The Herd Instinct
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 can understand the hot money game in highly liquid markets if you can get out before the party ends. But in illiquid markets, this kind of momentum investing hardly ever works.
And VC is among the most illiquid markets out there. I don't believe you can deliver top tier returns playing the "hot money" game in the venture business. Moving in a herd will put you in the middle of the pack at best and could put you in the bottom of the pack.
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.