There is an inconvenient truth in early-stage venture: Hyped sectors consistently lead to meager outcomes. Outsized returns on the other hand happen w

Hype: The Enemy of Early Stage Returns - by Ramy Adeeb

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2023-05-23 06:00:14

There is an inconvenient truth in early-stage venture: Hyped sectors consistently lead to meager outcomes. Outsized returns on the other hand happen where you least expect them.

When Google was raising its seed round in 1999, the prevailing wisdom was that "search is dead" since none of the players could monetize. So uncertain were Google's founders about monetization that they offered to sell the company to Excite@Home for $750K--but the latter backed away. (The hottest technology meanwhile was bringing the internet to the phone using voice recognition with Tellme, my alma mater, raising a whopping $250M in VC capital. The company exited to Microsoft years later for $800M, a tiny fraction to Google’s IPO)

When Facebook was founded in 2004, the hottest trends were smart fridges and RFID, all of which went haywire. Meanwhile investors were running away from social networks following the blunders of Friendster.

When Uber and Airbnb raised their seed rounds in 2009, the hottest trends were Social (buoyed by Facebook’s success) and cleantech, a sector that arguably caused the demise of Kleiner Perkins v1. No one believed the "sharing economy" would actually work. In fact, that term didn't gain mainstream adoption until three years later. Investors then dumped money into other sharing economy opportunities, most notably electric scooters, where everyone lost their shirt.

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