I just came to a realization that I should have come to long ago: The venture business is a bubble business. Performance and reputation of the top venture funds are almost entirely driven by their ability to find and profit from bubbles, whether large or small: dot-com, networking, PC hardware, drives, Web 2.0, etc.
Take away those bubbles and turn venture into a steady-state, non-cyclical business and it would be transformed from top to bottom. There would arguably be no DFJ (Internet bubble), no KP (Internet and PC bubble), no NEA (PC bubble), no Sequoia (PC and Internet bubble), no Oak (PC and Internet bubble), etc.
The upshot: Rather than apologize for or avoid bubbles, funds should embrace them. Because the best venture funds are reliably those that enter and exit bubbles early.
But it’s nearly impossible to identify a venture-ready bubble early, much less easy than it always appears in retrospect. Put differently, the best venture funds are those with a serious mad-dog component — they’ll make many small bets on early, nutty and dangerous stuff — and many of the predictably worst funds are those that try to corporatize and systematize the business.