A long bull market can produce a generation of venture capitalists who have never experienced a downturn. This lack of cyclical perspective leads to flawed investment heuristics, such as ignoring valuation discipline, which are then painfully corrected when the market inevitably turns.
An investor passed on a fund that paid 30-40x revenue for startups, believing quality alone justifies price. Three years later, that fund and its predecessors are underwater. This illustrates that even for great companies, undisciplined entry valuations and the assumption of multiple expansion can lead to poor returns.
DFJ Growth passed on a pre-revenue LinkedIn at a $1B valuation because they lacked a clear revenue signal. This highlights a common VC pitfall: over-indexing on current financial metrics and under-valuing powerful network effects and analogous, proven business models from other tech giants.