The employment decisions of Harvard and Stanford MBA graduates serve as a reliable market signal. When they flock to tech startups, the market is likely overblown. When they choose traditional paths like banking and consulting, it's often the best time to make venture capital investments.
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Focusing only on trendy sectors leads to intense competition where the vast majority of startups fail. True opportunity lies in contrarian ideas that others overlook or dismiss, as these markets have fewer competitors.
Venture capitalists thrive by adopting one of two distinct personas: the "in the flow" consensus-driver focused on speed and connections, or the "out of the flow" contrarian focused on deep, isolated work. Attempting to straddle both paths leads to failure.
The most successful venture investors share two key traits: they originate investments from a first-principles or contrarian standpoint, and they possess the conviction to concentrate significant capital into their winning portfolio companies as they emerge.
In a rising market, the investors taking the most risk generate the highest returns, making them appear brilliant. However, this same aggression ensures they will be hurt the most when the market turns. This dynamic creates a powerful incentive to increase risk-taking, often just before a downturn.
Analyzing a company's human capital reveals surprising correlations for stock performance. A higher number of PhDs per dollar of market cap is linked to better future returns, while a higher concentration of MBAs acts as a negative indicator.
The same methodology used to find winning stocks—identifying change and tailwinds—should be applied to career decisions. You are investing your life's energy and should analyze the job market like an investor, not just take an available job. This is crucial for maximizing the return on your human capital.
The venture capital business requires consistent investment, not sprinting and pausing based on market conditions. A common mistake is for VCs to stop investing during downturns. For companies with 50-100x growth potential, overpaying slightly on entry price is irrelevant, as the key is capturing the outlier returns, not timing the market.
Analysis shows that the themes venture capitalists and media hype in any given year are significantly delayed. Breakout companies like OpenAI were founded years before their sector became a dominant trend, suggesting that investing in the current "hot" theme is a strategy for being late.
In today's market, 90% of VCs chase signals, while the top 10% (like Sequoia or Founders Fund) *are* the signal. Their investment creates a powerful self-reinforcing dynamic, attracting the best talent, customers, and follow-on capital to their portfolio companies.
The institutionalization of venture capital as a career path changes investor incentives. At large funds, individuals may be motivated to join hyped deals with well-known founders to advance their careers, rather than taking on the personal risk of backing a contrarian idea with higher return potential.