VCs: Leading, Trailing, or Oblivious Indicators?

Are venture capitalists leading, trailing, or oblivious indicators when it comes to technology trends? I got to mulling this question this morning when scanning a new Goldman Sachs report on trends in venture investing.

In particular, the report looked at how the area in which VCs say they are investing have changed in recent years. Fair enough, they have changed, but it’s an open question, at least to me, how much we should read into it. Lots of VCs abandoned PCs before Dell popped up; lots of VCs missed the early Web, and then piled in as it collapsed. And other cut search investing just as Google emerged.

With that in mind, how much should we read into the following figure in terms of its predictive power? Not much, me-thinks.



  1. Looks like a lagging indicator to me. I could duplicate that chart by crossing off “VC Investments” and substituting “trailing 3 year sector stock market returns.”
    Which is (of course) insane for what ought to be a forward looking investment sector. I don’t mind mutual fund managers or pension funds chasing what has been doing well. There is a logic to momentum investing in the short term – what did well last month IS likely to do well next month.
    But that relationship just doesn’t exist in VC. A sector that has already had 36 great months behind it is a LOUSY candidate for a VC who is looking for an exit 3-5 years from now.