The Gartner Hype Cycle & Trough of Disillusionment for Investing: WHY I Hate Hype

Hopefully anyone in technology knows about the famous (or infamous) Gartner Hype Cycle.

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Silicon Valley is driven by Envy, hype and bandwagon jumping. FOMO (Fear of Missing Out) is the name of the game. Yes, it’s a stupid game but its still a game. And a very profitable one but only those who have access and are established can effectively play this game. In Banking it is Goldman Sachs, in Venture Capital it is Sequoia, Founders Fund, Accel or one of the multitudes of top tier branded VC funds. What we call Kingmakers, who have the clout, money and brand to set trends or if they are late, to push (or attract) the best clients/founders/companies to them.

For everyone else, basically us normal investors, we have to figure out another edge. Thinking of trends, there are two major inflection points of entry where the money is made. Being super early, like at being in Crypto in 2011 at the “Technology Trigger” point. This is usually discovered by investor folks who are fanatical about the space and on the ground.

But the bigger opportunity and much easier play was shown to me by David Weekly, a prolific operator and entrepreneur and underrated angel investor. It’s actually looking at trends one or two years after its peak and when all the dilettante founders have quit. Also when almost every other investor has left the sector. This is when the real hard core fanatics are still building. And more importantly, also when the technology and market has slowly caught up to the hype from the peak. I have personally seen this through countless trends that have shown up in Silicon Valley: Cleantech, AR/VR, Chatbots, Food delivery, Crypto pop up top of mind in recent years.

This is why I tend to run far away when an investment is seen as “safe.” When investors are flocking in with dozens (or more) of directly competitive ventures being funded. With MBA type “Get rich quick” founders jumping into the gold rush and the media is gushing. I admit timing is hard to do whether in public equity investing or startups. And especially in early stage startup investing, where the additional factor of the team & founder being really critical.

But having the filter of where the trend is, is important and helpful. Technology innovation always leads consumer/customer adoption by years. The UX/UI usually sucks and people have highly ingrained habits and a very hard time changing. No surprise that tweens and young adults are usually the first ones to adopt new technologies, not older people like me. Or why startups are the first to use new technology or marketing channels, not the big enterprises in the Fortune 500.

Timing really does matter and that is why when something is so hyped up (or overhyped), as an early stage investor, you need to run the other way. The really interesting point to evaluate a trend (and you really need to do your homework here) is when almost everyone else has given up or written off the sector as a whole.

Listen to this Newsletter: https://listencat.com/the-hard-fork-by-marvin-liao-podcast/

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