| It's true in the short term that social and mobile trend chasing will be detrimental to investment in other areas of tech, but markets and VC returns will correct this over the longer term. Trend chasing and herding makes it harder to invest in the winners in a space at a reasonable valuation. If VCs invest in 100 social/mobile start ups at $100 million valuation and only 10 reach $1 billion, then the VCs on aggregate are break even. Also, a VC has a 1 in 10 or 1 in 100 shot of getting that big hit because there are so many 'me toos' in the same space. If a VC invests in the next spaceship, smartwatch (Pebble), or X less competitive field, there might be only 2 companies competing for that pie. So you have a 50% chance of picking the winner. The economics are also more compelling for less crowded fields because customer acquisition costs, talent hiring costs and other costs are cheaper. They're not being driven up by the other 100 'social networking / Instagram' start ups competing for the same resources. Your market share of revenue is also higher because you are sharing it with 1 or 2 other players, instead of 100. That makes the margins better for the the less crowded areas of technology. If you started a social or mobile company in 2005-2008, your customer acquisition cost was close to zero and engineers were cheap so that made each VC dollar go very far. You also didn't have to compete against 10 other companies for mind share in your space. That's not the case on social or mobile anymore. Some smart VC firm will invest in a hardware, biotech or (insert non social / mobile) start up and make a ton of money. Then all the money will chase that area and the cycle will repeat. The VCs which invested in the 'me toos' will lose money and lose assets. |