Apr 17 2015

History Doesn’t Repeat Itself, But It Does Rhyme

My favorite Mark Twain post, which I share with my close friend Phil Weiser (the Dean of CU Boulder) is “History doesn’t repeat itself, but it does rhyme.”

There is a lot of rhyming going on. If you want a quick taste, go read today’s Fred Wilson’s blog post Coming Up With A Better Name For NYC’s Tech Community.

If you know me, you know that it think that it is tragic to label things Silicon Blah. New York isn’t Silicon Alley. It’s New York. And Fred has been ranting about this since at least 2008 when he made a public plea to bury the name Silicon Alley.

Surprise. In 2015 there’s apparently a new effort in New York to rekindle with force the name Silicon Alley.

Here are some rhymes I hear on an almost almost basis.

  • “There is no bubble.”
  • “Raise as much money as you can.”
  • “Things are structurally different this time.”
  • “The only place to build a tech company is in Silicon Valley.”

Whatever.

I was at HBS the other day talking to a bunch of second year students about anything they wanted to talk about (we just did 90 minutes of Q&A). I just let them take the conversation where they wanted. The questions were great, but some of what they were hearing about venture capital was scary as shit. A handful of them had jobs in venture capital firms and we talked about how to be effective as a freshly minted associated. They had heard insane suggestions like “The market is hot – do as many deals as you can before it all crashes.”

Um. Yeah. What? Are you fucking kidding me? It’s not about doing the deals. If you do a bunch of shitty momentum deals as fast as you can, you are simply emulating what most VC firms (including the one I was part of) did in 1999 when we committed an entire $600 million fund in nine months. At one point that fund was up over 2x on paper (TVPI for those of you that like names for the different VC metrics.) 15 years later the financial performance (DPI) of that fund is a disaster. We didn’t get lucky and have one company that bailed us out. Too bad for us.

I told them it’s not about getting into the deals. It’s about building real value and then over time monetizing your investments. Having a strategy, being deliberate, and executing that strategy over a long period of time.

But suddenly so much of the focus is about getting into the deals. Venture Investing Just Had Its Biggest Q1 in 15 Years, Says PwC Report. $13.4 billion in Q1 in 1020 deals. Some other statements, all obvious stuff based on what everyone is seeing on a daily basis. But the headlines, and the focus, is all about input. Now, I haven’t read the PWC Report so they might have a deep analysis on the exit math, and then input / output dynamics that justify $13.4 billion in Q1 as a reasonable number. Or a segmentation analysis that shows that $7 billion of it is actually a substitution effect for what would have otherwise been public money going into IPOs, so really it’s only $6.4 billion going into venture capital.

History doesn’t repeat itself, but it does rhyme.

Now, don’t misinterpret what I’m suggesting. The easy sound bite “Feld thinks there is a bubble.” But that’s not even close to what I am saying. I have absolutely no idea whether there is a bubble. I have no idea where we are in the current part of the cycle. I have no idea what the dynamics of the cycle are.

But it’s easy to see the rhymes. And they are super helpful in understanding, and reinforcing, the best way to execute an effective strategy. But only if you are looking for them, thinking critically, and acting accordingly.

Don’t be the scorpion in the famous scorpion / frog parable. And always remember that history doesn’t repeat itself, but it does rhyme.