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Before we had NFTs, the cultural image collecting the world was obsessed with was Pokemon cards. In the early 2000's, I was caught up, like most people my age, collecting them. I had probably spent over $100 (representing a whole lot of mowed lawns and washed cars) to amass a collection of over 500 cards.

One thing I hadn't seen in my career as a Pokemon collector? A holographic card. A kid at school happened to have a holographic Ninetales and was bragging to everyone. How could anyone compete with that?

The fame of this holographic card started to grow as more people heard about it. Apparently, I wasn't the only one that hadn't really seen holographic Pokemon cards before. When I looked at my cards, I realized their brilliance had dimmed in comparison. I couldn't stop thinking about that Ninetales. I had to have it.

But no one had been able to find anything to trade with this kid. Snorlax? Onix? Not one, but three Pikachu? This kid wasn't budging. Finally, I made him an offer. All 500 of my Pokemon cards for his Ninetales. That got his attention. And we made the trade.

Now, for some people this could be a story of an amazing trade that led to a very unique Pokemon card that would sell for thousands of dollars. So what is that Ninetales worth today? Adjusted for inflation? $9.

I hadn't thought about my Pokemon experience in literally decades, but as I reflected this week on the waxing and waning of hype in technology, I thought about this idea that excitement does not always translate into value. And that's what I wanted to explore today.

What's All The Fuss About?

Let's reminisce on some hype cycles.

Micro-Mobility

In 2017, companies like Lime and Bird were founded to revolutionize the world of micro-mobility. Seemingly over night, major cities were starting to see armies of electric scooters available for every day users.

Within a few years these companies had raised billions of dollars from firms like Sequoia, Index, CRV, Coatue, and a16z. Everyone had a thesis on the space; some people making it a big part of their profile as an investor where they were investing in the future of transportation.

In late 2021, amidst the SPAC boom (another trend that became some investors personalities) Bird became a public company. They'd taken a hit during COVID (no one was scootering during the pandemic) but had come back in 2021 and ended the year at $205M in revenue, up 36% from where they were before COVID.

The company had a valuation of $2.3B at IPO. Since then, the company has traded down to a market cap of $96M, 10% of the $800M+ that they raised over the last few years (though still 8x+ their $11M in gross profit). That's a 95%+ drop in one year.

Social Audio

During the pandemic everyone was trapped at home baking bread and sinking into existential pits. But then a whisper of hope appeared in the Twittersphere. Something better than gold was starting to make the rounds. An invite to Clubhouse. The latest social app was listening in on live audio sessions. And if you didn't have an invite? You were missing out on Oprah Winfrey and Ashton Kutcher chatting about who knows what! Some people were paying $125+ just to get an invite to the app.

The prospect of a new social platform was exciting; nothing new had really come on the scene since Snap was founded in 2011. And that excitement led to one of the hottest venture rounds anyone had seen in a while. VCs were tripping over each other to invest, calling in favors to celebrities (Obama himself got a call.) It all culminated in a16z leading the company's Series C at a $4B valuation in April 2021.

There were some people who saw the hype, and couldn't help but lay out the bear case. Something didn't feel right about the vision people were selling. What was the more likely realistic outcome?

Talk about calling your shots. Over the course of the rest of 2021, Clubhouse plummeted in user interest. Other than a massive spike during the summer of 2021 when they finally released an Android app, the download interest hasn’t been nearly as massive.

Source: Influencer Marketing Hub

A Massive Caveat

One of the things I always try and keep in mind is to never "rain on anyone's hustle." In other words? Don’t unnecessarily criticize people’s hard work. Building companies is really freaking hard (investing in them isn't very easy either.) So when you look at these examples, don't just see memes and sound bites. These are people working to create something out of nothing, and maybe it hasn't worked out (or just hasn’t worked out yet).

There are other hype cycles we've seen like the Green Tech Boom in the early 2000's that didn't work out, and others that feel too early to tell, like web3, and the creator economy. Some of them we’re in the midst of just this week with generative AI taking the world by storm. Some of these hype cycles will play out, and they’ll be as big as the internet, as mobile, as data infrastructure and cloud computing. Some of them will turn out like the meal kit craze of 2016 that yielded penny stocks like Blue Apron. By unpacking some of these hype cycles my intention isn't to crap on the people building in these areas, or even the investors supporting them.

But the psychology of the investors who fluctuate from one thing to the next deserves evaluation. And I'm not just talking about the VCs who ought to be a seeing a therapist in general (although there are certainly a few of those too). The investors who always seem to be adapting their personalities to "the current thing" are taking part in a ritual that is indicative of some of the things that aren't great about venture capital.

