The liquidity of private markets allows investors to parachute out of lemming-like behavior gone wrong.
Early stage investing is the art of figuring out paradigm changers when there is little to go on other than character, conviction and intuition. All three grow best in the fertile soil of independent thought, trial and error. There is no way around it.
Consensus is a poor pesticide intended to salve the possibility of being wrong...a career peotection device.
The ability to detect and appreciate something disruptive and the skill to manifest same is a precious asset that grows over time. Consensus, too early, is a dangerous distraction.
Absolutely right. Early stage investing used to mean supporting founders who found a new path to solve a pressing problem which others couldn't see, which is what innovation boils down to. But now we see early stage investing driven by FOMO and hype, which creates consensus which, at the core, isn't even real because it's not driven by innovative merit but merely by fear to miss out on something apparently everyone else thinks must be great.
The result is that investments no longer go to the founder who treats new ground, it goes to the founder who can create the most attention around their project, and who already has the contacts to do this.
What makes this even more problematic is that this attention and the consensus it creates has also at least partially replaced basic due diligence, and in many cases even common sense where hype and interest by others is enough to justify investments even when the basics aren't there.
For early stage founders this means the key for success is no longer to be bold and come up with something great, there is now a higher chance of success with coming up with something (anything) which is related to the current Greatest Thing Ever, and to get as much attention to their own project as possible to generate FOMO based consensus (in the age of social media, that's not an overly difficult task).
Investing based on FOMO and consensus doesn't mean everyone involved won't make any money (as long as the hype can be sustained until exit there's a good chance for a great return). But it means investment no longer serves its original purpose, which is to take risks and support innovators who might come out with something truly revolutionary.
There appears to be a belief among many emerging managers that they need to co-invest with top-tier firms to validate raising the next fund, at the risk of reducing their ability to differentiate themselves and distinguish their returns by being non-Consensus and right. This is Continuity at the Risk of Alpha. Do we blame the GPs or the LPs who encourage this behavior by jumping into the next fund because of it?
Earnest, well stated and absolutely accurate.
The liquidity of private markets allows investors to parachute out of lemming-like behavior gone wrong.
Early stage investing is the art of figuring out paradigm changers when there is little to go on other than character, conviction and intuition. All three grow best in the fertile soil of independent thought, trial and error. There is no way around it.
Consensus is a poor pesticide intended to salve the possibility of being wrong...a career peotection device.
The ability to detect and appreciate something disruptive and the skill to manifest same is a precious asset that grows over time. Consensus, too early, is a dangerous distraction.
Bravo.
Absolutely right. Early stage investing used to mean supporting founders who found a new path to solve a pressing problem which others couldn't see, which is what innovation boils down to. But now we see early stage investing driven by FOMO and hype, which creates consensus which, at the core, isn't even real because it's not driven by innovative merit but merely by fear to miss out on something apparently everyone else thinks must be great.
The result is that investments no longer go to the founder who treats new ground, it goes to the founder who can create the most attention around their project, and who already has the contacts to do this.
What makes this even more problematic is that this attention and the consensus it creates has also at least partially replaced basic due diligence, and in many cases even common sense where hype and interest by others is enough to justify investments even when the basics aren't there.
For early stage founders this means the key for success is no longer to be bold and come up with something great, there is now a higher chance of success with coming up with something (anything) which is related to the current Greatest Thing Ever, and to get as much attention to their own project as possible to generate FOMO based consensus (in the age of social media, that's not an overly difficult task).
Investing based on FOMO and consensus doesn't mean everyone involved won't make any money (as long as the hype can be sustained until exit there's a good chance for a great return). But it means investment no longer serves its original purpose, which is to take risks and support innovators who might come out with something truly revolutionary.
Great perspective - seeing this a lot in healthcare at the seed/series a stage too
There appears to be a belief among many emerging managers that they need to co-invest with top-tier firms to validate raising the next fund, at the risk of reducing their ability to differentiate themselves and distinguish their returns by being non-Consensus and right. This is Continuity at the Risk of Alpha. Do we blame the GPs or the LPs who encourage this behavior by jumping into the next fund because of it?