Fred writes about the herd instinct prevalent among the VC community.
One of things that always amazes me about investors is the way we move in herds. Developing markets are in, everyone invests in developing markets. Dubai blows up, everyone moves out of developing markets. Real-time is hot. Everyone invests in real-time.
I think there are two approaches that work in the venture business. One is the contrarian approach. When everyone wants to be a consumer web investor, do software as a service/enterprise. Go where the money isn’t.
Or you can just be earlier than everyone and anticipate where the herd is going to be next. That is really hard, maybe too hard to do well over a sustained period of time.
But I do believe that both of those approaches will get you top tier returns if you execute them well.
Following the herd, however, is not a recipe for good investment performance. And yet so many do it. That’s why they are called herds.
I think the same goes for the entrepreneurs. Contrarian approach can work well if you pick the opportuities smartly. There are large market opportunites out there that do not require a lot of money to get started and do not have flocks of startups running after. These are the blue oceans as described by Kim and Mauborgne in their seminal book Blue Ocean Strategy. They are not easy to find else people will find them but they are out there. Smart entrepreneurs will find and go after them.