays of Private Equity over?, Doing Capitalism in the Innovation Economy: A book review., A Discussion on Interest Rates/Macro Fundamentals (Long OP), Venture Capital Salary versus BB and Private Equity
Yes. VC is an industry that relies on signal but because there's a lot of dry powder at this part of the cycle you have a lot of "dumb money" that will aggressively chase surface signals without understanding the underlying technology/drivers of adoption. You're either chasing heat or you're trying to create it in the VC world. It's better to create it with a novel investment thesis but that takes a lot more work, luck, and contrarian thinking than piling on what everyone else is excited about.
There is always innovation, but it may or may not be easy to invest in due to various macro, fund related, etc. factors. e.g. Airbnb was launched in August 2008 when no one was allocating capital but those that did invest made a killing. There was no hype around marketplaces at the time but there was plenty of innovation still happening. There will be periods of time when you won't be making any investments, you'll be passing on everything. Even the best teams will find situations where they can't build conviction at market prices.
Build your investing framework around durable signals and study the history of the spaces where the hype is. If you dig into the history of AI, crypto, fintech, etc. you quickly realize that many of the underlying problems haven't been solved yet and this is just the latest use case that happens to be very visible. Once you can understand the core problems these technologies face, you can invest in companies that actually address those, and they likely won't come in the form of a chat bot or new token.
Finally, If you work with partners that have seen a few cycles spend time asking them how they think about certain companies and then layer in your fresher perspectives. This is the best way to refine your critical thinking while remaining optimistic about new technology.
Thank you. Awesome post.
Off-topic but curious about your background.
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