3 VCs weigh in on when to follow the hype cycle — and when to ignore it

I once interviewed a VC who said they avoided every hype cycle as a matter of principle. They told me that they’re only looking for startups with basic unit economics and social proofs because it helped them remain “honest.”

And sure, they’d missed out on [REDACTED DECACORN], but all things considered, they’d been extremely successful by any measure.

Hype cycles can spur world-changing innovations like social media and generative AI, but they also build fanfare and ballyhoo for flopped fads like VR goggles, digital scent technology and instant grocery delivery.

Investors are open to bandwagon jumpers, but they’re looking for startups with defensible moats and qualified teams that can become market leaders. So, when should founders ignore the hype, and when should they follow the crowd?

To get answers to these and other questions, I interviewed three early-stage investors at TechCrunch Disrupt 2023:

How investors select founders during hype cycles

“The chances of your success building in a very, very concentrated market is going to be a lot lower,” Holloway said. “Building something that you’re deeply passionate about, solving a problem that you’re deeply passionate about: Solving will always outweigh whatever the hype cycle is.”

She said entrepreneurs should study every trend, but founders who look like dilettantes won’t get far.

It’s OK for a founder to jump into an emerging hype cycle, but only if they have a genuine interest in that area that reaches back in time.

“For example, ‘I was trying to build something in crypto because it was this hot thing, and then all of a sudden the bottom fell out, and now I’m going to be an AI founder.’ That doesn’t really work,” Holloway said. “And for me as an investor . . . that is definitely a flag.”

Each panelist agreed that it’s OK for founders to jump into an emerging hype cycle, but only if they have a genuine interest in that area that reaches back in time.

“I’ve really, really, really leaned on expertise,” Kunst added. “If I can’t go to your LinkedIn and understand why you specifically or your team is credible to build — especially in something like AI — you’re probably not gonna get a meeting.”

Amoruso said founders pitching AI-related companies need to demonstrate “founder-product fit” to prove that they’re not just trying to catch a wave. “Everyone’s kind of bolting AI on to everything and has like a little sparkly thing in the corner that you can do stuff with, but that’s not it,” she said. “If the underlying technology is something that benefits the product . . . and the founder’s qualified, then I feel like there’s a kind of full stack there that I can feel comfortable with.”

When it comes to hype cycles, Amoruso said she’s only interested in founders who “have domain expertise, a really solid co-founder who has domain expertise, or they need to be a second-time founder who’s built something amazing and knows how to assemble a team with the level of expertise that they need to build whatever bandwagon it is that they’re building on.”

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