
VC investment vs. Gartner hype cycle - joeyespo
http://cdixon.org/2015/01/12/vc-investment-vs-gartner-hype-cycle/
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npalli
Nice attempt by Dixon to pattern match, but I think he is substantially wrong
on his diagnosis (of some peaceful build out). My recollection of the dot-com
bubble is that desktop Internet B2B in the developed world drove the vast
majority of VC funding. Specifically, the following markets/opptys (including
a greater opportunity with the sum of parts) did not even figure out in the
discussion during the dot com time frame

1\. smartphone and mobile ecosystem (phones, apps, games etc..)

2\. Digital/Search advertising

3\. Social networking

4\. 1.5 Billion customers in China/SE Asia/South Asia

So it is definitely odd to suggest that some sort of correlation between the
dot com bubble and the VC funding now. One of the most astute commentaries on
the modern VC funding conundrum was published a couple of days back

[http://reactionwheel.net/2015/01/80s-vc.html](http://reactionwheel.net/2015/01/80s-vc.html)

It is long but well worth reading. The author makes a very good case that VC
funding today is like VC funding in the 1980’s in that

1\. Too much focus on competing in established markets (so trying to disrupt
existing rental, delivery, hotel systems etc.) instead of trying to create new
markets from scratch

2\. Trying to flip startups to established companies instead of trying to
build out a non-existent market

3\. Investment driven by fear of risk instead of looking at risk as the
ultimate source of super normal returns.

I think the correct diagnosis of the flattening of the VC investments is that
VC’s are now taken over by fear of risk and keep investing in risk-less
opportunities. As a result they keep getting lesser returns, which keeps
shrinking the money that will flow into the VC class. They are like our great-
grandparents who lost out in the 1929 crash and kept on talking about the
always-eminent bubble and never trusted the stock market again. We now had two
crashes 2000 and 2008 so who knows how long the psychological scars will take
to heal.

A lot more VC money should be flowing in so that phenomenal businesses and
markets can be created. If anything the size of the VC opportunity should
dwarf the dot.com period. One of the consultancies published a report in 2012
that the total wealth of the world was about $600 Trillion (with a T) and on
track to grow to $900 Trillion end of the decade. There is a mountain of cash
sitting, there is are a bunch of issues to resolve but there is no mechanism
to match them. Fear is a pretty destructive force.

EDIT: Another good article on the failure of creating new markets (and it is a
problem) is by Clay Christensen on the Capitalist Dilemma

[https://hbr.org/2014/06/the-capitalists-dilemma](https://hbr.org/2014/06/the-
capitalists-dilemma)

~~~
calcsam
You cite the Capitalists' Dilemma, but Christiansen's argument actually
suggests that the strategy of building companies to be bought by
Apple/Google/etc is a good one. Why? Because they have tons of $ on their
balance sheets and don't know what to do with it.

~~~
npalli
Sure, I’m not suggesting that getting Google/Amazon investment by itself is a
bad thing. The problem is if the bulk of your investment thesis revolves
around filling in niches in the Google/Apple ecosystem. The linked article
talks about how investing in proven markets doesn’t lead to great returns.

More broadly though, the universe of markets that can be created is much
larger than what Google/Amazon/Apple are interested in. Just because they have
too much money (though as I mentioned the cash pales in comparison to global
capital) doesn’t mean they will invest willy-nilly. So, the goal should be
broader not just on what already exists and of interest to these guys.

------
sgt101
in other news
[http://tylervigen.com/view_correlation?id=2948](http://tylervigen.com/view_correlation?id=2948)

