Trends and Venture Capital Sheep-ism: Why Unsexy is Sexy

“No Conflict, No Interest” & ”Being Contrarian but Right” are the terms bandied around by Venture capitalists. But what do they really mean?

If you think about most recent tech history, most of the biggest & most popular companies now were very unpopular or had a very difficult time fundraising at seed. Uber, Carta, CreditKarma, AirBnB are the companies that stand out to me. 

It’s so easy to say it was clear these were going to be the dominant successful companies they are today. But hindsight is 20/20 as always. It was not that obvious back then. In fact, the decision to invest was widely derided by most investors and the media. 

The returns can usually be found at the Frontier & usually driven by Outsiders

Upstream is where action is, higher risk yet higher gain. VC Investing is options investing. Asymmetric bets are where returns come from. You can only lose the amount you invest in but the upside is literally multiple times higher than the base amount you put in. 

Or to be safe, just do what everyone is doing: invest in founders from Stanford. But that is where everyone is looking. Competition is for losers as Peter Thiel famously stated. 

You are probably better off looking at founders from UC Berkeley who are just as good but under-invested in. 

Consensus sucks. Consensus is usually wrong & not fact. People are naturally risk-averse and this is why the saying “No one every gets fired for buying from IBM or Mckinsey” exists.  (Both suck by the way). The Venture capital version of this is why you see so many me too investments in the same sector that are considered hot. One infamous example in my mind, there were literally hundreds of Food delivery startups funded in 2015 after Greylock & Social Capital led a series B round into Sprig. That sector overall has turned into a major bust overall. 

But to be contrarian, we are fighting against our own biological instincts that have been developed for thousands of years. We’re naturally social creatures affected by everyone around us. 

That is why there are so few truly original thinkers in the world, even more so in Venture Capital where we literally are in a bubble. This is why diversity of thinking & background is so important to break out of this bubble. This is why you need to travel, read and talk to different kinds of people. This is where ‘First Principle” thinking is critical and a good understanding of your inclinations ie. self awareness. I’ve also found studying cognitive bias like “availability,”  “confirmation,” “pessimism” or “optimism”, “halo effect or “status quo” biases can be helpful.

And most important as an investor, once you have done your homework and thinking, have the conviction and commitment to follow through. The hardest part is actually the final decision to invest regardless of what anyone else thinks.

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