Everyone wants to know what areas that VC’s and angels are investing in. They usually hope to hear some profound answer, but in the end, it pretty generic stuff.
Most VC’s have themes around which they are investing. These are general sectors that they think are ripe for the picking – and where they are looking to meet companies and entrepreneurs to get smart.
Much fewer VC’s invest against theses. “The intersection of internet technologies and education” is not a thesis. A thesis includes much more – usually a more concrete set of problems or opportunities, a particular view of how the world will look in 5+ years, and a specific set of factors that need to be addressed to get there. For more on thesis vs. thematic investing, see Fred Wilson’s excellent post. For examples of the kind of refined thinking that distinguishes thesis driven investors vs. thematic ones, see the IA Ventures Blog.
What I find interesting is that themes tend to converge pretty quickly. It’s funny to hear almost every investor talking about how they are getting interested in the education space over the past 12 months. The same is tarting to happen for internet-enabled healthcare. Mobile has been a theme for so long, I wonder if it even counts.
What does this mean for entrepreneurs and investors? Some thoughts:
- The convergence of themes is a good thing if you are in this sector. It means that for whatever reason, there is enough data that investors are now awake to the opportunities. Maybe there have been some good exits, or there has been some structuring change in the market. Or there is a hot company that everyone is envious of. For whatever reason, expect that it will be easier to get the attention of investors.
- By the time themes converge, the real leaders have already been looking at the space for 12-24 months (see Fred’s post on hacking education in 2008 or see the firms that invested in companies like Altius, Knewton, or the seed investors in Inkling). Look to those firms as the really smart money, since it’s probably more informed than the followers.
- Recruiting talent is going to get easier. Folks love working in “hot” sectors. While engineers may not be that jazzed about working for an education company a year ago, they might think differently now that themes have converged.
- The flip side is that competition and noise are going to increase significantly. In some cases, there is an unbelievable flurry of activity and copycats. But this flurry can end as quickly as it started. Remember virtual worlds? Vertical ad networks? Entertainment shopping (ie: Swoopo Clones)? Some themes are built on the backs of enduring waves of innovation. Others are not.
As an investor, I’m a little torn. On one hand, you can capitalise handsomely in hot sectors. Look at social gaming and the very rapid success of Playfish and others. So even if you aren’t that early to the party, sometimes it’s the right party to be at. It’s always easier to build a business with the wind at your back.
But my personality is to avoid the crowds. I like to invest in areas that others aren’t looking at (yet). But you risk being too early, or just being completely wrong. But this is a risk business, and I think independent thought it rewarded much more than an ability to chase the latest hot thing.
This article originally appeared at RobGo.org and is republished here with permission.
NOW WATCH: Ideas videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.