For every tourist in a category, there are true thought leaders (using that phrase not ironically.) People who have dug into a field, and are legitimately well-versed in the area. Even people who have focused on transportation and went deep on micro-mobility? Guess what? Cities still suck to traverse, and we continue to need better solutions, so I'm glad those investors are backing the founders reinventing the ways we get around.

Take Chris Dixon as a perfect example. No one can call him a crypto tourist. In a recent profile about his continued belief in the crypto ecosystem there was a story of Dixon's friend Michael Ovitz (founder of the talent agency CAA), chiding Dixon about crypto:

“I will call him consistently, and if there’s some terrible headline, I’ll joke with him, ‘How are you feeling about crypto now?’ But he hasn’t wavered once,” Ovitz said. “He doesn’t react. He just calmly says, ‘Nope, still long.’”

We're not talking about the Chris Dixon's of the world. The hype cycles are often amplified by the people who, rather than apprenticing themselves to a space, are chasing "the current thing."

The Current Thing

The idea of "the current thing" is much bigger than venture capital. It's an observation that extends across cultural moments, and what the masses seem to be focusing on at any given time. Election misinformation, gun violence, Ukraine, and more. Heavy stuff. One way that I know the latest venture "trend" is usually not in the mass media zeitgeist is because of how rarely my family members have any idea what I'm talking about.

"Do you know what DAOs are? Okay, let me start from the beginning. GameStop wasn't doing well, right? Have you spent any time on Reddit?"

Few people have more to say about this phenomenon of the current thing than Marc Andreessen. Every time I see his commentary, it makes me think more deeply about how much I've bought into a narrative vs. my own thinking. If you can observe in yourself tribalism, group-think, or blanket rejection of counter-points to your beliefs? Then you're probably bought in to the current thing.

When you apply this heuristic to venture capital, it's important to note that its pretty in-line with the job description. Aren't we, as investors, supposed to identify the current thing and invest behind it? But that's sort of my point. There is a fine line between being obsessed with investing in the CURRENT thing, and the NEXT thing.

There is a lot to be said about investors "predicting the future." (Spoiler alert: they can’t.) But I think there is a spectrum between investing in the current thing and seeing the future, and you want to be in the middle. It's about finding the early inflection points, and being ready with a prepared mind to invest in the things that can most effectively ride those inflections.

Like spotting the rise of Mariah Carey's "All I Want For Christmas" on October 30th each year.

For some people, that's just seeing trends that anyone can see. And in many cases, that's true. There are things that feel obvious to everyone (like Quibi's target market being skeptical before it even comes out.) But finding the things that most people don't believe, understanding them better than anyone so that you can believe in them, and then investing behind them? That's a magical place.

The Contrarian View

Another way of saying that is "being contrarian, and right." The name of my firm is literally Contrary, so it's something we think about a lot. If you think and do what everyone else is thinking and doing, that's a fine way to make friends but not a recipe for outsized investment returns. Finding the things about which very few people agree with you is the way to create opportunity for massive outcomes.

Peter Thiel is often the investor people think of when it comes to making contrarian bets. There’s a quote of his that always surprises me because it moves away from just "disagreeing with everyone" to focus on a more important dynamic for doing things differently:

"The most contrarian thing of all is not to oppose the crowd but to think for yourself."

Paul Graham has a great essay on this exact topic of thinking for yourself:

"There are some kinds of work that you can't do well without thinking differently from your peers. To be a successful scientist, for example, it's not enough just to be correct. Your ideas have to be both correct and novel. You can't publish papers saying things other people already know. You need to say things no one else has realized yet. The same is true for investors. It's not enough for a public market investor to predict correctly how a company will do. If a lot of other people make the same prediction, the stock price will already reflect it, and there's no room to make money. The only valuable insights are the ones most other investors don't share."

He lays out these characteristics of independent-mindedness: (1) curiosity, (2) resistance to being told what to think, and (3) fastidiousness about truth. For venture investors I think these are all fantastic characteristics to have.

The good news is, I don't think most people become VCs without having some curiosity. The number one thing that people mention about the job is variety. You see a lot of different people building a lot of different things. If you're not curious, you're going to hate the job.

The next two are much harder.

It takes a lot of confidence to want to think for yourself. Venture often requires you to not only feel the need to avoid being told what to think, but feeding off the desire to be told your thinking is wrong. Keith Rabois put it this way:

“My litmus test for am I doing the job of venture right is how many of my peers laugh at my investments.”

Finally, having this fastidiousness about truth is something every venture investor could use more of. I've written before about how our perceptions shape our reality. But the dogmatic search needs to be about constantly refining your perceptions. Understanding things better than anyone else so that you're not caught up in the hype, and hyperbole, but can instead be focused on the honest take.