Fear Gives Bad Advice
"Be fearful when others are greedy, and greedy when others are fearful.”
Everyone knows Warren Buffet’s sage advice on market timing.
While it’s not surprising that VC sentiment will wax and wane, the level of pessimism right now is remarkably high. One might expect this level of pessimism to be immediately self-correcting, but it’s not.
Why not?
My theory is that the VC & startup industry is full of career trauma. There are many who thought their career was on a rocket ship going straight up. In the wake of a brutal market reversal, many are struggling to come to terms with a new set of facts about the quality and impact of their career decisions. This is very scary.
Hence many in VC are extremely cautious right now. Even if intellectually they might realize a down market is a better time for a VC to invest than an up market.
This reminds me of a fabulous line I heard recently: “fear gives bad advice.”1
This could also apply to the many founders who raised growth rounds in the Bubble. A minority of these founders have thriving companies, but most now must confront a reality of lower growth and lower valuations. This is a scary reality. Fear will encourage founders to look away. But the fear will give bad advice.
The “fix” for fearful VCs is relatively easy - ignore the fear and go back to the fundamentals of VC investing, albeit at a reasonable pace. For founders of Bubble-Era darlings, the fix is harder. It involves making deep cuts to the org chart. On a personal level, it likely involves a return to a focus on execution - the intense focus that brought success in the first place, that was distracted by angel investing, Twittering, and other trappings of Bubble-era exuberance.2
There’s no easy way to get through career trauma, but it starts with confronting it and accepting it. Fortunately, it’s a reality that’s just as malleable as any that have come before. I’d wager that many of the VCs and founders with the most career trauma today will see their careers soar once again.3
My career trauma was easy, in a way, as I was laid off in 2010 and had no choice but face it immediately - you can’t hide from getting laid off. I decided to start a business. I was lucky that it was at the start of a bull market and that I had a great partner.
Starting a firm forced me to move forward and ruthlessly focus on just a few things. I didn’t have time for distractions, such as listening to fear. Which was a blessing, because it gives such lousy advice.
Programming Note: Next week I’ll go back to regular Saturday weekly updates.
I heard it on a podcast. Unfortunately, I can’t remember the podcast. According to a few Google searches, the line was from Yelena Bonner, a famous human rights activist.
Advice should be highly context-specific, so please take the above paragraph with a healthy dollop of salt!
In fact, I’m literally making bets on some of these founders as a VC and a LP.