The tech hype-cycle works something like this: Some driver — perhaps a landmark company event such as the 2014 IPO for Lending Club in the fintech sector, or the spike in Bitcoin’s value, or indeed Facebook’s acquisition of Oculus in VR — triggers a flurry of investments in a particular “theme,” which in turn feeds news flow, panel discussions at conferences and a procession of expert “talking heads.”
This febrile atmosphere all too often results in companies that are more noise than substance and an increasingly congested marketplace, which makes it harder for distinctive startups to emerge. As the clamor continues, yet more founders start to pivot their businesses specifically to include the buzzword-of-the-moment (e.g. big data, AI or VR), seemingly no matter how tenuous the link, only to reverse pivot again afterwards when things don’t work out.
From an investor’s point of view, meanwhile, it’s a pretty good rule of thumb that by the time a tech “theme” starts to attract buzz, most of the best investments in that sector will have been made.
Granted, in and of itself, hype doesn’t necessarily mean that a particular company or new technology is good or bad. Nor is it indicative of quality or sound business fundamentals — and it probably won’t incline investors like me to prioritize them. In fact, if anything, I would have a slight negative bias against startups in supposedly “hot” sectors, if for no other reason than the sense of overinflated expectations they carry. Born entrepreneurs, of course, are far more likely to spot an opportunity that others have overlooked. Of course, the later stage at which we at Highland Europe invest means that we are inherently skeptical about tech “themes,” and see them as little more than a layer of branding. Despite our backgrounds in tech, we’re not […]
